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91_SB0893eng SB893 Engrossed LRB9105884PTpk 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 SB893 Engrossed -2- LRB9105884PTpk 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 SB893 Engrossed -3- LRB9105884PTpk 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.; or29 (ii) (Blank).The property is shipped from an30office, store, warehouse, factory or other place of31storage in this State and either the purchaser is32the United States government or the person is not33taxable in the state of the purchaser; provided,34however, that premises owned or leased by a personSB893 Engrossed -4- LRB9105884PTpk 1who has independently contracted with the seller for2the printing of newspapers, periodicals or books3shall not be deemed to be an office, store,4warehouse, factory or other place of storage for5purposes of this Section. Sales of tangible6personal property are not in this State if the7seller and purchaser would be members of the same8unitary business group but for the fact that either9the seller or purchaser is a person with 80% or more10of total business activity outside of the United11States and the 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 SB893 Engrossed -5- LRB9105884PTpk 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 SB893 Engrossed -6- LRB9105884PTpk 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" SB893 Engrossed -7- LRB9105884PTpk 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 SB893 Engrossed -8- LRB9105884PTpk 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 SB893 Engrossed -9- LRB9105884PTpk 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 SB893 Engrossed -10- LRB9105884PTpk 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; SB893 Engrossed -11- LRB9105884PTpk 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.) 13 Section 99. Effective date. This Act takes effect upon 14 becoming law.