[ Search ] [ Legislation ]
[ Home ] [ Back ] [ Bottom ]
| [ Introduced ] | [ Enrolled ] | [ House Amendment 001 ] |
91_SB0799eng SB799 Engrossed LRB9101226PTpk 1 AN ACT to amend the Illinois Income Tax Act by changing 2 Section 1501. 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 1501 as follows: 7 (35 ILCS 5/1501) (from Ch. 120, par. 15-1501) 8 Sec. 1501. Definitions. 9 (a) In general. When used in this Act, where not 10 otherwise distinctly expressed or manifestly incompatible 11 with the intent thereof: 12 (1) Business income. The term "business income" 13 means income arising from transactions and activity in 14 the regular course of the taxpayer's trade or business, 15 net of the deductions allocable thereto, and includes 16 income from tangible and intangible property if the 17 acquisition, management, and disposition of the property 18 constitute integral parts of the taxpayer's regular trade 19 or business operations. Such term does not include 20 compensation or the deductions allocable thereto. 21 (2) Commercial domicile. The term "commercial 22 domicile" means the principal place from which the trade 23 or business of the taxpayer is directed or managed. 24 (3) Compensation. The term "compensation" means 25 wages, salaries, commissions and any other form of 26 remuneration paid to employees for personal services. 27 (4) Corporation. The term "corporation" includes 28 associations, joint-stock companies, insurance companies 29 and cooperatives. Any entity, including a limited 30 liability company formed under the Illinois Limited 31 Liability Company Act, shall be treated as a corporation SB799 Engrossed -2- LRB9101226PTpk 1 if it is so classified for federal income tax purposes. 2 (5) Department. The term "Department" means the 3 Department of Revenue of this State. 4 (6) Director. The term "Director" means the 5 Director of Revenue of this State. 6 (7) Fiduciary. The term "fiduciary" means a 7 guardian, trustee, executor, administrator, receiver, or 8 any person acting in any fiduciary capacity for any 9 person. 10 (8) Financial organization. 11 (A) The term "financial organization" means 12 any bank, bank holding company, trust company, 13 savings bank, industrial bank, land bank, safe 14 deposit company, private banker, savings and loan 15 association, building and loan association, credit 16 union, currency exchange, cooperative bank, small 17 loan company, sales finance company, investment 18 company, or any person which is owned by a bank or 19 bank holding company. For the purpose of this 20 Section a "person" will include only those persons 21 which a bank holding company may acquire and hold an 22 interest in, directly or indirectly, under the 23 provisions of the Bank Holding Company Act of 1956 24 (12 U.S.C. 1841, et seq.), except where interests in 25 any person must be disposed of within certain 26 required time limits under the Bank Holding Company 27 Act of 1956. 28 (B) For purposes of subparagraph (A) of this 29 paragraph, the term "bank" includes (i) any entity 30 that is regulated by the Comptroller of the Currency 31 under the National Bank Act, or by the Federal 32 Reserve Board, or by the Federal Deposit Insurance 33 Corporation and (ii) any federally or State 34 chartered bank operating as a credit card bank. SB799 Engrossed -3- LRB9101226PTpk 1 (C) For purposes of subparagraph (A) of this 2 paragraph, the term "sales finance company" has the 3 meaning provided in the following item (i) or (ii): 4means5 (i) A person primarily engaged in the 6 business of purchasing or making loans upon the 7 security of customer receivables. For purposes 8 of this item (i), "customer receivable" means: 9 (a) a retail installment contract or 10 retail charge agreement within the meaning of 11 the Sales Finance Agency Act, the Retail 12 Installment Sales Act, or the Motor Vehicle 13 Retail Installment Sales Act; 14 (b) an installment, charge, credit, or 15 similar contract or agreement arising from the 16 sale of tangible personal property or services 17 in a transaction involving a deferred payment 18 price payable in one or more installments 19 subsequent to the sale; or 20 (c) the outstanding balance of a contract 21 or agreement described in provisions (a) or (b) 22 of this item (i). 23 A customer receivable need not provide for 24 payment of interest on deferred payments. A 25 sales finance company may purchase a customer 26 receivable from, or make a loan secured by a 27 customer receivable to, the seller in the 28 original transaction or to a person who 29 purchased the customer receivable directly or 30 indirectly from that seller. 31 (ii) A corporation meeting each of the 32 following criteria: 33 (a) the corporation must be a member of 34 an "affiliated group" within the meaning of SB799 Engrossed -4- LRB9101226PTpk 1 Section 1504(a) of the Internal Revenue Code, 2 determined without regard to Section 1504(b) of 3 the Internal Revenue Code; 4 (b) more than 50% of the gross income of 5 the corporation for the taxable year must be 6 interest income derived from qualifying loans. 7 A "qualifying loan" is a loan made to a member 8 of the corporation's affiliated group that 9 originates customer receivables (within the 10 meaning of item (i)) or to whom customer 11 receivables originated by a member of the 12 affiliated group have been transferred, to the 13 extent the average outstanding balance of loans 14 from that corporation to members of its 15 affiliated group during the taxable year do not 16 exceed the limitation amount for that 17 corporation. The "limitation amount" for a 18 corporation is the average outstanding balances 19 during the taxable year of customer receivables 20 (within the meaning of item (i)) originated by 21 all members of the affiliated group. If the 22 average outstanding balances of the loans made 23 by a corporation to members of its affiliated 24 group exceed the limitation amount, the 25 interest income of that corporation from 26 qualifying loans shall be equal to its interest 27 income from loans to members of its affiliated 28 groups times a fraction equal to the limitation 29 amount divided by the average outstanding 30 balances of the loans made by that corporation 31 to members of its affiliated group; 32 (c) the total of all shareholder's equity 33 (including, without limitation, paid-in capital 34 on common and preferred stock and retained SB799 Engrossed -5- LRB9101226PTpk 1 earnings) of the corporation plus the total of 2 all of its loans, advances, and other 3 obligations payable or owed to members of its 4 affiliated group may not exceed 20% of the 5 total assets of the corporation at any time 6 during the tax year; and 7 (d) more than 50% of all interest-bearing 8 obligations of the affiliated group payable to 9 persons outside the group determined in 10 accordance with generally accepted accounting 11 principles must be obligations of the 12 corporation. 13 This amendatory Act of the 91st General Assembly is 14 declaratory of existing law.retail installment contracts15or retail charge agreements or the outstanding balances16under such contracts or agreements. The term includes17but is not limited to persons: (i) to whom the Sales18Finance Agency Act is rendered inapplicable by subsection19(b) of Section 17 thereof; (ii) engaged in consumer sales20finance activities governed by the Sales Finance Agency21Act or that would be governed by that Act if conducted in22this State; (iii) engaged in activities governed by the23Retail Installment Sales Act, including the making or24purchasing of retail installment contracts or retail25charge agreements for "goods" or "services" as defined in26that Act, or activities that would be governed by that27Act if conducted in this State; (iv) engaged in28activities governed by the Motor Vehicle Retail29Installment Sales Act or that would be governed by that30Act if conducted in this State; (v) engaged in commercial31finance activities governed by the Illinois Uniform32Commercial Code or that would be governed by that Code if33conducted in this State; or (vi) engaged in the finance34leasing of tangible personal property where "financeSB799 Engrossed -6- LRB9101226PTpk 1leasing" is activity that is the economic equivalent of2an extension of credit and for which a deduction for3depreciation under Section 167 of the Internal Revenue4Code of 1986 is not available to a lessor.5 (D) Subparagraphs (B) and (C) of this 6 paragraph are declaratory of existing law and apply 7 retroactively, for all tax years beginning on or 8 before December 31, 1996, to all original returns, 9 to all amended returns filed no later than 30 days 10 after the effective date of this amendatory Act of 11 1996, and to all notices issued on or before the 12 effective date of this amendatory Act of 1996 under 13 subsection (a) of Section 903, subsection (a) of 14 Section 904, subsection (e) of Section 909, or 15 Section 912. A taxpayer that is a "financial 16 organization" that engages in any transaction with 17 an affiliate shall be a "financial organization" for 18 all purposes of this Act. 19 (E) For all tax years beginning on or before 20 December 31, 1996, a taxpayer that falls within the 21 definition of a "financial organization" under 22 subparagraphs (B) or (C) of this paragraph, but who 23 does not fall within the definition of a "financial 24 organization" under the Proposed Regulations issued 25 by the Department of Revenue on July 19, 1996, may 26 irrevocably elect to apply the Proposed Regulations 27 for all of those years as though the Proposed 28 Regulations had been lawfully promulgated, adopted, 29 and in effect for all of those years. For purposes 30 of applying subparagraphs (B) or (C) of this 31 paragraph to all of those years, the election 32 allowed by this subparagraph applies only to the 33 taxpayer making the election and to those members of 34 the taxpayer's unitary business group who are SB799 Engrossed -7- LRB9101226PTpk 1 ordinarily required to apportion business income 2 under the same subsection of Section 304 of this Act 3 as the taxpayer making the election. No election 4 allowed by this subparagraph shall be made under a 5 claim filed under subsection (d) of Section 909 more 6 than 30 days after the effective date of this 7 amendatory Act of 1996. 8 (9) Fiscal year. The term "fiscal year" means an 9 accounting period of 12 months ending on the last day of 10 any month other than December. 11 (10) Includes and including. The terms "includes" 12 and "including" when used in a definition contained in 13 this Act shall not be deemed to exclude other things 14 otherwise within the meaning of the term defined. 15 (11) Internal Revenue Code. The term "Internal 16 Revenue Code" means the United States Internal Revenue 17 Code of 1954 or any successor law or laws relating to 18 federal income taxes in effect for the taxable year. 19 (12) Mathematical error. The term "mathematical 20 error" includes the following types of errors, omissions, 21 or defects in a return filed by a taxpayer which prevents 22 acceptance of the return as filed for processing: 23 (A) arithmetic errors or incorrect 24 computations on the return or supporting schedules; 25 (B) entries on the wrong lines; 26 (C) omission of required supporting forms or 27 schedules or the omission of the information in 28 whole or in part called for thereon; and 29 (D) an attempt to claim, exclude, deduct, or 30 improperly report, in a manner directly contrary to 31 the provisions of the Act and regulations thereunder 32 any item of income, exemption, deduction, or credit. 33 (13) Nonbusiness income. The term "nonbusiness 34 income" means all income other than business income or SB799 Engrossed -8- LRB9101226PTpk 1 compensation. 2 (14) Nonresident. The term "nonresident" means a 3 person who is not a resident. 4 (15) Paid, incurred and accrued. The terms "paid", 5 "incurred" and "accrued" shall be construed according to 6 the method of accounting upon the basis of which the 7 person's base income is computed under this Act. 8 (16) Partnership and partner. The term 9 "partnership" includes a syndicate, group, pool, joint 10 venture or other unincorporated organization, through or 11 by means of which any business, financial operation, or 12 venture is carried on, and which is not, within the 13 meaning of this Act, a trust or estate or a corporation; 14 and the term "partner" includes a member in such 15 syndicate, group, pool, joint venture or organization. 16 Any entity, including a limited liability company 17 formed under the Illinois Limited Liability Company Act, 18 shall be treated as a partnership if it is so classified 19 for federal income tax purposes. 20 For purposes of the tax imposed at subsection (c) of 21 Section 201 of this Act, the term "partnership" does not 22 include a syndicate, group, pool, joint venture or other 23 unincorporated organization established for the sole 24 purpose of playing the Illinois State Lottery. 25 (17) Part-year resident. The term "part-year 26 resident" means an individual who became a resident 27 during the taxable year or ceased to be a resident during 28 the taxable year. Under Section 1501 (a) (20) (A) (i) 29 residence commences with presence in this State for other 30 than a temporary or transitory purpose and ceases with 31 absence from this State for other than a temporary or 32 transitory purpose. Under Section 1501 (a) (20) (A) (ii) 33 residence commences with the establishment of domicile in 34 this State and ceases with the establishment of domicile SB799 Engrossed -9- LRB9101226PTpk 1 in another State. 2 (18) Person. The term "person" shall be construed 3 to mean and include an individual, a trust, estate, 4 partnership, association, firm, company, corporation, 5 limited liability company, or fiduciary. For purposes of 6 Section 1301 and 1302 of this Act, a "person" means (i) 7 an individual, (ii) a corporation, (iii) an officer, 8 agent, or employee of a corporation, (iv) a member, agent 9 or employee of a partnership, or (v) a member, manager, 10 employee, officer, director, or agent of a limited 11 liability company who in such capacity commits an offense 12 specified in Section 1301 and 1302. 13 (18A) Records. The term "records" includes all 14 data maintained by the taxpayer, whether on paper, 15 microfilm, microfiche, or any type of machine-sensible 16 data compilation. 17 (19) Regulations. The term "regulations" includes 18 rules promulgated and forms prescribed by the Department. 19 (20) Resident. The term "resident" means: 20 (A) an individual (i) who is in this State for 21 other than a temporary or transitory purpose during 22 the taxable year; or (ii) who is domiciled in this 23 State but is absent from the State for a temporary 24 or transitory purpose during the taxable year; 25 (B) The estate of a decedent who at his or her 26 death was domiciled in this State; 27 (C) A trust created by a will of a decedent 28 who at his death was domiciled in this State; and 29 (D) An irrevocable trust, the grantor of which 30 was domiciled in this State at the time such trust 31 became irrevocable. For purpose of this 32 subparagraph, a trust shall be considered 33 irrevocable to the extent that the grantor is not 34 treated as the owner thereof under Sections 671 SB799 Engrossed -10- LRB9101226PTpk 1 through 678 of the Internal Revenue Code. 2 (21) Sales. The term "sales" means all gross 3 receipts of the taxpayer not allocated under Sections 4 301, 302 and 303. 5 (22) State. The term "state" when applied to a 6 jurisdiction other than this State means any state of the 7 United States, the District of Columbia, the Commonwealth 8 of Puerto Rico, any Territory or Possession of the United 9 States, and any foreign country, or any political 10 subdivision of any of the foregoing. For purposes of the 11 foreign tax credit under Section 601, the term "state" 12 means any state of the United States, the District of 13 Columbia, the Commonwealth of Puerto Rico, and any 14 territory or possession of the United States, or any 15 political subdivision of any of the foregoing, effective 16 for tax years ending on or after December 31, 1989. 17 (23) Taxable year. The term "taxable year" means 18 the calendar year, or the fiscal year ending during such 19 calendar year, upon the basis of which the base income is 20 computed under this Act. "Taxable year" means, in the 21 case of a return made for a fractional part of a year 22 under the provisions of this Act, the period for which 23 such return is made. 24 (24) Taxpayer. The term "taxpayer" means any person 25 subject to the tax imposed by this Act. 26 (25) International banking facility. The term 27 international banking facility shall have the same 28 meaning as is set forth in the Illinois Banking Act or as 29 is set forth in the laws of the United States or 30 regulations of the Board of Governors of the Federal 31 Reserve System. 32 (26) Income Tax Return Preparer. 33 (A) The term "income tax return preparer" 34 means any person who prepares for compensation, or SB799 Engrossed -11- LRB9101226PTpk 1 who employs one or more persons to prepare for 2 compensation, any return of tax imposed by this Act 3 or any claim for refund of tax imposed by this Act. 4 The preparation of a substantial portion of a return 5 or claim for refund shall be treated as the 6 preparation of that return or claim for refund. 7 (B) A person is not an income tax return 8 preparer if all he or she does is 9 (i) furnish typing, reproducing, or other 10 mechanical assistance; 11 (ii) prepare returns or claims for 12 refunds for the employer by whom he or she is 13 regularly and continuously employed; 14 (iii) prepare as a fiduciary returns or 15 claims for refunds for any person; or 16 (iv) prepare claims for refunds for a 17 taxpayer in response to any notice of 18 deficiency issued to that taxpayer or in 19 response to any waiver of restriction after the 20 commencement of an audit of that taxpayer or of 21 another taxpayer if a determination in the 22 audit of the other taxpayer directly or 23 indirectly affects the tax liability of the 24 taxpayer whose claims he or she is preparing. 25 (27) Unitary business group. The term "unitary 26 business group" means a group of persons related through 27 common ownership whose business activities are integrated 28 with, dependent upon and contribute to each other. The 29 group will not include those members whose business 30 activity outside the United States is 80% or more of any 31 such member's total business activity; for purposes of 32 this paragraph and clause (a) (3) (B) (ii) of Section 33 304, business activity within the United States shall be 34 measured by means of the factors ordinarily applicable SB799 Engrossed -12- LRB9101226PTpk 1 under subsections (a), (b), (c), (d), or (h) of Section 2 304 except that, in the case of members ordinarily 3 required to apportion business income by means of the 3 4 factor formula of property, payroll and sales specified 5 in subsection (a) of Section 304, including the formula 6 as weighted in subsection (h) of Section 304, such 7 members shall not use the sales factor in the computation 8 and the results of the property and payroll factor 9 computations of subsection (a) of Section 304 shall be 10 divided by 2 (by one if either the property or payroll 11 factor has a denominator of zero). The computation 12 required by the preceding sentence shall, in each case, 13 involve the division of the member's property, payroll, 14 or revenue miles in the United States, insurance premiums 15 on property or risk in the United States, or financial 16 organization business income from sources within the 17 United States, as the case may be, by the respective 18 worldwide figures for such items. Common ownership in 19 the case of corporations is the direct or indirect 20 control or ownership of more than 50% of the outstanding 21 voting stock of the persons carrying on unitary business 22 activity. Unitary business activity can ordinarily be 23 illustrated where the activities of the members are: (1) 24 in the same general line (such as manufacturing, 25 wholesaling, retailing of tangible personal property, 26 insurance, transportation or finance); or (2) are steps 27 in a vertically structured enterprise or process (such as 28 the steps involved in the production of natural 29 resources, which might include exploration, mining, 30 refining, and marketing); and, in either instance, the 31 members are functionally integrated through the exercise 32 of strong centralized management (where, for example, 33 authority over such matters as purchasing, financing, tax 34 compliance, product line, personnel, marketing and SB799 Engrossed -13- LRB9101226PTpk 1 capital investment is not left to each member). In no 2 event, however, will any unitary business group include 3 members which are ordinarily required to apportion 4 business income under different subsections of Section 5 304 except that for tax years ending on or after December 6 31, 1987 this prohibition shall not apply to a unitary 7 business group composed of one or more taxpayers all of 8 which apportion business income pursuant to subsection 9 (b) of Section 304, or all of which apportion business 10 income pursuant to subsection (d) of Section 304, and a 11 holding company of such single-factor taxpayers (see 12 definition of "financial organization" for rule regarding 13 holding companies of financial organizations). If a 14 unitary business group would, but for the preceding 15 sentence, include members that are ordinarily required to 16 apportion business income under different subsections of 17 Section 304, then for each subsection of Section 304 for 18 which there are two or more members, there shall be a 19 separate unitary business group composed of such members. 20 For purposes of the preceding two sentences, a member is 21 "ordinarily required to apportion business income" under 22 a particular subsection of Section 304 if it would be 23 required to use the apportionment method prescribed by 24 such subsection except for the fact that it derives 25 business income solely from Illinois. If the unitary 26 business group members' accounting periods differ, the 27 common parent's accounting period or, if there is no 28 common parent, the accounting period of the member that 29 is expected to have, on a recurring basis, the greatest 30 Illinois income tax liability must be used to determine 31 whether to use the apportionment method provided in 32 subsection (a) or subsection (h) of Section 304. The 33 prohibition against membership in a unitary business 34 group for taxpayers ordinarily required to apportion SB799 Engrossed -14- LRB9101226PTpk 1 income under different subsections of Section 304 does 2 not apply to taxpayers required to apportion income under 3 subsection (a) and subsection (h) of Section 304. The 4 provisions of this amendatory Act of 1998 apply to tax 5 years ending on or after December 31, 1998. 6 (28) Subchapter S corporation. The term 7 "Subchapter S corporation" means a corporation for which 8 there is in effect an election under Section 1362 of the 9 Internal Revenue Code, or for which there is a federal 10 election to opt out of the provisions of the Subchapter S 11 Revision Act of 1982 and have applied instead the prior 12 federal Subchapter S rules as in effect on July 1, 1982. 13 (b) Other definitions. 14 (1) Words denoting number, gender, and so forth, 15 when used in this Act, where not otherwise distinctly 16 expressed or manifestly incompatible with the intent 17 thereof: 18 (A) Words importing the singular include and 19 apply to several persons, parties or things; 20 (B) Words importing the plural include the 21 singular; and 22 (C) Words importing the masculine gender 23 include the feminine as well. 24 (2) "Company" or "association" as including 25 successors and assigns. The word "company" or 26 "association", when used in reference to a corporation, 27 shall be deemed to embrace the words "successors and 28 assigns of such company or association", and in like 29 manner as if these last-named words, or words of similar 30 import, were expressed. 31 (3) Other terms. Any term used in any Section of 32 this Act with respect to the application of, or in 33 connection with, the provisions of any other Section of 34 this Act shall have the same meaning as in such other SB799 Engrossed -15- LRB9101226PTpk 1 Section. 2 (Source: P.A. 89-399, eff. 8-20-95; 89-711, eff. 2-14-97; 3 90-613, eff. 7-9-98.) 4 Section 99. Effective date. This Act takes effect on 5 January 1, 2000.