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92_SB2252
LRB9215792SMdv
1 AN ACT concerning taxes.
2 Be it enacted by the People of the State of Illinois,
3 represented in the General Assembly:
4 Section 5. The Illinois Income Tax Act is amended by
5 changing Section 304 as follows:
6 (35 ILCS 5/304) (from Ch. 120, par. 3-304)
7 Sec. 304. Business income of persons other than residents
8 of Illinois.
9 (a) In general. The business income of a person other
10 than a resident shall be allocated to this State if such
11 person's business income is derived solely from this State.
12 If a person other than a resident derives business income
13 from this State and one or more other states, then, for tax
14 years ending on or before December 30, 1998, and except as
15 otherwise provided by this Section, such person's business
16 income shall be apportioned to this State by multiplying the
17 income by a fraction, the numerator of which is the sum of
18 the property factor (if any), the payroll factor (if any) and
19 200% of the sales factor (if any), and the denominator of
20 which is 4 reduced by the number of factors other than the
21 sales factor which have a denominator of zero and by an
22 additional 2 if the sales factor has a denominator of zero.
23 For tax years ending on or after December 31, 1998, and
24 except as otherwise provided by this Section, persons other
25 than residents who derive business income from this State and
26 one or more other states shall compute their apportionment
27 factor by weighting their property, payroll, and sales
28 factors as provided in subsection (h) of this Section.
29 (1) Property factor.
30 (A) The property factor is a fraction, the
31 numerator of which is the average value of the person's
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1 real and tangible personal property owned or rented and
2 used in the trade or business in this State during the
3 taxable year and the denominator of which is the average
4 value of all the person's real and tangible personal
5 property owned or rented and used in the trade or
6 business during the taxable year.
7 (B) Property owned by the person is valued at its
8 original cost. Property rented by the person is valued at
9 8 times the net annual rental rate. Net annual rental
10 rate is the annual rental rate paid by the person less
11 any annual rental rate received by the person from
12 sub-rentals.
13 (C) The average value of property shall be
14 determined by averaging the values at the beginning and
15 ending of the taxable year but the Director may require
16 the averaging of monthly values during the taxable year
17 if reasonably required to reflect properly the average
18 value of the person's property.
19 (2) Payroll factor.
20 (A) The payroll factor is a fraction, the numerator
21 of which is the total amount paid in this State during
22 the taxable year by the person for compensation, and the
23 denominator of which is the total compensation paid
24 everywhere during the taxable year.
25 (B) Compensation is paid in this State if:
26 (i) The individual's service is performed
27 entirely within this State;
28 (ii) The individual's service is performed
29 both within and without this State, but the service
30 performed without this State is incidental to the
31 individual's service performed within this State; or
32 (iii) Some of the service is performed within
33 this State and either the base of operations, or if
34 there is no base of operations, the place from which
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1 the service is directed or controlled is within this
2 State, or the base of operations or the place from
3 which the service is directed or controlled is not
4 in any state in which some part of the service is
5 performed, but the individual's residence is in this
6 State.
7 Beginning with taxable years ending on or after
8 December 31, 1992, for residents of states that impose a
9 comparable tax liability on residents of this State, for
10 purposes of item (i) of this paragraph (B), in the case
11 of persons who perform personal services under personal
12 service contracts for sports performances, services by
13 that person at a sporting event taking place in Illinois
14 shall be deemed to be a performance entirely within this
15 State.
16 (3) Sales factor.
17 (A) The sales factor is a fraction, the numerator
18 of which is the total sales of the person in this State
19 during the taxable year, and the denominator of which is
20 the total sales of the person everywhere during the
21 taxable year.
22 (B) Sales of tangible personal property are in this
23 State if:
24 (i) The property is delivered or shipped to a
25 purchaser, other than the United States government,
26 within this State regardless of the f. o. b. point
27 or other conditions of the sale; or
28 (ii) The property is shipped from an office,
29 store, warehouse, factory or other place of storage
30 in this State and either the purchaser is the United
31 States government or the person is not taxable in
32 the state of the purchaser; provided, however, that
33 premises owned or leased by a person who has
34 independently contracted with the seller for the
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1 printing of newspapers, periodicals or books shall
2 not be deemed to be an office, store, warehouse,
3 factory or other place of storage for purposes of
4 this Section. Sales of tangible personal property
5 are not in this State if the seller and purchaser
6 would be members of the same unitary business group
7 but for the fact that either the seller or purchaser
8 is a person with 80% or more of total business
9 activity outside of the United States and the
10 property is purchased for resale.
11 (B-1) Patents, copyrights, trademarks, and similar
12 items of intangible personal property.
13 (i) Gross receipts from the licensing, sale,
14 or other disposition of a patent, copyright,
15 trademark, or similar item of intangible personal
16 property are in this State to the extent the item is
17 utilized in this State during the year the gross
18 receipts are included in gross income.
19 (ii) Place of utilization.
20 (I) A patent is utilized in a state to
21 the extent that it is employed in production,
22 fabrication, manufacturing, or other processing
23 in the state or to the extent that a patented
24 product is produced in the state. If a patent
25 is utilized in more than one state, the extent
26 to which it is utilized in any one state shall
27 be a fraction equal to the gross receipts of
28 the licensee or purchaser from sales or leases
29 of items produced, fabricated, manufactured, or
30 processed within that state using the patent
31 and of patented items produced within that
32 state, divided by the total of such gross
33 receipts for all states in which the patent is
34 utilized.
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1 (II) A copyright is utilized in a state
2 to the extent that printing or other
3 publication originates in the state. If a
4 copyright is utilized in more than one state,
5 the extent to which it is utilized in any one
6 state shall be a fraction equal to the gross
7 receipts from sales or licenses of materials
8 printed or published in that state divided by
9 the total of such gross receipts for all states
10 in which the copyright is utilized.
11 (III) Trademarks and other items of
12 intangible personal property governed by this
13 paragraph (B-1) are utilized in the state in
14 which the commercial domicile of the licensee
15 or purchaser is located.
16 (iii) If the state of utilization of an item
17 of property governed by this paragraph (B-1) cannot
18 be determined from the taxpayer's books and records
19 or from the books and records of any person related
20 to the taxpayer within the meaning of Section 267(b)
21 of the Internal Revenue Code, 26 U.S.C. 267, the
22 gross receipts attributable to that item shall be
23 excluded from both the numerator and the denominator
24 of the sales factor.
25 (B-2) Gross receipts from the license, sale, or
26 other disposition of patents, copyrights, trademarks, and
27 similar items of intangible personal property may be
28 included in the numerator or denominator of the sales
29 factor only if gross receipts from licenses, sales, or
30 other disposition of such items comprise more than 50% of
31 the taxpayer's total gross receipts included in gross
32 income during the tax year and during each of the 2
33 immediately preceding tax years; provided that, when a
34 taxpayer is a member of a unitary business group, such
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1 determination shall be made on the basis of the gross
2 receipts of the entire unitary business group.
3 (C) Sales, other than sales governed by paragraphs
4 (B) and (B-1), are in this State if:
5 (i) The income-producing activity is performed
6 in this State; or
7 (ii) The income-producing activity is
8 performed both within and without this State and a
9 greater proportion of the income-producing activity
10 is performed within this State than without this
11 State, based on performance costs.
12 (D) For taxable years ending on or after December
13 31, 1995, the following items of income shall not be
14 included in the numerator or denominator of the sales
15 factor: dividends; amounts included under Section 78 of
16 the Internal Revenue Code; and Subpart F income as
17 defined in Section 952 of the Internal Revenue Code. No
18 inference shall be drawn from the enactment of this
19 paragraph (D) in construing this Section for taxable
20 years ending before December 31, 1995.
21 (E) Paragraphs (B-1) and (B-2) shall apply to tax
22 years ending on or after December 31, 1999, provided that
23 a taxpayer may elect to apply the provisions of these
24 paragraphs to prior tax years. Such election shall be
25 made in the form and manner prescribed by the Department,
26 shall be irrevocable, and shall apply to all tax years;
27 provided that, if a taxpayer's Illinois income tax
28 liability for any tax year, as assessed under Section 903
29 prior to January 1, 1999, was computed in a manner
30 contrary to the provisions of paragraphs (B-1) or (B-2),
31 no refund shall be payable to the taxpayer for that tax
32 year to the extent such refund is the result of applying
33 the provisions of paragraph (B-1) or (B-2) retroactively.
34 In the case of a unitary business group, such election
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1 shall apply to all members of such group for every tax
2 year such group is in existence, but shall not apply to
3 any taxpayer for any period during which that taxpayer is
4 not a member of such group.
5 (b) Insurance companies.
6 (1) In general. Except as otherwise provided by
7 paragraph (2), business income of an insurance company
8 for a taxable year shall be apportioned to this State by
9 multiplying such income by a fraction, the numerator of
10 which is the direct premiums written for insurance upon
11 property or risk in this State, and the denominator of
12 which is the direct premiums written for insurance upon
13 property or risk everywhere. For purposes of this
14 subsection, the term "direct premiums written" means the
15 total amount of direct premiums written, assessments and
16 annuity considerations as reported for the taxable year
17 on the annual statement filed by the company with the
18 Illinois Director of Insurance in the form approved by
19 the National Convention of Insurance Commissioners or
20 such other form as may be prescribed in lieu thereof.
21 (2) Reinsurance. If the principal source of
22 premiums written by an insurance company consists of
23 premiums for reinsurance accepted by it, the business
24 income of such company shall be apportioned to this State
25 by multiplying such income by a fraction, the numerator
26 of which is the sum of (i) direct premiums written for
27 insurance upon property or risk in this State, plus (ii)
28 premiums written for reinsurance accepted in respect of
29 property or risk in this State, and the denominator of
30 which is the sum of (iii) direct premiums written for
31 insurance upon property or risk everywhere, plus (iv)
32 premiums written for reinsurance accepted in respect of
33 property or risk everywhere. For purposes of this
34 paragraph, premiums written for reinsurance accepted in
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1 respect of property or risk in this State, whether or not
2 otherwise determinable, may, at the election of the
3 company, be determined on the basis of the proportion
4 which premiums written for reinsurance accepted from
5 companies commercially domiciled in Illinois bears to
6 premiums written for reinsurance accepted from all
7 sources, or, alternatively, in the proportion which the
8 sum of the direct premiums written for insurance upon
9 property or risk in this State by each ceding company
10 from which reinsurance is accepted bears to the sum of
11 the total direct premiums written by each such ceding
12 company for the taxable year.
13 (c) Financial organizations.
14 (1) In general. Business income of a financial
15 organization shall be apportioned to this State by
16 multiplying such income by a fraction, the numerator of
17 which is its business income from sources within this
18 State, and the denominator of which is its business
19 income from all sources. For the purposes of this
20 subsection, the business income of a financial
21 organization from sources within this State is the sum of
22 the amounts referred to in subparagraphs (A) through (E)
23 following, but excluding the adjusted income of an
24 international banking facility as determined in paragraph
25 (2):
26 (A) Fees, commissions or other compensation
27 for financial services rendered within this State;
28 (B) Gross profits from trading in stocks,
29 bonds or other securities managed within this State;
30 (C) Dividends, and interest from Illinois
31 customers, which are received within this State;
32 (D) Interest charged to customers at places of
33 business maintained within this State for carrying
34 debit balances of margin accounts, without deduction
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1 of any costs incurred in carrying such accounts; and
2 (E) Any other gross income resulting from the
3 operation as a financial organization within this
4 State. In computing the amounts referred to in
5 paragraphs (A) through (E) of this subsection, any
6 amount received by a member of an affiliated group
7 (determined under Section 1504(a) of the Internal
8 Revenue Code but without reference to whether any
9 such corporation is an "includible corporation"
10 under Section 1504(b) of the Internal Revenue Code)
11 from another member of such group shall be included
12 only to the extent such amount exceeds expenses of
13 the recipient directly related thereto.
14 (2) International Banking Facility.
15 (A) Adjusted Income. The adjusted income of
16 an international banking facility is its income
17 reduced by the amount of the floor amount.
18 (B) Floor Amount. The floor amount shall be
19 the amount, if any, determined by multiplying the
20 income of the international banking facility by a
21 fraction, not greater than one, which is determined
22 as follows:
23 (i) The numerator shall be:
24 The average aggregate, determined on a
25 quarterly basis, of the financial
26 organization's loans to banks in foreign
27 countries, to foreign domiciled borrowers
28 (except where secured primarily by real estate)
29 and to foreign governments and other foreign
30 official institutions, as reported for its
31 branches, agencies and offices within the state
32 on its "Consolidated Report of Condition",
33 Schedule A, Lines 2.c., 5.b., and 7.a., which
34 was filed with the Federal Deposit Insurance
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1 Corporation and other regulatory authorities,
2 for the year 1980, minus
3 The average aggregate, determined on a
4 quarterly basis, of such loans (other than
5 loans of an international banking facility), as
6 reported by the financial institution for its
7 branches, agencies and offices within the
8 state, on the corresponding Schedule and lines
9 of the Consolidated Report of Condition for the
10 current taxable year, provided, however, that
11 in no case shall the amount determined in this
12 clause (the subtrahend) exceed the amount
13 determined in the preceding clause (the
14 minuend); and
15 (ii) the denominator shall be the average
16 aggregate, determined on a quarterly basis, of
17 the international banking facility's loans to
18 banks in foreign countries, to foreign
19 domiciled borrowers (except where secured
20 primarily by real estate) and to foreign
21 governments and other foreign official
22 institutions, which were recorded in its
23 financial accounts for the current taxable
24 year.
25 (C) Change to Consolidated Report of Condition
26 and in Qualification. In the event the Consolidated
27 Report of Condition which is filed with the Federal
28 Deposit Insurance Corporation and other regulatory
29 authorities is altered so that the information
30 required for determining the floor amount is not
31 found on Schedule A, lines 2.c., 5.b. and 7.a., the
32 financial institution shall notify the Department
33 and the Department may, by regulations or otherwise,
34 prescribe or authorize the use of an alternative
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1 source for such information. The financial
2 institution shall also notify the Department should
3 its international banking facility fail to qualify
4 as such, in whole or in part, or should there be any
5 amendment or change to the Consolidated Report of
6 Condition, as originally filed, to the extent such
7 amendment or change alters the information used in
8 determining the floor amount.
9 (d) Transportation services. Business income derived
10 from furnishing transportation services shall be apportioned
11 to this State in accordance with paragraphs (1) and (2):
12 (1) Such business income (other than that derived
13 from transportation by pipeline) shall be apportioned to
14 this State by multiplying such income by a fraction, the
15 numerator of which is the revenue miles of the person in
16 this State, and the denominator of which is the revenue
17 miles of the person everywhere. For purposes of this
18 paragraph, a revenue mile is the transportation of 1
19 passenger or 1 net ton of freight the distance of 1 mile
20 for a consideration. Where a person is engaged in the
21 transportation of both passengers and freight, the
22 fraction above referred to shall be determined by means
23 of an average of the passenger revenue mile fraction and
24 the freight revenue mile fraction, weighted to reflect
25 the person's
26 (A) relative railway operating income from
27 total passenger and total freight service, as
28 reported to the Interstate Commerce Commission, in
29 the case of transportation by railroad, and
30 (B) relative gross receipts from passenger and
31 freight transportation, in case of transportation
32 other than by railroad.
33 (2) Such business income derived from
34 transportation by pipeline shall be apportioned to this
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1 State by multiplying such income by a fraction, the
2 numerator of which is the revenue miles of the person in
3 this State, and the denominator of which is the revenue
4 miles of the person everywhere. For the purposes of this
5 paragraph, a revenue mile is the transportation by
6 pipeline of 1 barrel of oil, 1,000 cubic feet of gas, or
7 of any specified quantity of any other substance, the
8 distance of 1 mile for a consideration.
9 (e) Combined apportionment. Where 2 or more persons are
10 engaged in a unitary business as described in subsection
11 (a)(27) of Section 1501, a part of which is conducted in this
12 State by one or more members of the group, the business
13 income attributable to this State by any such member or
14 members shall be apportioned by means of the combined
15 apportionment method.
16 (f) Alternative allocation. If the allocation and
17 apportionment provisions of subsections (a) through (e) and
18 of subsection (h) do not fairly represent the extent of a
19 person's business activity in this State, the person may
20 petition for, or the Director may require, in respect of all
21 or any part of the person's business activity, if reasonable:
22 (1) Separate accounting;
23 (2) The exclusion of any one or more factors;
24 (3) The inclusion of one or more additional factors
25 which will fairly represent the person's business
26 activities in this State; or
27 (4) The employment of any other method to
28 effectuate an equitable allocation and apportionment of
29 the person's business income.
30 (g) Cross reference. For allocation of business income
31 by residents, see Section 301(a).
32 (h) For tax years ending on or after December 31, 1998,
33 the apportionment factor of persons who apportion their
34 business income to this State under subsection (a) shall be
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1 equal to:
2 (1) for tax years ending on or after December 31,
3 1998 and before December 31, 1999, 16 2/3% of the
4 property factor plus 16 2/3% of the payroll factor plus
5 66 2/3% of the sales factor;
6 (2) for tax years ending on or after December 31,
7 1999 and before December 31, 2000, 8 1/3% of the property
8 factor plus 8 1/3% of the payroll factor plus 83 1/3% of
9 the sales factor;
10 (3) for tax years ending on or after December 31,
11 2000, the sales factor.
12 If, in any tax year ending on or after December 31, 1998 and
13 before December 31, 2000, the denominator of the payroll,
14 property, or sales factor is zero, the apportionment factor
15 computed in paragraph (1) or (2) of this subsection for that
16 year shall be divided by an amount equal to 100% minus the
17 percentage weight given to each factor whose denominator is
18 equal to zero.
19 (Source: P.A. 90-562, eff. 12-16-97; 90-613, eff. 7-9-98;
20 91-541, eff. 8-13-99.)