State of Illinois
90th General Assembly
Legislation

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90_SB0592

      35 ILCS 5/304             from Ch. 120, par. 3-304
          Amends the Illinois Income Tax Act.  Provides that  if  a
      person  other  than  a  resident derives business income from
      this  State  and  others,  the  business  income   shall   be
      apportioned  to  this  State by multiplying the income by the
      sales factor (now by multiplying the income  by  a  fraction,
      the numerator of which is the sum of the property factor, the
      payroll  factor,  and  200%  of  the  sales  factor  and  the
      denominator  of  which  is 4 reduced by the number of factors
      other than the sales factor which have a denominator of  zero
      and  by an additional 2 if the sales factor has a denominator
      of zero).  Deletes provisions  in  the  definition  of  sales
      factor  stating  that sales are in this State if the property
      is  shipped  from  this  State  and  the  purchaser  is   the
      government  or  is  otherwise  exempt from taxation.  Deletes
      provision stating that sales are not in  this  State  if  the
      seller  and  purchaser  would  be members of the same unitary
      business group but for the fact that one of them is a  person
      with  80%  or  more of total business activity outside of the
      United States and  the  property  is  purchased  for  resale.
      Provides that the provision excluding dividends and Subpart F
      income  from  the  sales  factor shall apply to taxable years
      ending on or after  December  31,  1995  (now  taxable  years
      ending  on  or  after December 31, 1995 and excluding taxable
      years   ending   after   December   31,   1997).    Effective
      immediately.
                                                    LRB9000850KDksA
                                              LRB9000850KDksA
 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, except as
15    otherwise provided by this Section,  such  person's  business
16    income  shall be apportioned to this State by multiplying the
17    income by the sales factor a fraction, the numerator of which
18    is the sum of the  property  factor  (if  any),  the  payroll
19    factor  (if  any)  and 200% of the sales factor (if any), and
20    the denominator of which  is  4  reduced  by  the  number  of
21    factors  other than the sales factor which have a denominator
22    of zero and by an additional 2 if  the  sales  factor  has  a
23    denominator of zero.
24        (1)  Property factor.
25             (A)  The   property   factor   is  a  fraction,  the
26        numerator of which is the average value of  the  person's
27        real  and  tangible personal property owned or rented and
28        used in the trade or business in this  State  during  the
29        taxable  year and the denominator of which is the average
30        value of all the  person's  real  and  tangible  personal
31        property  owned  or  rented  and  used  in  the  trade or
                            -2-               LRB9000850KDksA
 1        business during the taxable year.
 2             (B)  Property owned by the person is valued  at  its
 3        original cost. Property rented by the person is valued at
 4        8  times  the  net  annual rental rate. Net annual rental
 5        rate is the annual rental rate paid by  the  person  less
 6        any  annual  rental  rate  received  by  the  person from
 7        sub-rentals.
 8             (C)  The  average  value  of   property   shall   be
 9        determined  by  averaging the values at the beginning and
10        ending of the taxable year but the Director  may  require
11        the  averaging  of monthly values during the taxable year
12        if reasonably required to reflect  properly  the  average
13        value of the person's property.
14        (2)  Payroll factor.
15             (A)  The payroll factor is a fraction, the numerator
16        of  which  is  the total amount paid in this State during
17        the taxable year by the person for compensation, and  the
18        denominator  of  which  is  the  total  compensation paid
19        everywhere during the taxable year.
20             (B)  Compensation is paid in this State if:
21                  (i)  The  individual's  service  is   performed
22             entirely within this State;
23                  (ii)  The  individual's  service  is  performed
24             both  within and without this State, but the service
25             performed without this State is  incidental  to  the
26             individual's service performed within this State; or
27                  (iii)  Some  of the service is performed within
28             this State and either the base of operations, or  if
29             there is no base of operations, the place from which
30             the service is directed or controlled is within this
31             State,  or  the base of operations or the place from
32             which the service is directed or controlled  is  not
33             in  any  state  in which some part of the service is
34             performed, but the individual's residence is in this
                            -3-               LRB9000850KDksA
 1             State.
 2             Beginning with taxable  years  ending  on  or  after
 3        December  31, 1992, for residents of states that impose a
 4        comparable tax liability on residents of this State,  for
 5        purposes  of  item (i) of this paragraph (B), in the case
 6        of persons who perform personal services  under  personal
 7        service  contracts  for  sports performances, services by
 8        that person at a sporting event taking place in  Illinois
 9        shall  be deemed to be a performance entirely within this
10        State.
11        (3)  Sales factor.
12             (1)  (A)  The  sales  factor  is  a  fraction,   the
13        numerator  of  which  is the total sales of the person in
14        this State during the taxable year, and  the  denominator
15        of  which  is  the  total  sales of the person everywhere
16        during the taxable year.
17             (2) (B)  Sales of tangible personal property are  in
18        this  State  if: (i) the property is delivered or shipped
19        to a purchaser, other than the United States  government,
20        within  this  State  regardless  of the f. o. b. point or
21        other conditions of the sale; or
22                  (ii)  The property is shipped from  an  office,
23             store,  warehouse, factory or other place of storage
24             in this State and either the purchaser is the United
25             States government or the person is  not  taxable  in
26             the  state of the purchaser; provided, however, that
27             premises  owned  or  leased  by  a  person  who  has
28             independently contracted with  the  seller  for  the
29             printing  of  newspapers, periodicals or books shall
30             not be deemed to be  an  office,  store,  warehouse,
31             factory  or  other  place of storage for purposes of
32             this Section.  Sales of tangible  personal  property
33             are  not  in  this State if the seller and purchaser
34             would be members of the same unitary business  group
                            -4-               LRB9000850KDksA
 1             but for the fact that either the seller or purchaser
 2             is  a  person  with  80%  or  more of total business
 3             activity  outside  of  the  United  States  and  the
 4             property is purchased for resale.
 5             (3)  (C)  Sales,  other  than  sales   of   tangible
 6        personal property, are in this State if:
 7                  (A)   (i)  The   income-producing  activity  is
 8             performed in this State; or
 9                  (B)  (ii)  The  income-producing  activity   is
10             performed  both  within and without this State and a
11             greater proportion of the income-producing  activity
12             is  performed  within  this  State than without this
13             State, based on performance costs.
14             (4)  (D)  For  taxable  years  ending  on  or  after
15        December 31, 1995  and  excluding  taxable  years  ending
16        after  December  31,  1997, the following items of income
17        shall not be included in the numerator or denominator  of
18        the  sales  factor:  dividends;  amounts  included  under
19        Section  78  of  the Internal Revenue Code; and Subpart F
20        income as defined in Section 952 of the Internal  Revenue
21        Code.  No  inference shall be drawn from the enactment of
22        this paragraph (D) in construing this Section for taxable
23        years ending before December 31, 1995.
24        (b)  Insurance companies.
25        (1)  In  general.  Except  as   otherwise   provided   by
26    paragraph  (2), business income of an insurance company for a
27    taxable  year  shall  be  apportioned  to   this   State   by
28    multiplying such income by a fraction, the numerator of which
29    is the direct premiums written for insurance upon property or
30    risk  in  this  State,  and  the  denominator of which is the
31    direct premiums written for insurance upon property  or  risk
32    everywhere. For purposes of this subsection, the term "direct
33    premiums  written"  means the total amount of direct premiums
34    written, assessments and annuity considerations  as  reported
                            -5-               LRB9000850KDksA
 1    for  the  taxable  year  on the annual statement filed by the
 2    company with the Illinois Director of Insurance in  the  form
 3    approved    by   the   National   Convention   of   Insurance
 4    Commissioners or such other form as may be prescribed in lieu
 5    thereof.
 6        (2)  Reinsurance. If the  principal  source  of  premiums
 7    written  by  an  insurance  company  consists of premiums for
 8    reinsurance accepted by  it,  the  business  income  of  such
 9    company  shall  be  apportioned  to this State by multiplying
10    such income by a fraction, the numerator of which is the  sum
11    of (i) direct premiums written for insurance upon property or
12    risk   in   this   State,  plus  (ii)  premiums  written  for
13    reinsurance accepted in respect of property or risk  in  this
14    State,  and  the  denominator  of  which  is the sum of (iii)
15    direct premiums written for insurance upon property  or  risk
16    everywhere,   plus  (iv)  premiums  written  for  reinsurance
17    accepted in respect  of  property  or  risk  everywhere.  For
18    purposes  of this paragraph, premiums written for reinsurance
19    accepted in respect  of  property  or  risk  in  this  State,
20    whether  or  not otherwise determinable, may, at the election
21    of the company, be determined on the basis of the  proportion
22    which   premiums   written   for  reinsurance  accepted  from
23    companies  commercially  domiciled  in  Illinois   bears   to
24    premiums  written  for reinsurance accepted from all sources,
25    or, alternatively, in the proportion which  the  sum  of  the
26    direct  premiums  written for insurance upon property or risk
27    in this State by each ceding company from  which  reinsurance
28    is  accepted  bears  to  the sum of the total direct premiums
29    written by each such ceding company for the taxable year.
30        (c)  Financial organizations.
31        (1)  In  general.  Business   income   of   a   financial
32    organization   shall   be   apportioned   to  this  State  by
33    multiplying such income by a fraction, the numerator of which
34    is its business income from sources within  this  State,  and
                            -6-               LRB9000850KDksA
 1    the  denominator  of  which  is  its business income from all
 2    sources. For the purposes of this  subsection,  the  business
 3    income  of  a financial organization from sources within this
 4    State is the sum of the amounts referred to in  subparagraphs
 5    (A)  through (E) following, but excluding the adjusted income
 6    of  an  international  banking  facility  as  determined   in
 7    paragraph (2):
 8             (A)  Fees,  commissions  or  other  compensation for
 9        financial services rendered within this State;
10             (B)  Gross profits from trading in stocks, bonds  or
11        other securities managed within this State;
12             (C)  Dividends,    and    interest   from   Illinois
13        customers, which are received within this State;
14             (D)  Interest charged  to  customers  at  places  of
15        business  maintained within this State for carrying debit
16        balances of margin accounts,  without  deduction  of  any
17        costs incurred in carrying such accounts; and
18             (E)  Any  other  gross  income  resulting  from  the
19        operation  as a financial organization within this State.
20        In computing the amounts referred to  in  paragraphs  (A)
21        through  (E) of this subsection, any amount received by a
22        member of an affiliated group (determined  under  Section
23        1504(a)   of   the  Internal  Revenue  Code  but  without
24        reference  to  whether  any  such   corporation   is   an
25        "includible  corporation"  under  Section  1504(b) of the
26        Internal Revenue Code) from another member of such  group
27        shall  be included only to the extent such amount exceeds
28        expenses of the recipient directly related thereto.
29        (2)  International Banking Facility.
30             (A)  Adjusted Income.  The  adjusted  income  of  an
31        international  banking  facility is its income reduced by
32        the amount of the floor amount.
33             (B)  Floor Amount.  The floor amount  shall  be  the
34        amount,  if  any, determined by multiplying the income of
                            -7-               LRB9000850KDksA
 1        the international banking facility  by  a  fraction,  not
 2        greater than one, which is determined as follows:
 3                  (i)  The numerator shall be:
 4                  The   average   aggregate,   determined   on  a
 5             quarterly basis,  of  the  financial  organization's
 6             loans  to  banks  in  foreign  countries, to foreign
 7             domiciled borrowers (except where secured  primarily
 8             by real estate) and to foreign governments and other
 9             foreign  official  institutions, as reported for its
10             branches, agencies and offices within the  state  on
11             its  "Consolidated Report of Condition", Schedule A,
12             Lines 2.c., 5.b., and 7.a., which was filed with the
13             Federal  Deposit  Insurance  Corporation  and  other
14             regulatory authorities, for the year 1980, minus
15                  The  average   aggregate,   determined   on   a
16             quarterly  basis, of such loans (other than loans of
17             an international banking facility), as  reported  by
18             the financial institution for its branches, agencies
19             and  offices  within the state, on the corresponding
20             Schedule and lines of  the  Consolidated  Report  of
21             Condition  for  the  current taxable year, provided,
22             however, that in no case shall the amount determined
23             in this clause (the subtrahend)  exceed  the  amount
24             determined  in  the  preceding clause (the minuend);
25             and
26                  (ii)  the  denominator  shall  be  the  average
27             aggregate, determined on a quarterly basis,  of  the
28             international  banking  facility's loans to banks in
29             foreign countries, to  foreign  domiciled  borrowers
30             (except  where secured primarily by real estate) and
31             to foreign governments and  other  foreign  official
32             institutions,  which  were recorded in its financial
33             accounts for the current taxable year.
34             (C)  Change to Consolidated Report of Condition  and
                            -8-               LRB9000850KDksA
 1        in  Qualification.   In the event the Consolidated Report
 2        of Condition which is  filed  with  the  Federal  Deposit
 3        Insurance Corporation and other regulatory authorities is
 4        altered  so that the information required for determining
 5        the floor amount is not found on Schedule A, lines  2.c.,
 6        5.b. and 7.a., the financial institution shall notify the
 7        Department  and  the  Department  may,  by regulations or
 8        otherwise,  prescribe  or  authorize  the   use   of   an
 9        alternative  source  for  such information. The financial
10        institution shall also notify the Department  should  its
11        international  banking  facility fail to qualify as such,
12        in whole or in part, or should there be any amendment  or
13        change  to  the  Consolidated  Report  of  Condition,  as
14        originally  filed, to the extent such amendment or change
15        alters the information  used  in  determining  the  floor
16        amount.
17        (d)  Transportation  services.  Business  income  derived
18    from  furnishing transportation services shall be apportioned
19    to this State in accordance with paragraphs (1) and (2):
20             (1)  Such business income (other than  that  derived
21        from  transportation by pipeline) shall be apportioned to
22        this State by multiplying such income by a fraction,  the
23        numerator  of which is the revenue miles of the person in
24        this State, and the denominator of which is  the  revenue
25        miles  of  the  person  everywhere.  For purposes of this
26        paragraph, a revenue mile  is  the  transportation  of  1
27        passenger  or 1 net ton of freight the distance of 1 mile
28        for a consideration. Where a person  is  engaged  in  the
29        transportation   of  both  passengers  and  freight,  the
30        fraction above referred to shall be determined  by  means
31        of  an average of the passenger revenue mile fraction and
32        the freight revenue mile fraction,  weighted  to  reflect
33        the person's
34                  (A)  relative  railway  operating  income  from
                            -9-               LRB9000850KDksA
 1             total   passenger  and  total  freight  service,  as
 2             reported to the Interstate Commerce  Commission,  in
 3             the case of transportation by railroad, and
 4                  (B)  relative gross receipts from passenger and
 5             freight  transportation,  in  case of transportation
 6             other than by railroad.
 7             (2)  Such    business    income     derived     from
 8        transportation  by  pipeline shall be apportioned to this
 9        State by multiplying  such  income  by  a  fraction,  the
10        numerator  of which is the revenue miles of the person in
11        this State, and the denominator of which is  the  revenue
12        miles  of the person everywhere. For the purposes of this
13        paragraph,  a  revenue  mile  is  the  transportation  by
14        pipeline of 1 barrel of oil, 1,000 cubic feet of gas,  or
15        of  any  specified  quantity  of any other substance, the
16        distance of 1 mile for a consideration.
17        (e)  Combined apportionment.  Where 2 or more persons are
18    engaged in a unitary  business  as  described  in  subsection
19    (a)(27) of Section 1501, a part of which is conducted in this
20    State  by  one  or  more  members  of the group, the business
21    income attributable to this  State  by  any  such  member  or
22    members  shall  be  apportioned  by  means  of  the  combined
23    apportionment method.
24        (f)  Alternative   allocation.   If  the  allocation  and
25    apportionment provisions of subsections (a)  through  (e)  do
26    not  fairly  represent  the  extent  of  a  person's business
27    activity in this State, the person may petition for,  or  the
28    Director  may  require,  in respect of all or any part of the
29    person's business activity, if reasonable:
30             (1)  Separate accounting;
31             (2)  The exclusion of any one or more factors;
32             (3)  The inclusion of one or more additional factors
33        which  will  fairly  represent  the   person's   business
34        activities in this State; or
                            -10-              LRB9000850KDksA
 1             (4)  The   employment   of   any   other  method  to
 2        effectuate an equitable allocation and  apportionment  of
 3        the person's business income.
 4        (g)  Cross  reference.  For allocation of business income
 5    by residents, see Section 301(a).
 6    (Source: P.A. 89-379,  eff.  1-1-96;  89-399,  eff.  8-20-95;
 7    89-626, eff. 8-9-96.)
 8        Section  99.  Effective date.  This Act takes effect upon
 9    becoming law.

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