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91_HB3907
LRB9111530SMdv
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 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: (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 or
27 other conditions of the sale.; or (ii) The property is
28 shipped from an office, store, warehouse, factory or
29 other place of storage in this State and either the
30 purchaser is the United States government or the person
31 is not taxable in the state of the purchaser; provided,
32 however, that premises owned or leased by a person who
33 has independently contracted with the seller for the
34 printing of newspapers, periodicals or books shall not be
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1 deemed to be an office, store, warehouse, factory or
2 other place of storage for purposes of this Section.
3 Sales of tangible personal property are not in this State
4 if the seller and purchaser would be members of the same
5 unitary business group but for the fact that either the
6 seller or purchaser is a person with 80% or more of total
7 business activity outside of the United States and the
8 property is purchased for resale.
9 (B-1) Patents, copyrights, trademarks, and similar
10 items of intangible personal property.
11 (i) Gross receipts from the licensing, sale,
12 or other disposition of a patent, copyright,
13 trademark, or similar item of intangible personal
14 property are in this State to the extent the item is
15 utilized in this State during the year the gross
16 receipts are included in gross income.
17 (ii) Place of utilization.
18 (I) A patent is utilized in a state to
19 the extent that it is employed in production,
20 fabrication, manufacturing, or other processing
21 in the state or to the extent that a patented
22 product is produced in the state. If a patent
23 is utilized in more than one state, the extent
24 to which it is utilized in any one state shall
25 be a fraction equal to the gross receipts of
26 the licensee or purchaser from sales or leases
27 of items produced, fabricated, manufactured, or
28 processed within that state using the patent
29 and of patented items produced within that
30 state, divided by the total of such gross
31 receipts for all states in which the patent is
32 utilized.
33 (II) A copyright is utilized in a state
34 to the extent that printing or other
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1 publication originates in the state. If a
2 copyright is utilized in more than one state,
3 the extent to which it is utilized in any one
4 state shall be a fraction equal to the gross
5 receipts from sales or licenses of materials
6 printed or published in that state divided by
7 the total of such gross receipts for all states
8 in which the copyright is utilized.
9 (III) Trademarks and other items of
10 intangible personal property governed by this
11 paragraph (B-1) are utilized in the state in
12 which the commercial domicile of the licensee
13 or purchaser is located.
14 (iii) If the state of utilization of an item
15 of property governed by this paragraph (B-1) cannot
16 be determined from the taxpayer's books and records
17 or from the books and records of any person related
18 to the taxpayer within the meaning of Section 267(b)
19 of the Internal Revenue Code, 26 U.S.C. 267, the
20 gross receipts attributable to that item shall be
21 excluded from both the numerator and the denominator
22 of the sales factor.
23 (B-2) Gross receipts from the license, sale, or
24 other disposition of patents, copyrights, trademarks, and
25 similar items of intangible personal property may be
26 included in the numerator or denominator of the sales
27 factor only if gross receipts from licenses, sales, or
28 other disposition of such items comprise more than 50% of
29 the taxpayer's total gross receipts included in gross
30 income during the tax year and during each of the 2
31 immediately preceding tax years; provided that, when a
32 taxpayer is a member of a unitary business group, such
33 determination shall be made on the basis of the gross
34 receipts of the entire unitary business group.
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1 (C) Sales, other than sales governed by paragraphs
2 (B) and (B-1), are in this State if:
3 (i) The income-producing activity is performed
4 in this State; or
5 (ii) The income-producing activity is
6 performed both within and without this State and a
7 greater proportion of the income-producing activity
8 is performed within this State than without this
9 State, based on performance costs.
10 (D) For taxable years ending on or after December
11 31, 1995, the following items of income shall not be
12 included in the numerator or denominator of the sales
13 factor: dividends; amounts included under Section 78 of
14 the Internal Revenue Code; and Subpart F income as
15 defined in Section 952 of the Internal Revenue Code. No
16 inference shall be drawn from the enactment of this
17 paragraph (D) in construing this Section for taxable
18 years ending before December 31, 1995.
19 (E) Paragraphs (B-1) and (B-2) shall apply to tax
20 years ending on or after December 31, 1999, provided that
21 a taxpayer may elect to apply the provisions of these
22 paragraphs to prior tax years. Such election shall be
23 made in the form and manner prescribed by the Department,
24 shall be irrevocable, and shall apply to all tax years;
25 provided that, if a taxpayer's Illinois income tax
26 liability for any tax year, as assessed under Section 903
27 prior to January 1, 1999, was computed in a manner
28 contrary to the provisions of paragraphs (B-1) or (B-2),
29 no refund shall be payable to the taxpayer for that tax
30 year to the extent such refund is the result of applying
31 the provisions of paragraph (B-1) or (B-2) retroactively.
32 In the case of a unitary business group, such election
33 shall apply to all members of such group for every tax
34 year such group is in existence, but shall not apply to
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1 any taxpayer for any period during which that taxpayer is
2 not a member of such group.
3 (b) Insurance companies.
4 (1) In general. Except as otherwise provided by
5 paragraph (2), business income of an insurance company
6 for a taxable year shall be apportioned to this State by
7 multiplying such income by a fraction, the numerator of
8 which is the direct premiums written for insurance upon
9 property or risk in this State, and the denominator of
10 which is the direct premiums written for insurance upon
11 property or risk everywhere. For purposes of this
12 subsection, the term "direct premiums written" means the
13 total amount of direct premiums written, assessments and
14 annuity considerations as reported for the taxable year
15 on the annual statement filed by the company with the
16 Illinois Director of Insurance in the form approved by
17 the National Convention of Insurance Commissioners or
18 such other form as may be prescribed in lieu thereof.
19 (2) Reinsurance. If the principal source of
20 premiums written by an insurance company consists of
21 premiums for reinsurance accepted by it, the business
22 income of such company shall be apportioned to this State
23 by multiplying such income by a fraction, the numerator
24 of which is the sum of (i) direct premiums written for
25 insurance upon property or risk in this State, plus (ii)
26 premiums written for reinsurance accepted in respect of
27 property or risk in this State, and the denominator of
28 which is the sum of (iii) direct premiums written for
29 insurance upon property or risk everywhere, plus (iv)
30 premiums written for reinsurance accepted in respect of
31 property or risk everywhere. For purposes of this
32 paragraph, premiums written for reinsurance accepted in
33 respect of property or risk in this State, whether or not
34 otherwise determinable, may, at the election of the
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1 company, be determined on the basis of the proportion
2 which premiums written for reinsurance accepted from
3 companies commercially domiciled in Illinois bears to
4 premiums written for reinsurance accepted from all
5 sources, or, alternatively, in the proportion which the
6 sum of the direct premiums written for insurance upon
7 property or risk in this State by each ceding company
8 from which reinsurance is accepted bears to the sum of
9 the total direct premiums written by each such ceding
10 company for the taxable year.
11 (c) Financial organizations.
12 (1) In general. Business income of a financial
13 organization shall be apportioned to this State by
14 multiplying such income by a fraction, the numerator of
15 which is its business income from sources within this
16 State, and the denominator of which is its business
17 income from all sources. For the purposes of this
18 subsection, the business income of a financial
19 organization from sources within this State is the sum of
20 the amounts referred to in subparagraphs (A) through (E)
21 following, but excluding the adjusted income of an
22 international banking facility as determined in paragraph
23 (2):
24 (A) Fees, commissions or other compensation
25 for financial services rendered within this State;
26 (B) Gross profits from trading in stocks,
27 bonds or other securities managed within this State;
28 (C) Dividends, and interest from Illinois
29 customers, which are received within this State;
30 (D) Interest charged to customers at places of
31 business maintained within this State for carrying
32 debit balances of margin accounts, without deduction
33 of any costs incurred in carrying such accounts; and
34 (E) Any other gross income resulting from the
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1 operation as a financial organization within this
2 State. In computing the amounts referred to in
3 paragraphs (A) through (E) of this subsection, any
4 amount received by a member of an affiliated group
5 (determined under Section 1504(a) of the Internal
6 Revenue Code but without reference to whether any
7 such corporation is an "includible corporation"
8 under Section 1504(b) of the Internal Revenue Code)
9 from another member of such group shall be included
10 only to the extent such amount exceeds expenses of
11 the recipient directly related thereto.
12 (2) International Banking Facility.
13 (A) Adjusted Income. The adjusted income of
14 an international banking facility is its income
15 reduced by the amount of the floor amount.
16 (B) Floor Amount. The floor amount shall be
17 the amount, if any, determined by multiplying the
18 income of the international banking facility by a
19 fraction, not greater than one, which is determined
20 as follows:
21 (i) The numerator shall be:
22 The average aggregate, determined on a
23 quarterly basis, of the financial
24 organization's loans to banks in foreign
25 countries, to foreign domiciled borrowers
26 (except where secured primarily by real estate)
27 and to foreign governments and other foreign
28 official institutions, as reported for its
29 branches, agencies and offices within the state
30 on its "Consolidated Report of Condition",
31 Schedule A, Lines 2.c., 5.b., and 7.a., which
32 was filed with the Federal Deposit Insurance
33 Corporation and other regulatory authorities,
34 for the year 1980, minus
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1 The average aggregate, determined on a
2 quarterly basis, of such loans (other than
3 loans of an international banking facility), as
4 reported by the financial institution for its
5 branches, agencies and offices within the
6 state, on the corresponding Schedule and lines
7 of the Consolidated Report of Condition for the
8 current taxable year, provided, however, that
9 in no case shall the amount determined in this
10 clause (the subtrahend) exceed the amount
11 determined in the preceding clause (the
12 minuend); and
13 (ii) the denominator shall be the average
14 aggregate, determined on a quarterly basis, of
15 the international banking facility's loans to
16 banks in foreign countries, to foreign
17 domiciled borrowers (except where secured
18 primarily by real estate) and to foreign
19 governments and other foreign official
20 institutions, which were recorded in its
21 financial accounts for the current taxable
22 year.
23 (C) Change to Consolidated Report of Condition
24 and in Qualification. In the event the Consolidated
25 Report of Condition which is filed with the Federal
26 Deposit Insurance Corporation and other regulatory
27 authorities is altered so that the information
28 required for determining the floor amount is not
29 found on Schedule A, lines 2.c., 5.b. and 7.a., the
30 financial institution shall notify the Department
31 and the Department may, by regulations or otherwise,
32 prescribe or authorize the use of an alternative
33 source for such information. The financial
34 institution shall also notify the Department should
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1 its international banking facility fail to qualify
2 as such, in whole or in part, or should there be any
3 amendment or change to the Consolidated Report of
4 Condition, as originally filed, to the extent such
5 amendment or change alters the information used in
6 determining the floor amount.
7 (d) Transportation services. Business income derived
8 from furnishing transportation services shall be apportioned
9 to this State in accordance with paragraphs (1) and (2):
10 (1) Such business income (other than that derived
11 from transportation by pipeline) shall be apportioned to
12 this State by multiplying such income by a fraction, the
13 numerator of which is the revenue miles of the person in
14 this State, and the denominator of which is the revenue
15 miles of the person everywhere. For purposes of this
16 paragraph, a revenue mile is the transportation of 1
17 passenger or 1 net ton of freight the distance of 1 mile
18 for a consideration. Where a person is engaged in the
19 transportation of both passengers and freight, the
20 fraction above referred to shall be determined by means
21 of an average of the passenger revenue mile fraction and
22 the freight revenue mile fraction, weighted to reflect
23 the person's
24 (A) relative railway operating income from
25 total passenger and total freight service, as
26 reported to the Interstate Commerce Commission, in
27 the case of transportation by railroad, and
28 (B) relative gross receipts from passenger and
29 freight transportation, in case of transportation
30 other than by railroad.
31 (2) Such business income derived from
32 transportation by pipeline shall be apportioned to this
33 State by multiplying such income by a fraction, the
34 numerator of which is the revenue miles of the person in
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1 this State, and the denominator of which is the revenue
2 miles of the person everywhere. For the purposes of this
3 paragraph, a revenue mile is the transportation by
4 pipeline of 1 barrel of oil, 1,000 cubic feet of gas, or
5 of any specified quantity of any other substance, the
6 distance of 1 mile for a consideration.
7 (e) Combined apportionment. Where 2 or more persons are
8 engaged in a unitary business as described in subsection
9 (a)(27) of Section 1501, a part of which is conducted in this
10 State by one or more members of the group, the business
11 income attributable to this State by any such member or
12 members shall be apportioned by means of the combined
13 apportionment method.
14 (f) Alternative allocation. If the allocation and
15 apportionment provisions of subsections (a) through (e) and
16 of subsection (h) do not fairly represent the extent of a
17 person's business activity in this State, the person may
18 petition for, or the Director may require, in respect of all
19 or any part of the person's business activity, if reasonable:
20 (1) Separate accounting;
21 (2) The exclusion of any one or more factors;
22 (3) The inclusion of one or more additional factors
23 which will fairly represent the person's business
24 activities in this State; or
25 (4) The employment of any other method to
26 effectuate an equitable allocation and apportionment of
27 the person's business income.
28 (g) Cross reference. For allocation of business income
29 by residents, see Section 301(a).
30 (h) For tax years ending on or after December 31, 1998,
31 the apportionment factor of persons who apportion their
32 business income to this State under subsection (a) shall be
33 equal to:
34 (1) for tax years ending on or after December 31,
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1 1998 and before December 31, 1999, 16 2/3% of the
2 property factor plus 16 2/3% of the payroll factor plus
3 66 2/3% of the sales factor;
4 (2) for tax years ending on or after December 31,
5 1999 and before December 31, 2000, 8 1/3% of the property
6 factor plus 8 1/3% of the payroll factor plus 83 1/3% of
7 the sales factor;
8 (3) for tax years ending on or after December 31,
9 2000, the sales factor.
10 If, in any tax year ending on or after December 31, 1998 and
11 before December 31, 2000, the denominator of the payroll,
12 property, or sales factor is zero, the apportionment factor
13 computed in paragraph (1) or (2) of this subsection for that
14 year shall be divided by an amount equal to 100% minus the
15 percentage weight given to each factor whose denominator is
16 equal to zero.
17 (Source: P.A. 90-562, eff. 12-16-97; 90-613, eff. 7-9-98;
18 91-541, eff. 8-13-99.)
19 Section 99. Effective date. This Act takes effect upon
20 becoming law.