Illinois General Assembly - Full Text of HB3588
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Full Text of HB3588  102nd General Assembly

HB3588 102ND GENERAL ASSEMBLY

  
  

 


 
102ND GENERAL ASSEMBLY
State of Illinois
2021 and 2022
HB3588

 

Introduced 2/22/2021, by Rep. Jonathan Carroll

 

SYNOPSIS AS INTRODUCED:
 
35 ILCS 5/1501  from Ch. 120, par. 15-1501

    Amends the Illinois Income Tax Act. Makes changes to the definition of investment partnership to provide that a dealer in qualifying investment securities may be considered an investment partnership. Allows a partnership interest to be considered a qualified security if the interest qualifies as a security within the meaning of Section 2(a)(1) of the federal Securities Act of 1933. In provisions requiring that no less than 90% of the investment partnership's gross income shall consist of interest, dividends, and gains from the sale or exchange of qualifying investment securities, provides that that includes the distributive share of partnership income from lower-tier partnership interests and does not include income from partnerships that are operating at a federal taxable loss. Effective immediately.


LRB102 10350 HLH 21806 b

FISCAL NOTE ACT MAY APPLY

 

 

A BILL FOR

 

HB3588LRB102 10350 HLH 21806 b

1    AN ACT concerning revenue.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Illinois Income Tax Act is amended by
5changing Section 1501 as follows:
 
6    (35 ILCS 5/1501)  (from Ch. 120, par. 15-1501)
7    Sec. 1501. Definitions.
8    (a) In general. When used in this Act, where not otherwise
9distinctly expressed or manifestly incompatible with the
10intent thereof:
11        (1) Business income. The term "business income" means
12    all income that may be treated as apportionable business
13    income under the Constitution of the United States.
14    Business income is net of the deductions allocable
15    thereto. Such term does not include compensation or the
16    deductions allocable thereto. For each taxable year
17    beginning on or after January 1, 2003, a taxpayer may
18    elect to treat all income other than compensation as
19    business income. This election shall be made in accordance
20    with rules adopted by the Department and, once made, shall
21    be irrevocable.
22        (1.5) Captive real estate investment trust:
23            (A) The term "captive real estate investment

 

 

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1        trust" means a corporation, trust, or association:
2                (i) that is considered a real estate
3            investment trust for the taxable year under
4            Section 856 of the Internal Revenue Code;
5                (ii) the certificates of beneficial interest
6            or shares of which are not regularly traded on an
7            established securities market; and
8                (iii) of which more than 50% of the voting
9            power or value of the beneficial interest or
10            shares, at any time during the last half of the
11            taxable year, is owned or controlled, directly,
12            indirectly, or constructively, by a single
13            corporation.
14            (B) The term "captive real estate investment
15        trust" does not include:
16                (i) a real estate investment trust of which
17            more than 50% of the voting power or value of the
18            beneficial interest or shares is owned or
19            controlled, directly, indirectly, or
20            constructively, by:
21                    (a) a real estate investment trust, other
22                than a captive real estate investment trust;
23                    (b) a person who is exempt from taxation
24                under Section 501 of the Internal Revenue
25                Code, and who is not required to treat income
26                received from the real estate investment trust

 

 

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1                as unrelated business taxable income under
2                Section 512 of the Internal Revenue Code;
3                    (c) a listed Australian property trust, if
4                no more than 50% of the voting power or value
5                of the beneficial interest or shares of that
6                trust, at any time during the last half of the
7                taxable year, is owned or controlled, directly
8                or indirectly, by a single person;
9                    (d) an entity organized as a trust,
10                provided a listed Australian property trust
11                described in subparagraph (c) owns or
12                controls, directly or indirectly, or
13                constructively, 75% or more of the voting
14                power or value of the beneficial interests or
15                shares of such entity; or
16                    (e) an entity that is organized outside of
17                the laws of the United States and that
18                satisfies all of the following criteria:
19                        (1) at least 75% of the entity's total
20                    asset value at the close of its taxable
21                    year is represented by real estate assets
22                    (as defined in Section 856(c)(5)(B) of the
23                    Internal Revenue Code, thereby including
24                    shares or certificates of beneficial
25                    interest in any real estate investment
26                    trust), cash and cash equivalents, and

 

 

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1                    U.S. Government securities;
2                        (2) the entity is not subject to tax
3                    on amounts that are distributed to its
4                    beneficial owners or is exempt from
5                    entity-level taxation;
6                        (3) the entity distributes at least
7                    85% of its taxable income (as computed in
8                    the jurisdiction in which it is organized)
9                    to the holders of its shares or
10                    certificates of beneficial interest on an
11                    annual basis;
12                        (4) either (i) the shares or
13                    beneficial interests of the entity are
14                    regularly traded on an established
15                    securities market or (ii) not more than
16                    10% of the voting power or value in the
17                    entity is held, directly, indirectly, or
18                    constructively, by a single entity or
19                    individual; and
20                        (5) the entity is organized in a
21                    country that has entered into a tax treaty
22                    with the United States; or
23                (ii) during its first taxable year for which
24            it elects to be treated as a real estate
25            investment trust under Section 856(c)(1) of the
26            Internal Revenue Code, a real estate investment

 

 

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1            trust the certificates of beneficial interest or
2            shares of which are not regularly traded on an
3            established securities market, but only if the
4            certificates of beneficial interest or shares of
5            the real estate investment trust are regularly
6            traded on an established securities market prior
7            to the earlier of the due date (including
8            extensions) for filing its return under this Act
9            for that first taxable year or the date it
10            actually files that return.
11            (C) For the purposes of this subsection (1.5), the
12        constructive ownership rules prescribed under Section
13        318(a) of the Internal Revenue Code, as modified by
14        Section 856(d)(5) of the Internal Revenue Code, apply
15        in determining the ownership of stock, assets, or net
16        profits of any person.
17            (D) For the purposes of this item (1.5), for
18        taxable years ending on or after August 16, 2007, the
19        voting power or value of the beneficial interest or
20        shares of a real estate investment trust does not
21        include any voting power or value of beneficial
22        interest or shares in a real estate investment trust
23        held directly or indirectly in a segregated asset
24        account by a life insurance company (as described in
25        Section 817 of the Internal Revenue Code) to the
26        extent such voting power or value is for the benefit of

 

 

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1        entities or persons who are either immune from
2        taxation or exempt from taxation under subtitle A of
3        the Internal Revenue Code.
4        (2) Commercial domicile. The term "commercial
5    domicile" means the principal place from which the trade
6    or business of the taxpayer is directed or managed.
7        (3) Compensation. The term "compensation" means wages,
8    salaries, commissions and any other form of remuneration
9    paid to employees for personal services.
10        (4) Corporation. The term "corporation" includes
11    associations, joint-stock companies, insurance companies
12    and cooperatives. Any entity, including a limited
13    liability company formed under the Illinois Limited
14    Liability Company Act, shall be treated as a corporation
15    if it is so classified for federal income tax purposes.
16        (5) Department. The term "Department" means the
17    Department of Revenue of this State.
18        (6) Director. The term "Director" means the Director
19    of Revenue of this State.
20        (7) Fiduciary. The term "fiduciary" means a guardian,
21    trustee, executor, administrator, receiver, or any person
22    acting in any fiduciary capacity for any person.
23        (8) Financial organization.
24            (A) The term "financial organization" means any
25        bank, bank holding company, trust company, savings
26        bank, industrial bank, land bank, safe deposit

 

 

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1        company, private banker, savings and loan association,
2        building and loan association, credit union, currency
3        exchange, cooperative bank, small loan company, sales
4        finance company, investment company, or any person
5        which is owned by a bank or bank holding company. For
6        the purpose of this Section a "person" will include
7        only those persons which a bank holding company may
8        acquire and hold an interest in, directly or
9        indirectly, under the provisions of the Bank Holding
10        Company Act of 1956 (12 U.S.C. 1841, et seq.), except
11        where interests in any person must be disposed of
12        within certain required time limits under the Bank
13        Holding Company Act of 1956.
14            (B) For purposes of subparagraph (A) of this
15        paragraph, the term "bank" includes (i) any entity
16        that is regulated by the Comptroller of the Currency
17        under the National Bank Act, or by the Federal Reserve
18        Board, or by the Federal Deposit Insurance Corporation
19        and (ii) any federally or State chartered bank
20        operating as a credit card bank.
21            (C) For purposes of subparagraph (A) of this
22        paragraph, the term "sales finance company" has the
23        meaning provided in the following item (i) or (ii):
24                (i) A person primarily engaged in one or more
25            of the following businesses: the business of
26            purchasing customer receivables, the business of

 

 

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1            making loans upon the security of customer
2            receivables, the business of making loans for the
3            express purpose of funding purchases of tangible
4            personal property or services by the borrower, or
5            the business of finance leasing. For purposes of
6            this item (i), "customer receivable" means:
7                    (a) a retail installment contract or
8                retail charge agreement within the meaning of
9                the Sales Finance Agency Act, the Retail
10                Installment Sales Act, or the Motor Vehicle
11                Retail Installment Sales Act;
12                    (b) an installment, charge, credit, or
13                similar contract or agreement arising from the
14                sale of tangible personal property or services
15                in a transaction involving a deferred payment
16                price payable in one or more installments
17                subsequent to the sale; or
18                    (c) the outstanding balance of a contract
19                or agreement described in provisions (a) or
20                (b) of this item (i).
21                A customer receivable need not provide for
22            payment of interest on deferred payments. A sales
23            finance company may purchase a customer receivable
24            from, or make a loan secured by a customer
25            receivable to, the seller in the original
26            transaction or to a person who purchased the

 

 

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1            customer receivable directly or indirectly from
2            that seller.
3                (ii) A corporation meeting each of the
4            following criteria:
5                    (a) the corporation must be a member of an
6                "affiliated group" within the meaning of
7                Section 1504(a) of the Internal Revenue Code,
8                determined without regard to Section 1504(b)
9                of the Internal Revenue Code;
10                    (b) more than 50% of the gross income of
11                the corporation for the taxable year must be
12                interest income derived from qualifying loans.
13                A "qualifying loan" is a loan made to a member
14                of the corporation's affiliated group that
15                originates customer receivables (within the
16                meaning of item (i)) or to whom customer
17                receivables originated by a member of the
18                affiliated group have been transferred, to the
19                extent the average outstanding balance of
20                loans from that corporation to members of its
21                affiliated group during the taxable year do
22                not exceed the limitation amount for that
23                corporation. The "limitation amount" for a
24                corporation is the average outstanding
25                balances during the taxable year of customer
26                receivables (within the meaning of item (i))

 

 

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1                originated by all members of the affiliated
2                group. If the average outstanding balances of
3                the loans made by a corporation to members of
4                its affiliated group exceed the limitation
5                amount, the interest income of that
6                corporation from qualifying loans shall be
7                equal to its interest income from loans to
8                members of its affiliated groups times a
9                fraction equal to the limitation amount
10                divided by the average outstanding balances of
11                the loans made by that corporation to members
12                of its affiliated group;
13                    (c) the total of all shareholder's equity
14                (including, without limitation, paid-in
15                capital on common and preferred stock and
16                retained earnings) of the corporation plus the
17                total of all of its loans, advances, and other
18                obligations payable or owed to members of its
19                affiliated group may not exceed 20% of the
20                total assets of the corporation at any time
21                during the tax year; and
22                    (d) more than 50% of all interest-bearing
23                obligations of the affiliated group payable to
24                persons outside the group determined in
25                accordance with generally accepted accounting
26                principles must be obligations of the

 

 

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1                corporation.
2            This amendatory Act of the 91st General Assembly
3        is declaratory of existing law.
4            (D) Subparagraphs (B) and (C) of this paragraph
5        are declaratory of existing law and apply
6        retroactively, for all tax years beginning on or
7        before December 31, 1996, to all original returns, to
8        all amended returns filed no later than 30 days after
9        the effective date of this amendatory Act of 1996, and
10        to all notices issued on or before the effective date
11        of this amendatory Act of 1996 under subsection (a) of
12        Section 903, subsection (a) of Section 904, subsection
13        (e) of Section 909, or Section 912. A taxpayer that is
14        a "financial organization" that engages in any
15        transaction with an affiliate shall be a "financial
16        organization" for all purposes of this Act.
17            (E) For all tax years beginning on or before
18        December 31, 1996, a taxpayer that falls within the
19        definition of a "financial organization" under
20        subparagraphs (B) or (C) of this paragraph, but who
21        does not fall within the definition of a "financial
22        organization" under the Proposed Regulations issued by
23        the Department of Revenue on July 19, 1996, may
24        irrevocably elect to apply the Proposed Regulations
25        for all of those years as though the Proposed
26        Regulations had been lawfully promulgated, adopted,

 

 

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1        and in effect for all of those years. For purposes of
2        applying subparagraphs (B) or (C) of this paragraph to
3        all of those years, the election allowed by this
4        subparagraph applies only to the taxpayer making the
5        election and to those members of the taxpayer's
6        unitary business group who are ordinarily required to
7        apportion business income under the same subsection of
8        Section 304 of this Act as the taxpayer making the
9        election. No election allowed by this subparagraph
10        shall be made under a claim filed under subsection (d)
11        of Section 909 more than 30 days after the effective
12        date of this amendatory Act of 1996.
13            (F) Finance Leases. For purposes of this
14        subsection, a finance lease shall be treated as a loan
15        or other extension of credit, rather than as a lease,
16        regardless of how the transaction is characterized for
17        any other purpose, including the purposes of any
18        regulatory agency to which the lessor is subject. A
19        finance lease is any transaction in the form of a lease
20        in which the lessee is treated as the owner of the
21        leased asset entitled to any deduction for
22        depreciation allowed under Section 167 of the Internal
23        Revenue Code.
24        (9) Fiscal year. The term "fiscal year" means an
25    accounting period of 12 months ending on the last day of
26    any month other than December.

 

 

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1        (9.5) Fixed place of business. The term "fixed place
2    of business" has the same meaning as that term is given in
3    Section 864 of the Internal Revenue Code and the related
4    Treasury regulations.
5        (10) Includes and including. The terms "includes" and
6    "including" when used in a definition contained in this
7    Act shall not be deemed to exclude other things otherwise
8    within the meaning of the term defined.
9        (11) Internal Revenue Code. The term "Internal Revenue
10    Code" means the United States Internal Revenue Code of
11    1954 or any successor law or laws relating to federal
12    income taxes in effect for the taxable year.
13        (11.5) Investment partnership.
14            (A) The term "investment partnership" means any
15        entity that is treated as a partnership for federal
16        income tax purposes that meets the following
17        requirements:
18                (i) no less than 90% of the partnership's cost
19            of its total assets consists of qualifying
20            investment securities, deposits at banks or other
21            financial institutions, and office space and
22            equipment reasonably necessary to carry on its
23            activities as an investment partnership;
24                (ii) no less than 90% of its gross income
25            consists of interest, dividends, and gains from
26            the sale or exchange of qualifying investment

 

 

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1            securities, and the distributive share of
2            partnership income from lower-tier partnership
3            interests meeting the definition of qualifying
4            investment security under subparagraph (B)(xiii);
5            gross income does not include income from
6            partnerships that are operating at a federal
7            taxable loss; and
8                (iii) (blank). the partnership is not a dealer
9            in qualifying investment securities.
10            (B) For purposes of this paragraph (11.5), the
11        term "qualifying investment securities" (other than
12        securities with respect to which the taxpayer is
13        required to apply the rules of Internal Revenue Code
14        Section 475(a)) includes all of the following:
15                (i) common stock, including preferred or debt
16            securities convertible into common stock, and
17            preferred stock;
18                (ii) bonds, debentures, and other debt
19            securities;
20                (iii) foreign and domestic currency deposits
21            secured by federal, state, or local governmental
22            agencies;
23                (iv) mortgage or asset-backed securities
24            secured by federal, state, or local governmental
25            agencies;
26                (v) repurchase agreements and loan

 

 

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1            participations;
2                (vi) foreign currency exchange contracts and
3            forward and futures contracts on foreign
4            currencies;
5                (vii) stock and bond index securities and
6            futures contracts and other similar financial
7            securities and futures contracts on those
8            securities;
9                (viii) options for the purchase or sale of any
10            of the securities, currencies, contracts, or
11            financial instruments described in items (i) to
12            (vii), inclusive;
13                (ix) regulated futures contracts;
14                (x) commodities (not described in Section
15            1221(a)(1) of the Internal Revenue Code) or
16            futures, forwards, and options with respect to
17            such commodities, provided, however, that any item
18            of a physical commodity to which title is actually
19            acquired in the partnership's capacity as a dealer
20            in such commodity shall not be a qualifying
21            investment security;
22                (xi) derivatives; and
23                (xii) a partnership interest in another
24            partnership that is an investment partnership; and
25            .
26                (xiii) a partnership interest which, in the

 

 

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1            hands of the partnership, qualifies as a security
2            within the meaning of Section 2(a)(1) of the
3            federal Securities Act of 1933.
4        (12) Mathematical error. The term "mathematical error"
5    includes the following types of errors, omissions, or
6    defects in a return filed by a taxpayer which prevents
7    acceptance of the return as filed for processing:
8            (A) arithmetic errors or incorrect computations on
9        the return or supporting schedules;
10            (B) entries on the wrong lines;
11            (C) omission of required supporting forms or
12        schedules or the omission of the information in whole
13        or in part called for thereon; and
14            (D) an attempt to claim, exclude, deduct, or
15        improperly report, in a manner directly contrary to
16        the provisions of the Act and regulations thereunder
17        any item of income, exemption, deduction, or credit.
18        (13) Nonbusiness income. The term "nonbusiness income"
19    means all income other than business income or
20    compensation.
21        (14) Nonresident. The term "nonresident" means a
22    person who is not a resident.
23        (15) Paid, incurred and accrued. The terms "paid",
24    "incurred" and "accrued" shall be construed according to
25    the method of accounting upon the basis of which the
26    person's base income is computed under this Act.

 

 

HB3588- 17 -LRB102 10350 HLH 21806 b

1        (16) Partnership and partner. The term "partnership"
2    includes a syndicate, group, pool, joint venture or other
3    unincorporated organization, through or by means of which
4    any business, financial operation, or venture is carried
5    on, and which is not, within the meaning of this Act, a
6    trust or estate or a corporation; and the term "partner"
7    includes a member in such syndicate, group, pool, joint
8    venture or organization.
9        The term "partnership" includes any entity, including
10    a limited liability company formed under the Illinois
11    Limited Liability Company Act, classified as a partnership
12    for federal income tax purposes.
13        The term "partnership" does not include a syndicate,
14    group, pool, joint venture, or other unincorporated
15    organization established for the sole purpose of playing
16    the Illinois State Lottery.
17        (17) Part-year resident. The term "part-year resident"
18    means an individual who became a resident during the
19    taxable year or ceased to be a resident during the taxable
20    year. Under Section 1501(a)(20)(A)(i) residence commences
21    with presence in this State for other than a temporary or
22    transitory purpose and ceases with absence from this State
23    for other than a temporary or transitory purpose. Under
24    Section 1501(a)(20)(A)(ii) residence commences with the
25    establishment of domicile in this State and ceases with
26    the establishment of domicile in another State.

 

 

HB3588- 18 -LRB102 10350 HLH 21806 b

1        (18) Person. The term "person" shall be construed to
2    mean and include an individual, a trust, estate,
3    partnership, association, firm, company, corporation,
4    limited liability company, or fiduciary. For purposes of
5    Section 1301 and 1302 of this Act, a "person" means (i) an
6    individual, (ii) a corporation, (iii) an officer, agent,
7    or employee of a corporation, (iv) a member, agent or
8    employee of a partnership, or (v) a member, manager,
9    employee, officer, director, or agent of a limited
10    liability company who in such capacity commits an offense
11    specified in Section 1301 and 1302.
12        (18A) Records. The term "records" includes all data
13    maintained by the taxpayer, whether on paper, microfilm,
14    microfiche, or any type of machine-sensible data
15    compilation.
16        (19) Regulations. The term "regulations" includes
17    rules promulgated and forms prescribed by the Department.
18        (20) Resident. The term "resident" means:
19            (A) an individual (i) who is in this State for
20        other than a temporary or transitory purpose during
21        the taxable year; or (ii) who is domiciled in this
22        State but is absent from the State for a temporary or
23        transitory purpose during the taxable year;
24            (B) The estate of a decedent who at his or her
25        death was domiciled in this State;
26            (C) A trust created by a will of a decedent who at

 

 

HB3588- 19 -LRB102 10350 HLH 21806 b

1        his death was domiciled in this State; and
2            (D) An irrevocable trust, the grantor of which was
3        domiciled in this State at the time such trust became
4        irrevocable. For purpose of this subparagraph, a trust
5        shall be considered irrevocable to the extent that the
6        grantor is not treated as the owner thereof under
7        Sections 671 through 678 of the Internal Revenue Code.
8        (21) Sales. The term "sales" means all gross receipts
9    of the taxpayer not allocated under Sections 301, 302 and
10    303.
11        (22) State. The term "state" when applied to a
12    jurisdiction other than this State means any state of the
13    United States, the District of Columbia, the Commonwealth
14    of Puerto Rico, any Territory or Possession of the United
15    States, and any foreign country, or any political
16    subdivision of any of the foregoing. For purposes of the
17    foreign tax credit under Section 601, the term "state"
18    means any state of the United States, the District of
19    Columbia, the Commonwealth of Puerto Rico, and any
20    territory or possession of the United States, or any
21    political subdivision of any of the foregoing, effective
22    for tax years ending on or after December 31, 1989.
23        (23) Taxable year. The term "taxable year" means the
24    calendar year, or the fiscal year ending during such
25    calendar year, upon the basis of which the base income is
26    computed under this Act. "Taxable year" means, in the case

 

 

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1    of a return made for a fractional part of a year under the
2    provisions of this Act, the period for which such return
3    is made.
4        (24) Taxpayer. The term "taxpayer" means any person
5    subject to the tax imposed by this Act.
6        (25) International banking facility. The term
7    international banking facility shall have the same meaning
8    as is set forth in the Illinois Banking Act or as is set
9    forth in the laws of the United States or regulations of
10    the Board of Governors of the Federal Reserve System.
11        (26) Income Tax Return Preparer.
12            (A) The term "income tax return preparer" means
13        any person who prepares for compensation, or who
14        employs one or more persons to prepare for
15        compensation, any return of tax imposed by this Act or
16        any claim for refund of tax imposed by this Act. The
17        preparation of a substantial portion of a return or
18        claim for refund shall be treated as the preparation
19        of that return or claim for refund.
20            (B) A person is not an income tax return preparer
21        if all he or she does is
22                (i) furnish typing, reproducing, or other
23            mechanical assistance;
24                (ii) prepare returns or claims for refunds for
25            the employer by whom he or she is regularly and
26            continuously employed;

 

 

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1                (iii) prepare as a fiduciary returns or claims
2            for refunds for any person; or
3                (iv) prepare claims for refunds for a taxpayer
4            in response to any notice of deficiency issued to
5            that taxpayer or in response to any waiver of
6            restriction after the commencement of an audit of
7            that taxpayer or of another taxpayer if a
8            determination in the audit of the other taxpayer
9            directly or indirectly affects the tax liability
10            of the taxpayer whose claims he or she is
11            preparing.
12        (27) Unitary business group.
13            (A) The term "unitary business group" means a
14        group of persons related through common ownership
15        whose business activities are integrated with,
16        dependent upon and contribute to each other. The group
17        will not include those members whose business activity
18        outside the United States is 80% or more of any such
19        member's total business activity; for purposes of this
20        paragraph and clause (a)(3)(B)(ii) of Section 304,
21        business activity within the United States shall be
22        measured by means of the factors ordinarily applicable
23        under subsections (a), (b), (c), (d), or (h) of
24        Section 304 except that, in the case of members
25        ordinarily required to apportion business income by
26        means of the 3 factor formula of property, payroll and

 

 

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1        sales specified in subsection (a) of Section 304,
2        including the formula as weighted in subsection (h) of
3        Section 304, such members shall not use the sales
4        factor in the computation and the results of the
5        property and payroll factor computations of subsection
6        (a) of Section 304 shall be divided by 2 (by one if
7        either the property or payroll factor has a
8        denominator of zero). The computation required by the
9        preceding sentence shall, in each case, involve the
10        division of the member's property, payroll, or revenue
11        miles in the United States, insurance premiums on
12        property or risk in the United States, or financial
13        organization business income from sources within the
14        United States, as the case may be, by the respective
15        worldwide figures for such items. Common ownership in
16        the case of corporations is the direct or indirect
17        control or ownership of more than 50% of the
18        outstanding voting stock of the persons carrying on
19        unitary business activity. Unitary business activity
20        can ordinarily be illustrated where the activities of
21        the members are: (1) in the same general line (such as
22        manufacturing, wholesaling, retailing of tangible
23        personal property, insurance, transportation or
24        finance); or (2) are steps in a vertically structured
25        enterprise or process (such as the steps involved in
26        the production of natural resources, which might

 

 

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1        include exploration, mining, refining, and marketing);
2        and, in either instance, the members are functionally
3        integrated through the exercise of strong centralized
4        management (where, for example, authority over such
5        matters as purchasing, financing, tax compliance,
6        product line, personnel, marketing and capital
7        investment is not left to each member).
8            (B) In no event, for taxable years ending prior to
9        December 31, 2017, shall any unitary business group
10        include members which are ordinarily required to
11        apportion business income under different subsections
12        of Section 304 except that for tax years ending on or
13        after December 31, 1987 this prohibition shall not
14        apply to a holding company that would otherwise be a
15        member of a unitary business group with taxpayers that
16        apportion business income under any of subsections
17        (b), (c), (c-1), or (d) of Section 304. If a unitary
18        business group would, but for the preceding sentence,
19        include members that are ordinarily required to
20        apportion business income under different subsections
21        of Section 304, then for each subsection of Section
22        304 for which there are two or more members, there
23        shall be a separate unitary business group composed of
24        such members. For purposes of the preceding two
25        sentences, a member is "ordinarily required to
26        apportion business income" under a particular

 

 

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1        subsection of Section 304 if it would be required to
2        use the apportionment method prescribed by such
3        subsection except for the fact that it derives
4        business income solely from Illinois. As used in this
5        paragraph, for taxable years ending before December
6        31, 2017, the phrase "United States" means only the 50
7        states and the District of Columbia, but does not
8        include any territory or possession of the United
9        States or any area over which the United States has
10        asserted jurisdiction or claimed exclusive rights with
11        respect to the exploration for or exploitation of
12        natural resources. For taxable years ending on or
13        after December 31, 2017, the phrase "United States",
14        as used in this paragraph, means only the 50 states,
15        the District of Columbia, and any area over which the
16        United States has asserted jurisdiction or claimed
17        exclusive rights with respect to the exploration for
18        or exploitation of natural resources, but does not
19        include any territory or possession of the United
20        States.
21            (C) Holding companies.
22                (i) For purposes of this subparagraph, a
23            "holding company" is a corporation (other than a
24            corporation that is a financial organization under
25            paragraph (8) of this subsection (a) of Section
26            1501 because it is a bank holding company under

 

 

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1            the provisions of the Bank Holding Company Act of
2            1956 (12 U.S.C. 1841, et seq.) or because it is
3            owned by a bank or a bank holding company) that
4            owns a controlling interest in one or more other
5            taxpayers ("controlled taxpayers"); that, during
6            the period that includes the taxable year and the
7            2 immediately preceding taxable years or, if the
8            corporation was formed during the current or
9            immediately preceding taxable year, the taxable
10            years in which the corporation has been in
11            existence, derived substantially all its gross
12            income from dividends, interest, rents, royalties,
13            fees or other charges received from controlled
14            taxpayers for the provision of services, and gains
15            on the sale or other disposition of interests in
16            controlled taxpayers or in property leased or
17            licensed to controlled taxpayers or used by the
18            taxpayer in providing services to controlled
19            taxpayers; and that incurs no substantial expenses
20            other than expenses (including interest and other
21            costs of borrowing) incurred in connection with
22            the acquisition and holding of interests in
23            controlled taxpayers and in the provision of
24            services to controlled taxpayers or in the leasing
25            or licensing of property to controlled taxpayers.
26                (ii) The income of a holding company which is

 

 

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1            a member of more than one unitary business group
2            shall be included in each unitary business group
3            of which it is a member on a pro rata basis, by
4            including in each unitary business group that
5            portion of the base income of the holding company
6            that bears the same proportion to the total base
7            income of the holding company as the gross
8            receipts of the unitary business group bears to
9            the combined gross receipts of all unitary
10            business groups (in both cases without regard to
11            the holding company) or on any other reasonable
12            basis, consistently applied.
13                (iii) A holding company shall apportion its
14            business income under the subsection of Section
15            304 used by the other members of its unitary
16            business group. The apportionment factors of a
17            holding company which would be a member of more
18            than one unitary business group shall be included
19            with the apportionment factors of each unitary
20            business group of which it is a member on a pro
21            rata basis using the same method used in clause
22            (ii).
23                (iv) The provisions of this subparagraph (C)
24            are intended to clarify existing law.
25            (D) If including the base income and factors of a
26        holding company in more than one unitary business

 

 

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1        group under subparagraph (C) does not fairly reflect
2        the degree of integration between the holding company
3        and one or more of the unitary business groups, the
4        dependence of the holding company and one or more of
5        the unitary business groups upon each other, or the
6        contributions between the holding company and one or
7        more of the unitary business groups, the holding
8        company may petition the Director, under the
9        procedures provided under Section 304(f), for
10        permission to include all base income and factors of
11        the holding company only with members of a unitary
12        business group apportioning their business income
13        under one subsection of subsections (a), (b), (c), or
14        (d) of Section 304. If the petition is granted, the
15        holding company shall be included in a unitary
16        business group only with persons apportioning their
17        business income under the selected subsection of
18        Section 304 until the Director grants a petition of
19        the holding company either to be included in more than
20        one unitary business group under subparagraph (C) or
21        to include its base income and factors only with
22        members of a unitary business group apportioning their
23        business income under a different subsection of
24        Section 304.
25            (E) If the unitary business group members'
26        accounting periods differ, the common parent's

 

 

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1        accounting period or, if there is no common parent,
2        the accounting period of the member that is expected
3        to have, on a recurring basis, the greatest Illinois
4        income tax liability must be used to determine whether
5        to use the apportionment method provided in subsection
6        (a) or subsection (h) of Section 304. The prohibition
7        against membership in a unitary business group for
8        taxpayers ordinarily required to apportion income
9        under different subsections of Section 304 does not
10        apply to taxpayers required to apportion income under
11        subsection (a) and subsection (h) of Section 304. The
12        provisions of this amendatory Act of 1998 apply to tax
13        years ending on or after December 31, 1998.
14        (28) Subchapter S corporation. The term "Subchapter S
15    corporation" means a corporation for which there is in
16    effect an election under Section 1362 of the Internal
17    Revenue Code, or for which there is a federal election to
18    opt out of the provisions of the Subchapter S Revision Act
19    of 1982 and have applied instead the prior federal
20    Subchapter S rules as in effect on July 1, 1982.
21        (30) Foreign person. The term "foreign person" means
22    any person who is a nonresident alien individual and any
23    nonindividual entity, regardless of where created or
24    organized, whose business activity outside the United
25    States is 80% or more of the entity's total business
26    activity.
 

 

 

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1    (b) Other definitions.
2        (1) Words denoting number, gender, and so forth, when
3    used in this Act, where not otherwise distinctly expressed
4    or manifestly incompatible with the intent thereof:
5            (A) Words importing the singular include and apply
6        to several persons, parties or things;
7            (B) Words importing the plural include the
8        singular; and
9            (C) Words importing the masculine gender include
10        the feminine as well.
11        (2) "Company" or "association" as including successors
12    and assigns. The word "company" or "association", when
13    used in reference to a corporation, shall be deemed to
14    embrace the words "successors and assigns of such company
15    or association", and in like manner as if these last-named
16    words, or words of similar import, were expressed.
17        (3) Other terms. Any term used in any Section of this
18    Act with respect to the application of, or in connection
19    with, the provisions of any other Section of this Act
20    shall have the same meaning as in such other Section.
21(Source: P.A. 99-213, eff. 7-31-15; 100-22, eff. 7-6-17.)
 
22    Section 99. Effective date. This Act takes effect upon
23becoming law.