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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
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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.
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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):
4 means
5 (i) A person primarily engaged in one or
6 more of the following businesses: the business
7 of purchasing customer receivables, the
8 business of or making 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
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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
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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 contracts
21 or retail charge agreements or the outstanding balances
22 under such contracts or agreements. The term includes
23 but is not limited to persons: (i) to whom the Sales
24 Finance Agency Act is rendered inapplicable by subsection
25 (b) of Section 17 thereof; (ii) engaged in consumer sales
26 finance activities governed by the Sales Finance Agency
27 Act or that would be governed by that Act if conducted in
28 this State; (iii) engaged in activities governed by the
29 Retail Installment Sales Act, including the making or
30 purchasing of retail installment contracts or retail
31 charge agreements for "goods" or "services" as defined in
32 that Act, or activities that would be governed by that
33 Act if conducted in this State; (iv) engaged in
34 activities governed by the Motor Vehicle Retail
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1 Installment Sales Act or that would be governed by that
2 Act if conducted in this State; (v) engaged in commercial
3 finance activities governed by the Illinois Uniform
4 Commercial Code or that would be governed by that Code if
5 conducted in this State; or (vi) engaged in the finance
6 leasing of tangible personal property where "finance
7 leasing" is activity that is the economic equivalent of
8 an extension of credit and for which a deduction for
9 depreciation under Section 167 of the Internal Revenue
10 Code 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,
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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
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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,
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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
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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
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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
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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
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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
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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:
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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.
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