HB4655 100TH GENERAL ASSEMBLY

LRB100 16339 HLH 31465 b

100TH GENERAL ASSEMBLY
State of Illinois
2017 and 2018
HB4655

Introduced , by Rep. Natalie A. Manley

SYNOPSIS AS INTRODUCED:

35 ILCS 5/227 new
35 ILCS 5/302	from Ch. 120, par. 3-302
35 ILCS 5/601	from Ch. 120, par. 6-601
35 ILCS 5/701	from Ch. 120, par. 7-701

Amends the Illinois Income Tax Act. Makes changes concerning the allocation of compensation paid to nonresidents to provide that the allocation is based on the number of working days spent in this State. Makes corresponding changes concerning employer withholding requirements. Creates a credit in an amount equal to the amount of the investment made by the taxpayer during the taxable year in qualified property and qualified expenses that are used for tracking and reporting the location of resident and non-resident employees for purposes of compliance with the tracking, reporting, and income tax withholding requirements of the amendatory Act.

FISCAL NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning revenue.

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 Sections 302, 601, and 701 and by adding Section 227 as follows:

(35 ILCS 5/227 new)

Sec. 227. Credit for tracking and reporting expenses.

(a) For taxable years ending on and after December 31, 2018 and prior to January 1, 2022, a taxpayer shall be allowed a credit against the tax imposed by subsections (a) and (b) of Section 201 equal to the amount of the investment made by the taxpayer during the taxable year in qualified property and qualified expenses that are used for tracking and reporting the location of resident and nonresident employees for purposes of compliance with the tracking, reporting, and income tax withholding requirements of this amendatory Act of the 100th General Assembly.

(b) In no event shall a credit under this Section reduce a taxpayer's liability to less than zero. The credit shall be allowed for the taxable year in which the qualified property is placed in service or qualified expenses are incurred, or, if the amount of the credit exceeds the tax liability for that year, whether it exceeds the original liability or the liability as later amended, the excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit years. The credit shall be applied to the earliest year for which there is a liability. If there is credit from more than one taxable year that is available to offset a liability, the earlier credit shall be applied first.

(c) As used in this Section:

"Qualified property" means tangible and intangible personal property, including custom or canned computer software that is licensed, acquired by purchase, or developed internally by a taxpayer.

"Qualified expenses" includes, but is not limited to, salary expenses and expenses of non-employee contractors.

(35 ILCS 5/302) (from Ch. 120, par. 3-302)

Sec. 302. Compensation paid to nonresidents.

(a) In general. For taxable years beginning prior to January 1, 2019, all All items of compensation paid in this State (as determined under Section 304(a)(2)(B)) to an individual who is a nonresident at the time of such payment and all items of deduction directly allocable thereto, shall be allocated to this State.

For taxable years beginning on or after January 1, 2019, the amount of all items of compensation of nonresident individual employees, and all items of deduction directly allocable thereto, allocated to this State shall be the portion of the individual's total compensation for services performed for his or her employer during the taxable year which the number of working days spent in this State during the taxable year in excess of 30 working days bears to the total number of working days in the taxable year regardless of location. For purposes of this subsection:

(1) A "working day" is any day during which the employee performs duties on behalf of the employer. Weekends, vacation days, sick days, and holidays (whether or not paid) are not working days unless the employee is required by the employer to perform some duties on that day.

(2) A working day is spent in this State if:

(A) a greater amount of time is spent by the employee in this State during that day performing duties on behalf of the employer (other than traveling) than is spent performing duties in any other State; or

(B) the only work performed by the employee on behalf of the employer on that day is traveling to a destination within this State, and the employee arrives in this State on that day.

(3) A working day is not spent in this State if the only activity engaged in by the employee on behalf of the employer in this State on that day is traveling from or through this State to a destination outside of this State.

(4) Working days spent in this State do not include any day in which the employee is performing services in this State during a disaster period solely in response to a request made to his or her employer by the government of this State or of any political subdivision of this State, or by a person conducting business in this State, to perform disaster or emergency-related services in this State. For purposes of this paragraph (4):

"Declared State disaster or emergency" means a disaster or emergency event (i) for which a Governor's proclamation of a state of emergency has been issued or (ii) for which a Presidential declaration of a federal major disaster or emergency has been issued.

"Disaster period" means a period that begins 10 days prior to the date of the Governor's proclamation or the President's declaration (whichever is earlier) and extends for a period of 60 calendar days after the end of the declared disaster or emergency period.

"Disaster or emergency-related services" means repairing, renovating, installing, building, or rendering services or conducting other business activities that relate to infrastructure that has been damaged, impaired, or destroyed by the declared State disaster or emergency.

"Infrastructure" means property and equipment owned or used by a public utility, communications network, broadband and internet service provider, cable and video service provider, electric or gas distribution system, or water pipeline that provides service to more than one customer or person, including related support facilities. Infrastructure includes real and personal property such as buildings, offices, power lines, cable lines, poles, communications lines, pipes, structures, and equipment.

Notwithstanding the provisions of this subsection, compensation of a nonresident individual who is a member of a professional athletic team, and all items of deduction directly allocable thereto, shall be allocated to this State as determined under item (iv) of subparagraph (B) of paragraph (2) of subsection (a) of Section 304.

(b) Reciprocal exemption. The Director may enter into an agreement with the taxing authorities of any state which imposes a tax on or measured by income to provide that compensation paid in such state to residents of this State shall be exempt from such tax; in such case, any compensation paid in this State to residents of such state shall not be allocated to this State. All reciprocal agreements shall be subject to the requirements of Section 2505-575 of the Department of Revenue Law (20 ILCS 2505/2505-575).

(c) Cross references.

(1) For allocation of amounts received by nonresidents from certain employee trusts, see Section 301(b)(2).

(2) For allocation of compensation by residents, see Section 301(a).

(Source: P.A. 90-491, eff. 1-1-98; 91-239, eff. 1-1-00.)

(35 ILCS 5/601) (from Ch. 120, par. 6-601)

Sec. 601. Payment on Due Date of Return.

(a) In general. Every taxpayer required to file a return under this Act shall, without assessment, notice or demand, pay any tax due thereon to the Department, at the place fixed for filing, on or before the date fixed for filing such return (determined without regard to any extension of time for filing the return) pursuant to regulations prescribed by the Department. If, however, the due date for payment of a taxpayer's federal income tax liability for a tax year (as provided in the Internal Revenue Code or by Treasury regulation, or as extended by the Internal Revenue Service) is later than the date fixed for filing the taxpayer's Illinois income tax return for that tax year, the Department may, by rule, prescribe a due date for payment that is not later than the due date for payment of the taxpayer's federal income tax liability. For purposes of the Illinois Administrative Procedure Act, the adoption of rules to prescribe a later due date for payment shall be deemed an emergency and necessary for the public interest, safety, and welfare.

(b) Amount payable. In making payment as provided in this section there shall remain payable only the balance of such tax remaining due after giving effect to the following:

(1) Withheld tax. Any amount withheld during any calendar year pursuant to Article 7 from compensation paid to a taxpayer shall be deemed to have been paid on account of any tax imposed by subsections 201(a) and (b) of this Act on such taxpayer for his taxable year beginning in such calendar year. If more than one taxable year begins in a calendar year, such amount shall be deemed to have been paid on account of such tax for the last taxable year so beginning.

(2) Estimated and tentative tax payments. Any amount of estimated tax paid by a taxpayer pursuant to Article 8 for a taxable year shall be deemed to have been paid on account of the tax imposed by this Act for such taxable year.

(3) Foreign tax. The aggregate amount of tax which is imposed upon or measured by income and which is paid by a resident for a taxable year to another state or states on income which is also subject to the tax imposed by subsections 201(a) and (b) of this Act shall be credited against the tax imposed by subsections 201(a) and (b) otherwise due under this Act for such taxable year. For taxable years ending prior to December 31, 2009, the aggregate credit provided under this paragraph shall not exceed that amount which bears the same ratio to the tax imposed by subsections 201(a) and (b) otherwise due under this Act as the amount of the taxpayer's base income subject to tax both by such other state or states and by this State bears to his total base income subject to tax by this State for the taxable year. For taxable years ending on or after December 31, 2009, the credit provided under this paragraph for tax paid to other states shall not exceed that amount which bears the same ratio to the tax imposed by subsections 201(a) and (b) otherwise due under this Act as the amount of the taxpayer's base income that would be allocated or apportioned to other states if all other states had adopted the provisions in Article 3 of this Act (other than the provisions of paragraph (4) of subsection (a) of Section 302 and the 30-day threshold set forth in subsection (a) of Section 302) bears to the taxpayer's total base income subject to tax by this State for the taxable year. The credit provided by this paragraph shall not be allowed if any creditable tax was deducted in determining base income for the taxable year. Any person claiming such credit shall attach a statement in support thereof and shall notify the Director of any refund or reductions in the amount of tax claimed as a credit hereunder all in such manner and at such time as the Department shall by regulations prescribe.

(4) Accumulation and capital gain distributions. If the net income of a taxpayer includes amounts included in his base income by reason of Section 667 of the Internal Revenue Code (relating to accumulation and capital gain distributions by a trust, respectively), the tax imposed on such taxpayer by this Act shall be credited with his pro rata portion of the taxes imposed by this Act on such trust for preceding taxable years which would not have been payable for such preceding years if the trust had in fact made distributions to its beneficiaries at the times and in the amounts specified in Sections 666 and 669 of the Internal Revenue Code. The credit provided by this paragraph shall not reduce the tax otherwise due from the taxpayer to an amount less than that which would be due if the amounts included by reason of Section 667 of the Internal Revenue Code were excluded from his or her base income.

(c) Cross reference. For application against tax due of overpayments of tax for a prior year, see Section 909.

(Source: P.A. 96-468, eff. 8-14-09; 97-507, eff. 8-23-11.)

(35 ILCS 5/701) (from Ch. 120, par. 7-701)

Sec. 701. Requirement and Amount of Withholding.

(a) In General. Every employer maintaining an office or transacting business within this State and required under the provisions of the Internal Revenue Code to withhold a tax on:

(1) for taxable years beginning prior to January 1, 2019, compensation paid in this State (as determined under Section 304(a)(2)(B) to an individual; or

(1.1) for taxable years beginning on or after January 1, 2019, compensation allocated to this State under Section 302 of this Code; or

(2) for all taxable years, payments described in subsection (b) shall deduct and withhold from such compensation for each payroll period (as defined in Section 3401 of the Internal Revenue Code) an amount equal to the amount by which such individual's compensation exceeds the proportionate part of this withholding exemption (computed as provided in Section 702) attributable to the payroll period for which such compensation is payable multiplied by a percentage equal to the percentage tax rate for individuals provided in subsection (b) of Section 201.

(a-5) Withholding for nonresident employees. For taxable years beginning on or after January 1, 2018, for the purposes of determining compensation allocated to this State under subsection (a) of Section 302 of this Code:

(1) an employer may rely on an employee's annual determination of the time expected to be spent by such employee in the states in which the employee will perform duties absent:

(A) the employer's actual knowledge of fraud by the employee in making the determination; or

(B) collusion between the employer and the employee to evade tax;

(2) except as provided in paragraph (3), if records are maintained by an employer in the regular course of business that record the location of an employee, those records shall not preclude an employer's ability to rely on an employee's determination under paragraph (1); and

(3) notwithstanding paragraph (2), if an employer, in its sole discretion, maintains a time and attendance system that tracks where the employee performs duties on a daily basis, data from the time and attendance system shall be used instead of the employee's determination under paragraph (1). For purposes of this paragraph, the term "time and attendance system" means a system in which:

(A) the employee is required on a contemporaneous basis to record his or her work location for every day worked outside of the State in which the employee's employment duties are primarily performed; and

(B) the system is designed to allow the employer to allocate the employee's wages for income tax purposes among all states in which the employee performs employment duties for such employer.

(b) Payment to Residents. Any payment (including compensation, but not including a payment from which withholding is required under Section 710 of this Act) to a resident by a payor maintaining an office or transacting business within this State (including any agency, officer, or employee of this State or of any political subdivision of this State) and on which withholding of tax is required under the provisions of the Internal Revenue Code shall be deemed to be compensation paid in this State by an employer to an employee for the purposes of Article 7 and Section 601(b)(1) to the extent such payment is included in the recipient's base income and not subjected to withholding by another state. Notwithstanding any other provision to the contrary, no amount shall be withheld from unemployment insurance benefit payments made to an individual pursuant to the Unemployment Insurance Act unless the individual has voluntarily elected the withholding pursuant to rules promulgated by the Director of Employment Security.

(c) Special Definitions. Withholding shall be considered required under the provisions of the Internal Revenue Code to the extent the Internal Revenue Code either requires withholding or allows for voluntary withholding the payor and recipient have entered into such a voluntary withholding agreement. For the purposes of Article 7 and Section 1002(c) the term "employer" includes any payor who is required to withhold tax pursuant to this Section.

(d) Reciprocal Exemption. The Director may enter into an agreement with the taxing authorities of any state which imposes a tax on or measured by income to provide that compensation paid in such state to residents of this State shall be exempt from withholding of such tax; in such case, any compensation paid in this State to residents of such state shall be exempt from withholding. All reciprocal agreements shall be subject to the requirements of Section 2505-575 of the Department of Revenue Law (20 ILCS 2505/2505-575).

(e) Notwithstanding subsection (a)(2) of this Section, no withholding is required on payments for which withholding is required under Section 3405 or 3406 of the Internal Revenue Code.

(Source: P.A. 97-507, eff. 8-23-11; 98-496, eff. 1-1-14.)