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Public Act 91-0535
SB799 Enrolled LRB9101226PTpk
AN ACT to amend the Illinois Income Tax Act by changing
Section 1501.
Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
Section 5. The Illinois Income Tax Act is amended by
changing Section 1501 as follows:
(35 ILCS 5/1501) (from Ch. 120, par. 15-1501)
Sec. 1501. Definitions.
(a) In general. When used in this Act, where not
otherwise distinctly expressed or manifestly incompatible
with the intent thereof:
(1) Business income. The term "business income"
means income arising from transactions and activity in
the regular course of the taxpayer's trade or business,
net of the deductions allocable thereto, and includes
income from tangible and intangible property if the
acquisition, management, and disposition of the property
constitute integral parts of the taxpayer's regular trade
or business operations. Such term does not include
compensation or the deductions allocable thereto.
(2) Commercial domicile. The term "commercial
domicile" means the principal place from which the trade
or business of the taxpayer is directed or managed.
(3) Compensation. The term "compensation" means
wages, salaries, commissions and any other form of
remuneration paid to employees for personal services.
(4) Corporation. The term "corporation" includes
associations, joint-stock companies, insurance companies
and cooperatives. Any entity, including a limited
liability company formed under the Illinois Limited
Liability Company Act, shall be treated as a corporation
if it is so classified for federal income tax purposes.
(5) Department. The term "Department" means the
Department of Revenue of this State.
(6) Director. The term "Director" means the
Director of Revenue of this State.
(7) Fiduciary. The term "fiduciary" means a
guardian, trustee, executor, administrator, receiver, or
any person acting in any fiduciary capacity for any
person.
(8) Financial organization.
(A) The term "financial organization" means
any bank, bank holding company, trust company,
savings bank, industrial bank, land bank, safe
deposit company, private banker, savings and loan
association, building and loan association, credit
union, currency exchange, cooperative bank, small
loan company, sales finance company, investment
company, or any person which is owned by a bank or
bank holding company. For the purpose of this
Section a "person" will include only those persons
which a bank holding company may acquire and hold an
interest in, directly or indirectly, under the
provisions of the Bank Holding Company Act of 1956
(12 U.S.C. 1841, et seq.), except where interests in
any person must be disposed of within certain
required time limits under the Bank Holding Company
Act of 1956.
(B) For purposes of subparagraph (A) of this
paragraph, the term "bank" includes (i) any entity
that is regulated by the Comptroller of the Currency
under the National Bank Act, or by the Federal
Reserve Board, or by the Federal Deposit Insurance
Corporation and (ii) any federally or State
chartered bank operating as a credit card bank.
(C) For purposes of subparagraph (A) of this
paragraph, the term "sales finance company" has the
meaning provided in the following item (i) or (ii):
means
(i) A person primarily engaged in one or
more of the following businesses: the business
of purchasing customer receivables, the
business of or making loans upon the security
of customer receivables, the business of making
loans for the express purpose of funding
purchases of tangible personal property or
services by the borrower, or the business of
finance leasing. For purposes of this item
(i), "customer receivable" means:
(a) a retail installment contract or
retail charge agreement within the meaning of
the Sales Finance Agency Act, the Retail
Installment Sales Act, or the Motor Vehicle
Retail Installment Sales Act;
(b) an installment, charge, credit, or
similar contract or agreement arising from the
sale of tangible personal property or services
in a transaction involving a deferred payment
price payable in one or more installments
subsequent to the sale; or
(c) the outstanding balance of a contract
or agreement described in provisions (a) or (b)
of this item (i).
A customer receivable need not provide for
payment of interest on deferred payments. A
sales finance company may purchase a customer
receivable from, or make a loan secured by a
customer receivable to, the seller in the
original transaction or to a person who
purchased the customer receivable directly or
indirectly from that seller.
(ii) A corporation meeting each of the
following criteria:
(a) the corporation must be a member of
an "affiliated group" within the meaning of
Section 1504(a) of the Internal Revenue Code,
determined without regard to Section 1504(b) of
the Internal Revenue Code;
(b) more than 50% of the gross income of
the corporation for the taxable year must be
interest income derived from qualifying loans.
A "qualifying loan" is a loan made to a member
of the corporation's affiliated group that
originates customer receivables (within the
meaning of item (i)) or to whom customer
receivables originated by a member of the
affiliated group have been transferred, to the
extent the average outstanding balance of loans
from that corporation to members of its
affiliated group during the taxable year do not
exceed the limitation amount for that
corporation. The "limitation amount" for a
corporation is the average outstanding balances
during the taxable year of customer receivables
(within the meaning of item (i)) originated by
all members of the affiliated group. If the
average outstanding balances of the loans made
by a corporation to members of its affiliated
group exceed the limitation amount, the
interest income of that corporation from
qualifying loans shall be equal to its interest
income from loans to members of its affiliated
groups times a fraction equal to the limitation
amount divided by the average outstanding
balances of the loans made by that corporation
to members of its affiliated group;
(c) the total of all shareholder's equity
(including, without limitation, paid-in capital
on common and preferred stock and retained
earnings) of the corporation plus the total of
all of its loans, advances, and other
obligations payable or owed to members of its
affiliated group may not exceed 20% of the
total assets of the corporation at any time
during the tax year; and
(d) more than 50% of all interest-bearing
obligations of the affiliated group payable to
persons outside the group determined in
accordance with generally accepted accounting
principles must be obligations of the
corporation.
This amendatory Act of the 91st General Assembly is
declaratory of existing law. retail installment contracts
or retail charge agreements or the outstanding balances
under such contracts or agreements. The term includes
but is not limited to persons: (i) to whom the Sales
Finance Agency Act is rendered inapplicable by subsection
(b) of Section 17 thereof; (ii) engaged in consumer sales
finance activities governed by the Sales Finance Agency
Act or that would be governed by that Act if conducted in
this State; (iii) engaged in activities governed by the
Retail Installment Sales Act, including the making or
purchasing of retail installment contracts or retail
charge agreements for "goods" or "services" as defined in
that Act, or activities that would be governed by that
Act if conducted in this State; (iv) engaged in
activities governed by the Motor Vehicle Retail
Installment Sales Act or that would be governed by that
Act if conducted in this State; (v) engaged in commercial
finance activities governed by the Illinois Uniform
Commercial Code or that would be governed by that Code if
conducted in this State; or (vi) engaged in the finance
leasing of tangible personal property where "finance
leasing" is activity that is the economic equivalent of
an extension of credit and for which a deduction for
depreciation under Section 167 of the Internal Revenue
Code of 1986 is not available to a lessor.
(D) Subparagraphs (B) and (C) of this
paragraph are declaratory of existing law and apply
retroactively, for all tax years beginning on or
before December 31, 1996, to all original returns,
to all amended returns filed no later than 30 days
after the effective date of this amendatory Act of
1996, and to all notices issued on or before the
effective date of this amendatory Act of 1996 under
subsection (a) of Section 903, subsection (a) of
Section 904, subsection (e) of Section 909, or
Section 912. A taxpayer that is a "financial
organization" that engages in any transaction with
an affiliate shall be a "financial organization" for
all purposes of this Act.
(E) For all tax years beginning on or before
December 31, 1996, a taxpayer that falls within the
definition of a "financial organization" under
subparagraphs (B) or (C) of this paragraph, but who
does not fall within the definition of a "financial
organization" under the Proposed Regulations issued
by the Department of Revenue on July 19, 1996, may
irrevocably elect to apply the Proposed Regulations
for all of those years as though the Proposed
Regulations had been lawfully promulgated, adopted,
and in effect for all of those years. For purposes
of applying subparagraphs (B) or (C) of this
paragraph to all of those years, the election
allowed by this subparagraph applies only to the
taxpayer making the election and to those members of
the taxpayer's unitary business group who are
ordinarily required to apportion business income
under the same subsection of Section 304 of this Act
as the taxpayer making the election. No election
allowed by this subparagraph shall be made under a
claim filed under subsection (d) of Section 909 more
than 30 days after the effective date of this
amendatory Act of 1996.
(F) Finance Leases. For purposes of this
subsection, a finance lease shall be treated as a
loan or other extension of credit, rather than as a
lease, regardless of how the transaction is
characterized for any other purpose, including the
purposes of any regulatory agency to which the
lessor is subject. A finance lease is any
transaction in the form of a lease in which the
lessee is treated as the owner of the leased asset
entitled to any deduction for depreciation allowed
under Section 167 of the Internal Revenue Code.
(9) Fiscal year. The term "fiscal year" means an
accounting period of 12 months ending on the last day of
any month other than December.
(10) Includes and including. The terms "includes"
and "including" when used in a definition contained in
this Act shall not be deemed to exclude other things
otherwise within the meaning of the term defined.
(11) Internal Revenue Code. The term "Internal
Revenue Code" means the United States Internal Revenue
Code of 1954 or any successor law or laws relating to
federal income taxes in effect for the taxable year.
(12) Mathematical error. The term "mathematical
error" includes the following types of errors, omissions,
or defects in a return filed by a taxpayer which prevents
acceptance of the return as filed for processing:
(A) arithmetic errors or incorrect
computations on the return or supporting schedules;
(B) entries on the wrong lines;
(C) omission of required supporting forms or
schedules or the omission of the information in
whole or in part called for thereon; and
(D) an attempt to claim, exclude, deduct, or
improperly report, in a manner directly contrary to
the provisions of the Act and regulations thereunder
any item of income, exemption, deduction, or credit.
(13) Nonbusiness income. The term "nonbusiness
income" means all income other than business income or
compensation.
(14) Nonresident. The term "nonresident" means a
person who is not a resident.
(15) Paid, incurred and accrued. The terms "paid",
"incurred" and "accrued" shall be construed according to
the method of accounting upon the basis of which the
person's base income is computed under this Act.
(16) Partnership and partner. The term
"partnership" includes a syndicate, group, pool, joint
venture or other unincorporated organization, through or
by means of which any business, financial operation, or
venture is carried on, and which is not, within the
meaning of this Act, a trust or estate or a corporation;
and the term "partner" includes a member in such
syndicate, group, pool, joint venture or organization.
Any entity, including a limited liability company
formed under the Illinois Limited Liability Company Act,
shall be treated as a partnership if it is so classified
for federal income tax purposes.
For purposes of the tax imposed at subsection (c) of
Section 201 of this Act, the term "partnership" does not
include a syndicate, group, pool, joint venture or other
unincorporated organization established for the sole
purpose of playing the Illinois State Lottery.
(17) Part-year resident. The term "part-year
resident" means an individual who became a resident
during the taxable year or ceased to be a resident during
the taxable year. Under Section 1501 (a) (20) (A) (i)
residence commences with presence in this State for other
than a temporary or transitory purpose and ceases with
absence from this State for other than a temporary or
transitory purpose. Under Section 1501 (a) (20) (A) (ii)
residence commences with the establishment of domicile in
this State and ceases with the establishment of domicile
in another State.
(18) Person. The term "person" shall be construed
to mean and include an individual, a trust, estate,
partnership, association, firm, company, corporation,
limited liability company, or fiduciary. For purposes of
Section 1301 and 1302 of this Act, a "person" means (i)
an individual, (ii) a corporation, (iii) an officer,
agent, or employee of a corporation, (iv) a member, agent
or employee of a partnership, or (v) a member, manager,
employee, officer, director, or agent of a limited
liability company who in such capacity commits an offense
specified in Section 1301 and 1302.
(18A) Records. The term "records" includes all
data maintained by the taxpayer, whether on paper,
microfilm, microfiche, or any type of machine-sensible
data compilation.
(19) Regulations. The term "regulations" includes
rules promulgated and forms prescribed by the Department.
(20) Resident. The term "resident" means:
(A) an individual (i) who is in this State for
other than a temporary or transitory purpose during
the taxable year; or (ii) who is domiciled in this
State but is absent from the State for a temporary
or transitory purpose during the taxable year;
(B) The estate of a decedent who at his or her
death was domiciled in this State;
(C) A trust created by a will of a decedent
who at his death was domiciled in this State; and
(D) An irrevocable trust, the grantor of which
was domiciled in this State at the time such trust
became irrevocable. For purpose of this
subparagraph, a trust shall be considered
irrevocable to the extent that the grantor is not
treated as the owner thereof under Sections 671
through 678 of the Internal Revenue Code.
(21) Sales. The term "sales" means all gross
receipts of the taxpayer not allocated under Sections
301, 302 and 303.
(22) State. The term "state" when applied to a
jurisdiction other than this State means any state of the
United States, the District of Columbia, the Commonwealth
of Puerto Rico, any Territory or Possession of the United
States, and any foreign country, or any political
subdivision of any of the foregoing. For purposes of the
foreign tax credit under Section 601, the term "state"
means any state of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, and any
territory or possession of the United States, or any
political subdivision of any of the foregoing, effective
for tax years ending on or after December 31, 1989.
(23) Taxable year. The term "taxable year" means
the calendar year, or the fiscal year ending during such
calendar year, upon the basis of which the base income is
computed under this Act. "Taxable year" means, in the
case of a return made for a fractional part of a year
under the provisions of this Act, the period for which
such return is made.
(24) Taxpayer. The term "taxpayer" means any person
subject to the tax imposed by this Act.
(25) International banking facility. The term
international banking facility shall have the same
meaning as is set forth in the Illinois Banking Act or as
is set forth in the laws of the United States or
regulations of the Board of Governors of the Federal
Reserve System.
(26) Income Tax Return Preparer.
(A) The term "income tax return preparer"
means any person who prepares for compensation, or
who employs one or more persons to prepare for
compensation, any return of tax imposed by this Act
or any claim for refund of tax imposed by this Act.
The preparation of a substantial portion of a return
or claim for refund shall be treated as the
preparation of that return or claim for refund.
(B) A person is not an income tax return
preparer if all he or she does is
(i) furnish typing, reproducing, or other
mechanical assistance;
(ii) prepare returns or claims for
refunds for the employer by whom he or she is
regularly and continuously employed;
(iii) prepare as a fiduciary returns or
claims for refunds for any person; or
(iv) prepare claims for refunds for a
taxpayer in response to any notice of
deficiency issued to that taxpayer or in
response to any waiver of restriction after the
commencement of an audit of that taxpayer or of
another taxpayer if a determination in the
audit of the other taxpayer directly or
indirectly affects the tax liability of the
taxpayer whose claims he or she is preparing.
(27) Unitary business group. The term "unitary
business group" means a group of persons related through
common ownership whose business activities are integrated
with, dependent upon and contribute to each other. The
group will not include those members whose business
activity outside the United States is 80% or more of any
such member's total business activity; for purposes of
this paragraph and clause (a) (3) (B) (ii) of Section
304, business activity within the United States shall be
measured by means of the factors ordinarily applicable
under subsections (a), (b), (c), (d), or (h) of Section
304 except that, in the case of members ordinarily
required to apportion business income by means of the 3
factor formula of property, payroll and sales specified
in subsection (a) of Section 304, including the formula
as weighted in subsection (h) of Section 304, such
members shall not use the sales factor in the computation
and the results of the property and payroll factor
computations of subsection (a) of Section 304 shall be
divided by 2 (by one if either the property or payroll
factor has a denominator of zero). The computation
required by the preceding sentence shall, in each case,
involve the division of the member's property, payroll,
or revenue miles in the United States, insurance premiums
on property or risk in the United States, or financial
organization business income from sources within the
United States, as the case may be, by the respective
worldwide figures for such items. Common ownership in
the case of corporations is the direct or indirect
control or ownership of more than 50% of the outstanding
voting stock of the persons carrying on unitary business
activity. Unitary business activity can ordinarily be
illustrated where the activities of the members are: (1)
in the same general line (such as manufacturing,
wholesaling, retailing of tangible personal property,
insurance, transportation or finance); or (2) are steps
in a vertically structured enterprise or process (such as
the steps involved in the production of natural
resources, which might include exploration, mining,
refining, and marketing); and, in either instance, the
members are functionally integrated through the exercise
of strong centralized management (where, for example,
authority over such matters as purchasing, financing, tax
compliance, product line, personnel, marketing and
capital investment is not left to each member). In no
event, however, will any unitary business group include
members which are ordinarily required to apportion
business income under different subsections of Section
304 except that for tax years ending on or after December
31, 1987 this prohibition shall not apply to a unitary
business group composed of one or more taxpayers all of
which apportion business income pursuant to subsection
(b) of Section 304, or all of which apportion business
income pursuant to subsection (d) of Section 304, and a
holding company of such single-factor taxpayers (see
definition of "financial organization" for rule regarding
holding companies of financial organizations). If a
unitary business group would, but for the preceding
sentence, include members that are ordinarily required to
apportion business income under different subsections of
Section 304, then for each subsection of Section 304 for
which there are two or more members, there shall be a
separate unitary business group composed of such members.
For purposes of the preceding two sentences, a member is
"ordinarily required to apportion business income" under
a particular subsection of Section 304 if it would be
required to use the apportionment method prescribed by
such subsection except for the fact that it derives
business income solely from Illinois. If the unitary
business group members' accounting periods differ, the
common parent's accounting period or, if there is no
common parent, the accounting period of the member that
is expected to have, on a recurring basis, the greatest
Illinois income tax liability must be used to determine
whether to use the apportionment method provided in
subsection (a) or subsection (h) of Section 304. The
prohibition against membership in a unitary business
group for taxpayers ordinarily required to apportion
income under different subsections of Section 304 does
not apply to taxpayers required to apportion income under
subsection (a) and subsection (h) of Section 304. The
provisions of this amendatory Act of 1998 apply to tax
years ending on or after December 31, 1998.
(28) Subchapter S corporation. The term
"Subchapter S corporation" means a corporation for which
there is in effect an election under Section 1362 of the
Internal Revenue Code, or for which there is a federal
election to opt out of the provisions of the Subchapter S
Revision Act of 1982 and have applied instead the prior
federal Subchapter S rules as in effect on July 1, 1982.
(b) Other definitions.
(1) Words denoting number, gender, and so forth,
when used in this Act, where not otherwise distinctly
expressed or manifestly incompatible with the intent
thereof:
(A) Words importing the singular include and
apply to several persons, parties or things;
(B) Words importing the plural include the
singular; and
(C) Words importing the masculine gender
include the feminine as well.
(2) "Company" or "association" as including
successors and assigns. The word "company" or
"association", when used in reference to a corporation,
shall be deemed to embrace the words "successors and
assigns of such company or association", and in like
manner as if these last-named words, or words of similar
import, were expressed.
(3) Other terms. Any term used in any Section of
this Act with respect to the application of, or in
connection with, the provisions of any other Section of
this Act shall have the same meaning as in such other
Section.
(Source: P.A. 89-399, eff. 8-20-95; 89-711, eff. 2-14-97;
90-613, eff. 7-9-98.)
Section 99. Effective date. This Act takes effect on
January 1, 2000.
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