State of Illinois
91st General Assembly
Legislation

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91_HB1988

 
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 1        AN ACT to amend the Illinois Income Tax Act  by  changing
 2    Section 304.

 3        Be  it  enacted  by  the People of the State of Illinois,
 4    represented in the General Assembly:

 5        Section 5.  The Illinois Income Tax  Act  is  amended  by
 6    changing Section 304 as follows:

 7        (35 ILCS 5/304) (from Ch. 120, par. 3-304)
 8        Sec.   304.   Business   income  of  persons  other  than
 9    residents.
10        (a)  In general. The business income of  a  person  other
11    than  a  resident  shall  be  allocated to this State if such
12    person's business income is derived solely from  this  State.
13    If  a  person  other  than a resident derives business income
14    from this State and one or more other states, then,  for  tax
15    years  ending  on  or before December 30, 1998, and except as
16    otherwise provided by this Section,  such  person's  business
17    income  shall be apportioned to this State by multiplying the
18    income by a fraction, the numerator of which is  the  sum  of
19    the property factor (if any), the payroll factor (if any) and
20    200%  of  the  sales  factor (if any), and the denominator of
21    which is 4 reduced by the number of factors  other  than  the
22    sales  factor that which have a denominator of zero and by an
23    additional 2 if the sales factor has a denominator  of  zero.
24    For  tax  years  ending  on  or  after December 31, 1998, and
25    except as otherwise provided by this Section,  persons  other
26    than residents who derive business income from this State and
27    one  or  more  other states shall compute their apportionment
28    factor  by  weighting  their  property,  payroll,  and  sales
29    factors as provided in subsection (h) of this Section.
30        (1)  Property factor.
31             (A)  The  property  factor  is   a   fraction,   the
 
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 1        numerator  of  which is the average value of the person's
 2        real and tangible personal property owned or  rented  and
 3        used  in  the  trade or business in this State during the
 4        taxable year and the denominator of which is the  average
 5        value  of  all  the  person's  real and tangible personal
 6        property owned  or  rented  and  used  in  the  trade  or
 7        business during the taxable year.
 8             (B)  Property  owned  by the person is valued at its
 9        original cost. Property rented by the person is valued at
10        8 times the net annual rental  rate.  Net  annual  rental
11        rate  is  the  annual rental rate paid by the person less
12        any annual  rental  rate  received  by  the  person  from
13        sub-rentals.
14             (C)  The   average   value   of  property  shall  be
15        determined by averaging the values at the  beginning  and
16        ending  of  the taxable year but the Director may require
17        the averaging of monthly values during the  taxable  year
18        if  reasonably  required  to reflect properly the average
19        value of the person's property.
20        (2)  Payroll factor.
21             (A)  The payroll factor is a fraction, the numerator
22        of which is the total amount paid in  this  State  during
23        the  taxable year by the person for compensation, and the
24        denominator of  which  is  the  total  compensation  paid
25        everywhere during the taxable year.
26             (B)  Compensation is paid in this State if:
27                  (i)  The   individual's  service  is  performed
28             entirely within this State;
29                  (ii)  The  individual's  service  is  performed
30             both within and without this State, but the  service
31             performed  without  this  State is incidental to the
32             individual's service performed within this State; or
33                  (iii)  Some of the service is performed  within
34             this  State and either the base of operations, or if
 
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 1             there is no base of operations, the place from which
 2             the service is directed or controlled is within this
 3             State, or the base of operations or the  place  from
 4             which  the  service is directed or controlled is not
 5             in any state in which some part of  the  service  is
 6             performed, but the individual's residence is in this
 7             State.
 8             Beginning  with  taxable  years  ending  on or after
 9        December 31, 1992, for residents of states that impose  a
10        comparable  tax liability on residents of this State, for
11        purposes of item (i) of this paragraph (B), in  the  case
12        of  persons  who perform personal services under personal
13        service contracts for sports  performances,  services  by
14        that  person at a sporting event taking place in Illinois
15        shall be deemed to be a performance entirely within  this
16        State.
17        (3)  Sales factor.
18             (A)  The  sales  factor is a fraction, the numerator
19        of which is the total sales of the person in  this  State
20        during  the taxable year, and the denominator of which is
21        the total sales  of  the  person  everywhere  during  the
22        taxable year.
23             (B)  Sales of tangible personal property are in this
24        State if:
25                  (i)  The  property is delivered or shipped to a
26             purchaser, other than the United States  government,
27             within  this  State regardless of the f. o. b. point
28             or other conditions of the sale; or
29                  (ii)  The property is shipped from  an  office,
30             store,  warehouse, factory or other place of storage
31             in this State and either the purchaser is the United
32             States government or the person is  not  taxable  in
33             the  state of the purchaser; provided, however, that
34             premises  owned  or  leased  by  a  person  who  has
 
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 1             independently contracted with  the  seller  for  the
 2             printing  of  newspapers, periodicals or books shall
 3             not be deemed to be  an  office,  store,  warehouse,
 4             factory  or  other  place of storage for purposes of
 5             this Section.  Sales of tangible  personal  property
 6             are  not  in  this State if the seller and purchaser
 7             would be members of the same unitary business  group
 8             but for the fact that either the seller or purchaser
 9             is  a  person  with  80%  or  more of total business
10             activity  outside  of  the  United  States  and  the
11             property is purchased for resale.
12             (C)  Sales, other than sales  of  tangible  personal
13        property, are in this State if:
14                  (i)  The income-producing activity is performed
15             in this State; or
16                  (ii)  The    income-producing    activity    is
17             performed  both  within and without this State and a
18             greater proportion of the income-producing  activity
19             is  performed  within  this  State than without this
20             State, based on performance costs.
21             (D)  For taxable years ending on or  after  December
22        31,  1995,  the  following  items  of income shall not be
23        included in the numerator or  denominator  of  the  sales
24        factor:  dividends;  amounts included under Section 78 of
25        the Internal  Revenue  Code;  and  Subpart  F  income  as
26        defined  in  Section 952 of the Internal Revenue Code. No
27        inference shall be  drawn  from  the  enactment  of  this
28        paragraph  (D)  in  construing  this  Section for taxable
29        years ending before December 31, 1995.
30        (b)  Insurance companies.
31             (1)  In general. Except  as  otherwise  provided  by
32        paragraph  (2),  business  income of an insurance company
33        for a taxable year shall be apportioned to this State  by
34        multiplying  such  income by a fraction, the numerator of
 
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 1        which is the direct premiums written for  insurance  upon
 2        property  or  risk  in this State, and the denominator of
 3        which is the direct premiums written for  insurance  upon
 4        property   or  risk  everywhere.  For  purposes  of  this
 5        subsection, the term "direct premiums written" means  the
 6        total  amount of direct premiums written, assessments and
 7        annuity considerations as reported for the  taxable  year
 8        on  the  annual  statement  filed by the company with the
 9        Illinois Director of Insurance in the  form  approved  by
10        the  National  Convention  of  Insurance Commissioners or
11        such other form as may be prescribed in lieu thereof.
12             (2)  Reinsurance.  If  the   principal   source   of
13        premiums  written  by  an  insurance  company consists of
14        premiums for reinsurance accepted  by  it,  the  business
15        income of such company shall be apportioned to this State
16        by  multiplying  such income by a fraction, the numerator
17        of which is the sum of (i) direct  premiums  written  for
18        insurance  upon property or risk in this State, plus (ii)
19        premiums written for reinsurance accepted in  respect  of
20        property  or  risk  in this State, and the denominator of
21        which is the sum of (iii)  direct  premiums  written  for
22        insurance  upon  property  or  risk everywhere, plus (iv)
23        premiums written for reinsurance accepted in  respect  of
24        property   or  risk  everywhere.  For  purposes  of  this
25        paragraph, premiums written for reinsurance  accepted  in
26        respect of property or risk in this State, whether or not
27        otherwise  determinable,  may,  at  the  election  of the
28        company, be determined on the  basis  of  the  proportion
29        which  premiums  written  for  reinsurance  accepted from
30        companies commercially domiciled  in  Illinois  bears  to
31        premiums   written  for  reinsurance  accepted  from  all
32        sources, or, alternatively, in the proportion  which  the
33        sum  of  the  direct  premiums written for insurance upon
34        property or risk in this State  by  each  ceding  company
 
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 1        from  which  reinsurance  is accepted bears to the sum of
 2        the total direct premiums written  by  each  such  ceding
 3        company for the taxable year.
 4        (c)  Financial organizations.
 5             (1)  In  general.  Business  income  of  a financial
 6        organization  shall  be  apportioned  to  this  State  by
 7        multiplying such income by a fraction, the  numerator  of
 8        which  is  its  business  income from sources within this
 9        State, and the  denominator  of  which  is  its  business
10        income  from  all  sources.  For  the  purposes  of  this
11        subsection,   the   business   income   of   a  financial
12        organization from sources within this State is the sum of
13        the amounts referred to in subparagraphs (A) through  (E)
14        following,  but  excluding  the  adjusted  income  of  an
15        international banking facility as determined in paragraph
16        (2):
17                  (A)  Fees,  commissions  or  other compensation
18             for financial services rendered within this State;
19                  (B)  Gross  profits  from  trading  in  stocks,
20             bonds or other securities managed within this State;
21                  (C)  Dividends,  and  interest  from   Illinois
22             customers, which are received within this State;
23                  (D)  Interest charged to customers at places of
24             business  maintained  within this State for carrying
25             debit balances of margin accounts, without deduction
26             of any costs incurred in carrying such accounts; and
27                  (E)  Any other gross income resulting from  the
28             operation  as  a  financial organization within this
29             State. In  computing  the  amounts  referred  to  in
30             paragraphs  (A)  through (E) of this subsection, any
31             amount received by a member of an  affiliated  group
32             (determined  under  Section  1504(a) of the Internal
33             Revenue Code but without reference  to  whether  any
34             such  corporation  is  an  "includible  corporation"
 
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 1             under  Section 1504(b) of the Internal Revenue Code)
 2             from another member of such group shall be  included
 3             only  to  the extent such amount exceeds expenses of
 4             the recipient directly related thereto.
 5             (2)  International Banking Facility.
 6                  (A)  Adjusted Income.  The adjusted  income  of
 7             an  international  banking  facility  is  its income
 8             reduced by the amount of the floor amount.
 9                  (B)  Floor Amount.  The floor amount  shall  be
10             the  amount,  if  any, determined by multiplying the
11             income of the international banking  facility  by  a
12             fraction,  not greater than one, which is determined
13             as follows:
14                       (i)  The numerator shall be:
15                       The average  aggregate,  determined  on  a
16                  quarterly     basis,     of    the    financial
17                  organization's  loans  to  banks   in   foreign
18                  countries,   to   foreign  domiciled  borrowers
19                  (except where secured primarily by real estate)
20                  and to foreign governments  and  other  foreign
21                  official  institutions,  as  reported  for  its
22                  branches, agencies and offices within the state
23                  on  its  "Consolidated  Report  of  Condition",
24                  Schedule  A,  Lines 2.c., 5.b., and 7.a., which
25                  was filed with the  Federal  Deposit  Insurance
26                  Corporation  and  other regulatory authorities,
27                  for the year 1980, minus
28                       The average  aggregate,  determined  on  a
29                  quarterly  basis,  of  such  loans  (other than
30                  loans of an international banking facility), as
31                  reported by the financial institution  for  its
32                  branches,   agencies  and  offices  within  the
33                  state, on the corresponding Schedule and  lines
34                  of the Consolidated Report of Condition for the
 
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 1                  current  taxable  year, provided, however, that
 2                  in no case shall the amount determined in  this
 3                  clause   (the  subtrahend)  exceed  the  amount
 4                  determined  in  the   preceding   clause   (the
 5                  minuend); and
 6                       (ii)  the denominator shall be the average
 7                  aggregate,  determined on a quarterly basis, of
 8                  the international banking facility's  loans  to
 9                  banks   in   foreign   countries,   to  foreign
10                  domiciled  borrowers  (except   where   secured
11                  primarily   by  real  estate)  and  to  foreign
12                  governments   and   other   foreign    official
13                  institutions,   which   were  recorded  in  its
14                  financial  accounts  for  the  current  taxable
15                  year.
16                  (C)  Change to Consolidated Report of Condition
17             and in Qualification.  In the event the Consolidated
18             Report of Condition which is filed with the  Federal
19             Deposit  Insurance  Corporation and other regulatory
20             authorities  is  altered  so  that  the  information
21             required for determining the  floor  amount  is  not
22             found  on Schedule A, lines 2.c., 5.b. and 7.a., the
23             financial institution shall  notify  the  Department
24             and the Department may, by regulations or otherwise,
25             prescribe  or  authorize  the  use of an alternative
26             source   for   such   information.   The   financial
27             institution shall also notify the Department  should
28             its  international  banking facility fail to qualify
29             as such, in whole or in part, or should there be any
30             amendment or change to the  Consolidated  Report  of
31             Condition,  as  originally filed, to the extent such
32             amendment or change alters the information  used  in
33             determining the floor amount.
34        (d)  Transportation  services.  Business  income  derived
 
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 1    from  furnishing transportation services shall be apportioned
 2    to this State in accordance with paragraphs (1) and (2):
 3             (1)  Such business income (other than  that  derived
 4        from  transportation by pipeline) shall be apportioned to
 5        this State by multiplying such income by a fraction,  the
 6        numerator  of which is the revenue miles of the person in
 7        this State, and the denominator of which is  the  revenue
 8        miles  of  the  person  everywhere.  For purposes of this
 9        paragraph, a revenue mile  is  the  transportation  of  1
10        passenger  or 1 net ton of freight the distance of 1 mile
11        for a consideration. Where a person  is  engaged  in  the
12        transportation   of  both  passengers  and  freight,  the
13        fraction above referred to shall be determined  by  means
14        of  an average of the passenger revenue mile fraction and
15        the freight revenue mile fraction,  weighted  to  reflect
16        the person's
17                  (A)  relative  railway  operating  income  from
18             total   passenger  and  total  freight  service,  as
19             reported to the Interstate Commerce  Commission,  in
20             the case of transportation by railroad, and
21                  (B)  relative gross receipts from passenger and
22             freight  transportation,  in  case of transportation
23             other than by railroad.
24             (2)  Such    business    income     derived     from
25        transportation  by  pipeline shall be apportioned to this
26        State by multiplying  such  income  by  a  fraction,  the
27        numerator  of which is the revenue miles of the person in
28        this State, and the denominator of which is  the  revenue
29        miles  of the person everywhere. For the purposes of this
30        paragraph,  a  revenue  mile  is  the  transportation  by
31        pipeline of 1 barrel of oil, 1,000 cubic feet of gas,  or
32        of  any  specified  quantity  of any other substance, the
33        distance of 1 mile for a consideration.
34        (e)  Combined apportionment.  Where 2 or more persons are
 
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 1    engaged in a unitary  business  as  described  in  subsection
 2    (a)(27) of Section 1501, a part of which is conducted in this
 3    State  by  one  or  more  members  of the group, the business
 4    income attributable to this  State  by  any  such  member  or
 5    members  shall  be  apportioned  by  means  of  the  combined
 6    apportionment method.
 7        (f)  Alternative   allocation.   If  the  allocation  and
 8    apportionment provisions of subsections (a) through  (e)  and
 9    of  subsection  (h)  do  not fairly represent the extent of a
10    person's business activity in  this  State,  the  person  may
11    petition  for, or the Director may require, in respect of all
12    or any part of the person's business activity, if reasonable:
13             (1)  Separate accounting;
14             (2)  The exclusion of any one or more factors;
15             (3)  The inclusion of one or more additional factors
16        which  will  fairly  represent  the   person's   business
17        activities in this State; or
18             (4)  The   employment   of   any   other  method  to
19        effectuate an equitable allocation and  apportionment  of
20        the person's business income.
21        (g)  Cross  reference.  For allocation of business income
22    by residents, see Section 301(a).
23        (h)  For tax years ending on or after December 31,  1998,
24    the  apportionment  factor  of  persons  who  apportion their
25    business income to this State under subsection (a)  shall  be
26    equal to:
27             (1)  for  tax  years ending on or after December 31,
28        1998 and  before  December  31,  1999,  16  2/3%  of  the
29        property  factor  plus 16 2/3% of the payroll factor plus
30        66 2/3% of the sales factor;
31             (2)  for tax years ending on or after  December  31,
32        1999 and before December 31, 2000, 8 1/3% of the property
33        factor  plus 8 1/3% of the payroll factor plus 83 1/3% of
34        the sales factor;
 
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 1             (3)  for tax years ending on or after  December  31,
 2        2000, the sales factor.
 3    If,  in any tax year ending on or after December 31, 1998 and
 4    before December 31, 2000, the  denominator  of  the  payroll,
 5    property,  or  sales factor is zero, the apportionment factor
 6    computed in paragraph (1) or (2) of this subsection for  that
 7    year  shall  be  divided by an amount equal to 100% minus the
 8    percentage weight given to each factor whose  denominator  is
 9    equal to zero.
10    (Source:  P.A.  89-379,  eff.  1-1-96;  89-399, eff. 8-20-95;
11    89-626, eff. 8-9-96;  90-562,  eff.  12-16-97;  90-613,  eff.
12    7-9-98.)

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