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91_SB0799enr SB799 Enrolled 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 Enrolled -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 Enrolled -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 one or 6 more of the following businesses: the business 7 of purchasing customer receivables, the 8 business oformaking loans upon the security 9 of customer receivables, the business of making 10 loans for the express purpose of funding 11 purchases of tangible personal property or 12 services by the borrower, or the business of 13 finance leasing. For purposes of this item 14 (i), "customer receivable" means: 15 (a) a retail installment contract or 16 retail charge agreement within the meaning of 17 the Sales Finance Agency Act, the Retail 18 Installment Sales Act, or the Motor Vehicle 19 Retail Installment Sales Act; 20 (b) an installment, charge, credit, or 21 similar contract or agreement arising from the 22 sale of tangible personal property or services 23 in a transaction involving a deferred payment 24 price payable in one or more installments 25 subsequent to the sale; or 26 (c) the outstanding balance of a contract 27 or agreement described in provisions (a) or (b) 28 of this item (i). 29 A customer receivable need not provide for 30 payment of interest on deferred payments. A 31 sales finance company may purchase a customer 32 receivable from, or make a loan secured by a 33 customer receivable to, the seller in the 34 original transaction or to a person who SB799 Enrolled -4- LRB9101226PTpk 1 purchased the customer receivable directly or 2 indirectly from that seller. 3 (ii) A corporation meeting each of the 4 following criteria: 5 (a) the corporation must be a member of 6 an "affiliated group" within the meaning of 7 Section 1504(a) of the Internal Revenue Code, 8 determined without regard to Section 1504(b) of 9 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 loans 20 from that corporation to members of its 21 affiliated group during the taxable year do not 22 exceed the limitation amount for that 23 corporation. The "limitation amount" for a 24 corporation is the average outstanding balances 25 during the taxable year of customer receivables 26 (within the meaning of item (i)) originated by 27 all members of the affiliated group. If the 28 average outstanding balances of the loans made 29 by a corporation to members of its affiliated 30 group exceed the limitation amount, the 31 interest income of that corporation from 32 qualifying loans shall be equal to its interest 33 income from loans to members of its affiliated 34 groups times a fraction equal to the limitation SB799 Enrolled -5- LRB9101226PTpk 1 amount divided by the average outstanding 2 balances of the loans made by that corporation 3 to members of its affiliated group; 4 (c) the total of all shareholder's equity 5 (including, without limitation, paid-in capital 6 on common and preferred stock and retained 7 earnings) of the corporation plus the total of 8 all of its loans, advances, and other 9 obligations payable or owed to members of its 10 affiliated group may not exceed 20% of the 11 total assets of the corporation at any time 12 during the tax year; and 13 (d) more than 50% of all interest-bearing 14 obligations of the affiliated group payable to 15 persons outside the group determined in 16 accordance with generally accepted accounting 17 principles must be obligations of the 18 corporation. 19 This amendatory Act of the 91st General Assembly is 20 declaratory of existing law.retail installment contracts21or retail charge agreements or the outstanding balances22under such contracts or agreements. The term includes23but is not limited to persons: (i) to whom the Sales24Finance Agency Act is rendered inapplicable by subsection25(b) of Section 17 thereof; (ii) engaged in consumer sales26finance activities governed by the Sales Finance Agency27Act or that would be governed by that Act if conducted in28this State; (iii) engaged in activities governed by the29Retail Installment Sales Act, including the making or30purchasing of retail installment contracts or retail31charge agreements for "goods" or "services" as defined in32that Act, or activities that would be governed by that33Act if conducted in this State; (iv) engaged in34activities governed by the Motor Vehicle RetailSB799 Enrolled -6- LRB9101226PTpk 1Installment Sales Act or that would be governed by that2Act if conducted in this State; (v) engaged in commercial3finance activities governed by the Illinois Uniform4Commercial Code or that would be governed by that Code if5conducted in this State; or (vi) engaged in the finance6leasing of tangible personal property where "finance7leasing" is activity that is the economic equivalent of8an extension of credit and for which a deduction for9depreciation under Section 167 of the Internal Revenue10Code of 1986 is not available to a lessor.11 (D) Subparagraphs (B) and (C) of this 12 paragraph are declaratory of existing law and apply 13 retroactively, for all tax years beginning on or 14 before December 31, 1996, to all original returns, 15 to all amended returns filed no later than 30 days 16 after the effective date of this amendatory Act of 17 1996, and to all notices issued on or before the 18 effective date of this amendatory Act of 1996 under 19 subsection (a) of Section 903, subsection (a) of 20 Section 904, subsection (e) of Section 909, or 21 Section 912. A taxpayer that is a "financial 22 organization" that engages in any transaction with 23 an affiliate shall be a "financial organization" for 24 all purposes of this Act. 25 (E) For all tax years beginning on or before 26 December 31, 1996, a taxpayer that falls within the 27 definition of a "financial organization" under 28 subparagraphs (B) or (C) of this paragraph, but who 29 does not fall within the definition of a "financial 30 organization" under the Proposed Regulations issued 31 by the Department of Revenue on July 19, 1996, may 32 irrevocably elect to apply the Proposed Regulations 33 for all of those years as though the Proposed 34 Regulations had been lawfully promulgated, adopted, SB799 Enrolled -7- LRB9101226PTpk 1 and in effect for all of those years. For purposes 2 of applying subparagraphs (B) or (C) of this 3 paragraph to all of those years, the election 4 allowed by this subparagraph applies only to the 5 taxpayer making the election and to those members of 6 the taxpayer's unitary business group who are 7 ordinarily required to apportion business income 8 under the same subsection of Section 304 of this Act 9 as the taxpayer making the election. No election 10 allowed by this subparagraph shall be made under a 11 claim filed under subsection (d) of Section 909 more 12 than 30 days after the effective date of this 13 amendatory Act of 1996. 14 (F) Finance Leases. For purposes of this 15 subsection, a finance lease shall be treated as a 16 loan or other extension of credit, rather than as a 17 lease, regardless of how the transaction is 18 characterized for any other purpose, including the 19 purposes of any regulatory agency to which the 20 lessor is subject. A finance lease is any 21 transaction in the form of a lease in which the 22 lessee is treated as the owner of the leased asset 23 entitled to any deduction for depreciation allowed 24 under Section 167 of the Internal Revenue Code. 25 (9) Fiscal year. The term "fiscal year" means an 26 accounting period of 12 months ending on the last day of 27 any month other than December. 28 (10) Includes and including. The terms "includes" 29 and "including" when used in a definition contained in 30 this Act shall not be deemed to exclude other things 31 otherwise within the meaning of the term defined. 32 (11) Internal Revenue Code. The term "Internal 33 Revenue Code" means the United States Internal Revenue 34 Code of 1954 or any successor law or laws relating to SB799 Enrolled -8- LRB9101226PTpk 1 federal income taxes in effect for the taxable year. 2 (12) Mathematical error. The term "mathematical 3 error" includes the following types of errors, omissions, 4 or defects in a return filed by a taxpayer which prevents 5 acceptance of the return as filed for processing: 6 (A) arithmetic errors or incorrect 7 computations on the return or supporting schedules; 8 (B) entries on the wrong lines; 9 (C) omission of required supporting forms or 10 schedules or the omission of the information in 11 whole or in part called for thereon; and 12 (D) an attempt to claim, exclude, deduct, or 13 improperly report, in a manner directly contrary to 14 the provisions of the Act and regulations thereunder 15 any item of income, exemption, deduction, or credit. 16 (13) Nonbusiness income. The term "nonbusiness 17 income" means all income other than business income or 18 compensation. 19 (14) Nonresident. The term "nonresident" means a 20 person who is not a resident. 21 (15) Paid, incurred and accrued. The terms "paid", 22 "incurred" and "accrued" shall be construed according to 23 the method of accounting upon the basis of which the 24 person's base income is computed under this Act. 25 (16) Partnership and partner. The term 26 "partnership" includes a syndicate, group, pool, joint 27 venture or other unincorporated organization, through or 28 by means of which any business, financial operation, or 29 venture is carried on, and which is not, within the 30 meaning of this Act, a trust or estate or a corporation; 31 and the term "partner" includes a member in such 32 syndicate, group, pool, joint venture or organization. 33 Any entity, including a limited liability company 34 formed under the Illinois Limited Liability Company Act, SB799 Enrolled -9- LRB9101226PTpk 1 shall be treated as a partnership if it is so classified 2 for federal income tax purposes. 3 For purposes of the tax imposed at subsection (c) of 4 Section 201 of this Act, the term "partnership" does not 5 include a syndicate, group, pool, joint venture or other 6 unincorporated organization established for the sole 7 purpose of playing the Illinois State Lottery. 8 (17) Part-year resident. The term "part-year 9 resident" means an individual who became a resident 10 during the taxable year or ceased to be a resident during 11 the taxable year. Under Section 1501 (a) (20) (A) (i) 12 residence commences with presence in this State for other 13 than a temporary or transitory purpose and ceases with 14 absence from this State for other than a temporary or 15 transitory purpose. Under Section 1501 (a) (20) (A) (ii) 16 residence commences with the establishment of domicile in 17 this State and ceases with the establishment of domicile 18 in another State. 19 (18) Person. The term "person" shall be construed 20 to mean and include an individual, a trust, estate, 21 partnership, association, firm, company, corporation, 22 limited liability company, or fiduciary. For purposes of 23 Section 1301 and 1302 of this Act, a "person" means (i) 24 an individual, (ii) a corporation, (iii) an officer, 25 agent, or employee of a corporation, (iv) a member, agent 26 or employee of a partnership, or (v) a member, manager, 27 employee, officer, director, or agent of a limited 28 liability company who in such capacity commits an offense 29 specified in Section 1301 and 1302. 30 (18A) Records. The term "records" includes all 31 data maintained by the taxpayer, whether on paper, 32 microfilm, microfiche, or any type of machine-sensible 33 data compilation. 34 (19) Regulations. The term "regulations" includes SB799 Enrolled -10- LRB9101226PTpk 1 rules promulgated and forms prescribed by the Department. 2 (20) Resident. The term "resident" means: 3 (A) an individual (i) who is in this State for 4 other than a temporary or transitory purpose during 5 the taxable year; or (ii) who is domiciled in this 6 State but is absent from the State for a temporary 7 or transitory purpose during the taxable year; 8 (B) The estate of a decedent who at his or her 9 death was domiciled in this State; 10 (C) A trust created by a will of a decedent 11 who at his death was domiciled in this State; and 12 (D) An irrevocable trust, the grantor of which 13 was domiciled in this State at the time such trust 14 became irrevocable. For purpose of this 15 subparagraph, a trust shall be considered 16 irrevocable to the extent that the grantor is not 17 treated as the owner thereof under Sections 671 18 through 678 of the Internal Revenue Code. 19 (21) Sales. The term "sales" means all gross 20 receipts of the taxpayer not allocated under Sections 21 301, 302 and 303. 22 (22) State. The term "state" when applied to a 23 jurisdiction other than this State means any state of the 24 United States, the District of Columbia, the Commonwealth 25 of Puerto Rico, any Territory or Possession of the United 26 States, and any foreign country, or any political 27 subdivision of any of the foregoing. For purposes of the 28 foreign tax credit under Section 601, the term "state" 29 means any state of the United States, the District of 30 Columbia, the Commonwealth of Puerto Rico, and any 31 territory or possession of the United States, or any 32 political subdivision of any of the foregoing, effective 33 for tax years ending on or after December 31, 1989. 34 (23) Taxable year. The term "taxable year" means SB799 Enrolled -11- LRB9101226PTpk 1 the calendar year, or the fiscal year ending during such 2 calendar year, upon the basis of which the base income is 3 computed under this Act. "Taxable year" means, in the 4 case of a return made for a fractional part of a year 5 under the provisions of this Act, the period for which 6 such return is made. 7 (24) Taxpayer. The term "taxpayer" means any person 8 subject to the tax imposed by this Act. 9 (25) International banking facility. The term 10 international banking facility shall have the same 11 meaning as is set forth in the Illinois Banking Act or as 12 is set forth in the laws of the United States or 13 regulations of the Board of Governors of the Federal 14 Reserve System. 15 (26) Income Tax Return Preparer. 16 (A) The term "income tax return preparer" 17 means any person who prepares for compensation, or 18 who employs one or more persons to prepare for 19 compensation, any return of tax imposed by this Act 20 or any claim for refund of tax imposed by this Act. 21 The preparation of a substantial portion of a return 22 or claim for refund shall be treated as the 23 preparation of that return or claim for refund. 24 (B) A person is not an income tax return 25 preparer if all he or she does is 26 (i) furnish typing, reproducing, or other 27 mechanical assistance; 28 (ii) prepare returns or claims for 29 refunds for the employer by whom he or she is 30 regularly and continuously employed; 31 (iii) prepare as a fiduciary returns or 32 claims for refunds for any person; or 33 (iv) prepare claims for refunds for a 34 taxpayer in response to any notice of SB799 Enrolled -12- LRB9101226PTpk 1 deficiency issued to that taxpayer or in 2 response to any waiver of restriction after the 3 commencement of an audit of that taxpayer or of 4 another taxpayer if a determination in the 5 audit of the other taxpayer directly or 6 indirectly affects the tax liability of the 7 taxpayer whose claims he or she is preparing. 8 (27) Unitary business group. The term "unitary 9 business group" means a group of persons related through 10 common ownership whose business activities are integrated 11 with, dependent upon and contribute to each other. The 12 group will not include those members whose business 13 activity outside the United States is 80% or more of any 14 such member's total business activity; for purposes of 15 this paragraph and clause (a) (3) (B) (ii) of Section 16 304, business activity within the United States shall be 17 measured by means of the factors ordinarily applicable 18 under subsections (a), (b), (c), (d), or (h) of Section 19 304 except that, in the case of members ordinarily 20 required to apportion business income by means of the 3 21 factor formula of property, payroll and sales specified 22 in subsection (a) of Section 304, including the formula 23 as weighted in subsection (h) of Section 304, such 24 members shall not use the sales factor in the computation 25 and the results of the property and payroll factor 26 computations of subsection (a) of Section 304 shall be 27 divided by 2 (by one if either the property or payroll 28 factor has a denominator of zero). The computation 29 required by the preceding sentence shall, in each case, 30 involve the division of the member's property, payroll, 31 or revenue miles in the United States, insurance premiums 32 on property or risk in the United States, or financial 33 organization business income from sources within the 34 United States, as the case may be, by the respective SB799 Enrolled -13- LRB9101226PTpk 1 worldwide figures for such items. Common ownership in 2 the case of corporations is the direct or indirect 3 control or ownership of more than 50% of the outstanding 4 voting stock of the persons carrying on unitary business 5 activity. Unitary business activity can ordinarily be 6 illustrated where the activities of the members are: (1) 7 in the same general line (such as manufacturing, 8 wholesaling, retailing of tangible personal property, 9 insurance, transportation or finance); or (2) are steps 10 in a vertically structured enterprise or process (such as 11 the steps involved in the production of natural 12 resources, which might include exploration, mining, 13 refining, and marketing); and, in either instance, the 14 members are functionally integrated through the exercise 15 of strong centralized management (where, for example, 16 authority over such matters as purchasing, financing, tax 17 compliance, product line, personnel, marketing and 18 capital investment is not left to each member). In no 19 event, however, will any unitary business group include 20 members which are ordinarily required to apportion 21 business income under different subsections of Section 22 304 except that for tax years ending on or after December 23 31, 1987 this prohibition shall not apply to a unitary 24 business group composed of one or more taxpayers all of 25 which apportion business income pursuant to subsection 26 (b) of Section 304, or all of which apportion business 27 income pursuant to subsection (d) of Section 304, and a 28 holding company of such single-factor taxpayers (see 29 definition of "financial organization" for rule regarding 30 holding companies of financial organizations). If a 31 unitary business group would, but for the preceding 32 sentence, include members that are ordinarily required to 33 apportion business income under different subsections of 34 Section 304, then for each subsection of Section 304 for SB799 Enrolled -14- LRB9101226PTpk 1 which there are two or more members, there shall be a 2 separate unitary business group composed of such members. 3 For purposes of the preceding two sentences, a member is 4 "ordinarily required to apportion business income" under 5 a particular subsection of Section 304 if it would be 6 required to use the apportionment method prescribed by 7 such subsection except for the fact that it derives 8 business income solely from Illinois. If the unitary 9 business group members' accounting periods differ, the 10 common parent's accounting period or, if there is no 11 common parent, the accounting period of the member that 12 is expected to have, on a recurring basis, the greatest 13 Illinois income tax liability must be used to determine 14 whether to use the apportionment method provided in 15 subsection (a) or subsection (h) of Section 304. The 16 prohibition against membership in a unitary business 17 group for taxpayers ordinarily required to apportion 18 income under different subsections of Section 304 does 19 not apply to taxpayers required to apportion income under 20 subsection (a) and subsection (h) of Section 304. The 21 provisions of this amendatory Act of 1998 apply to tax 22 years ending on or after December 31, 1998. 23 (28) Subchapter S corporation. The term 24 "Subchapter S corporation" means a corporation for which 25 there is in effect an election under Section 1362 of the 26 Internal Revenue Code, or for which there is a federal 27 election to opt out of the provisions of the Subchapter S 28 Revision Act of 1982 and have applied instead the prior 29 federal Subchapter S rules as in effect on July 1, 1982. 30 (b) Other definitions. 31 (1) Words denoting number, gender, and so forth, 32 when used in this Act, where not otherwise distinctly 33 expressed or manifestly incompatible with the intent 34 thereof: SB799 Enrolled -15- LRB9101226PTpk 1 (A) Words importing the singular include and 2 apply to several persons, parties or things; 3 (B) Words importing the plural include the 4 singular; and 5 (C) Words importing the masculine gender 6 include the feminine as well. 7 (2) "Company" or "association" as including 8 successors and assigns. The word "company" or 9 "association", when used in reference to a corporation, 10 shall be deemed to embrace the words "successors and 11 assigns of such company or association", and in like 12 manner as if these last-named words, or words of similar 13 import, were expressed. 14 (3) Other terms. Any term used in any Section of 15 this Act with respect to the application of, or in 16 connection with, the provisions of any other Section of 17 this Act shall have the same meaning as in such other 18 Section. 19 (Source: P.A. 89-399, eff. 8-20-95; 89-711, eff. 2-14-97; 20 90-613, eff. 7-9-98.) 21 Section 99. Effective date. This Act takes effect on 22 January 1, 2000.