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91_HB1988
LRB9104903PTpk
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.)