State of Illinois
90th General Assembly
Legislation

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90_SB1305

      35 ILCS 5/304             from Ch. 120, par. 3-304
      35 ILCS 5/804             from Ch. 120, par. 8-804
      35 ILCS 5/1501            from Ch. 120, par. 15-1501
          Amends the Illinois Income Tax Act.   Provides  that  for
      tax years ending on or after December 31, 1998, persons other
      than residents who derive business income from this State and
      one  or  more  other  states  shall  apportion their business
      income using a single factor sales  formula.   Provides  that
      this sales factor shall be a fraction, the numerator of which
      is  the  total  sales  of the person in this State during the
      taxable year, and the denominator of which is the total sales
      of the person everywhere during the taxable year.    Provides
      that  no  penalty  shall  be  imposed  for failure to pay the
      estimated  tax  due  before  the  effective  date   of   this
      amendatory  Act  if the underpayments are solely attributable
      to the  change  in  the  apportionment  of  income.   In  the
      definition  of "unitary business group", provides that if the
      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 which apportionment method to  use.
      Provides  that the provisions of this amendatory Act apply to
      tax years ending on or after December  31,  1998.   Effective
      immediately.
                                                     LRB9009102KDcd
                                              LRB90009102KDcd
 1        AN  ACT  to amend the Illinois Income Tax Act by changing
 2    Sections 304, 804, and 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 Sections 304, 804, and 1501 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  apportion  their  business
28    income  to  this  State as provided in subsection (h) of this
29    Section.
30        (1)  Property factor.
31             (A)  The  property  factor  is   a   fraction,   the
                            -2-                LRB9009102KDcd
 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
                            -3-                LRB9009102KDcd
 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; or
29                  (ii)  The property is shipped from  an  office,
30             store,  warehouse, factory or other place of storage
31             in this State and either the purchaser is the United
32             States government or the person is  not  taxable  in
33             the  state of the purchaser; provided, however, that
34             premises  owned  or  leased  by  a  person  who  has
                            -4-                LRB9009102KDcd
 1             independently contracted with  the  seller  for  the
 2             printing  of  newspapers, periodicals or books shall
 3             not be deemed to be  an  office,  store,  warehouse,
 4             factory  or  other  place of storage for purposes of
 5             this Section.  Sales of tangible  personal  property
 6             are  not  in  this State if the seller and purchaser
 7             would be members of the same unitary business  group
 8             but for the fact that either the seller or purchaser
 9             is  a  person  with  80%  or  more of total business
10             activity  outside  of  the  United  States  and  the
11             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 for a
33    taxable  year  shall  be  apportioned  to   this   State   by
34    multiplying such income by a fraction, the numerator of which
                            -5-                LRB9009102KDcd
 1    is the direct premiums written for insurance upon property or
 2    risk  in  this  State,  and  the  denominator of which is the
 3    direct premiums written for insurance upon property  or  risk
 4    everywhere. For purposes of this subsection, the term "direct
 5    premiums  written"  means the total amount of direct premiums
 6    written, assessments and annuity considerations  as  reported
 7    for  the  taxable  year  on the annual statement filed by the
 8    company with the Illinois Director of Insurance in  the  form
 9    approved    by   the   National   Convention   of   Insurance
10    Commissioners or such other form as may be prescribed in lieu
11    thereof.
12        (2)  Reinsurance. If the  principal  source  of  premiums
13    written  by  an  insurance  company  consists of premiums for
14    reinsurance accepted by  it,  the  business  income  of  such
15    company  shall  be  apportioned  to this State by multiplying
16    such income by a fraction, the numerator of which is the  sum
17    of (i) direct premiums written for insurance upon property or
18    risk   in   this   State,  plus  (ii)  premiums  written  for
19    reinsurance accepted in respect of property or risk  in  this
20    State,  and  the  denominator  of  which  is the sum of (iii)
21    direct premiums written for insurance upon property  or  risk
22    everywhere,   plus  (iv)  premiums  written  for  reinsurance
23    accepted in respect  of  property  or  risk  everywhere.  For
24    purposes  of this paragraph, premiums written for reinsurance
25    accepted in respect  of  property  or  risk  in  this  State,
26    whether  or  not otherwise determinable, may, at the election
27    of the company, be determined on the basis of the  proportion
28    which   premiums   written   for  reinsurance  accepted  from
29    companies  commercially  domiciled  in  Illinois   bears   to
30    premiums  written  for reinsurance accepted from all sources,
31    or, alternatively, in the proportion which  the  sum  of  the
32    direct  premiums  written for insurance upon property or risk
33    in this State by each ceding company from  which  reinsurance
34    is  accepted  bears  to  the sum of the total direct premiums
                            -6-                LRB9009102KDcd
 1    written by each such ceding company for the taxable year.
 2        (c)  Financial organizations.
 3        (1)  In  general.  Business   income   of   a   financial
 4    organization   shall   be   apportioned   to  this  State  by
 5    multiplying such income by a fraction, the numerator of which
 6    is its business income from sources within  this  State,  and
 7    the  denominator  of  which  is  its business income from all
 8    sources. For the purposes of this  subsection,  the  business
 9    income  of  a financial organization from sources within this
10    State is the sum of the amounts referred to in  subparagraphs
11    (A)  through (E) following, but excluding the adjusted income
12    of  an  international  banking  facility  as  determined   in
13    paragraph (2):
14             (A)  Fees,  commissions  or  other  compensation for
15        financial services rendered within this State;
16             (B)  Gross profits from trading in stocks, bonds  or
17        other securities managed within this State;
18             (C)  Dividends,    and    interest   from   Illinois
19        customers, which are received within this State;
20             (D)  Interest charged  to  customers  at  places  of
21        business  maintained within this State for carrying debit
22        balances of margin accounts,  without  deduction  of  any
23        costs incurred in carrying such accounts; and
24             (E)  Any  other  gross  income  resulting  from  the
25        operation  as a financial organization within this State.
26        In computing the amounts referred to  in  paragraphs  (A)
27        through  (E) of this subsection, any amount received by a
28        member of an affiliated group (determined  under  Section
29        1504(a)   of   the  Internal  Revenue  Code  but  without
30        reference  to  whether  any  such   corporation   is   an
31        "includible  corporation"  under  Section  1504(b) of the
32        Internal Revenue Code) from another member of such  group
33        shall  be included only to the extent such amount exceeds
34        expenses of the recipient directly related thereto.
                            -7-                LRB9009102KDcd
 1        (2)  International Banking Facility.
 2             (A)  Adjusted Income.  The  adjusted  income  of  an
 3        international  banking  facility is its income reduced by
 4        the amount of the floor amount.
 5             (B)  Floor Amount.  The floor amount  shall  be  the
 6        amount,  if  any, determined by multiplying the income of
 7        the international banking facility  by  a  fraction,  not
 8        greater than one, which is determined as follows:
 9                  (i)  The numerator shall be:
10                  The   average   aggregate,   determined   on  a
11             quarterly basis,  of  the  financial  organization's
12             loans  to  banks  in  foreign  countries, to foreign
13             domiciled borrowers (except where secured  primarily
14             by real estate) and to foreign governments and other
15             foreign  official  institutions, as reported for its
16             branches, agencies and offices within the  state  on
17             its  "Consolidated Report of Condition", Schedule A,
18             Lines 2.c., 5.b., and 7.a., which was filed with the
19             Federal  Deposit  Insurance  Corporation  and  other
20             regulatory authorities, for the year 1980, minus
21                  The  average   aggregate,   determined   on   a
22             quarterly  basis, of such loans (other than loans of
23             an international banking facility), as  reported  by
24             the financial institution for its branches, agencies
25             and  offices  within the state, on the corresponding
26             Schedule and lines of  the  Consolidated  Report  of
27             Condition  for  the  current taxable year, provided,
28             however, that in no case shall the amount determined
29             in this clause (the subtrahend)  exceed  the  amount
30             determined  in  the  preceding clause (the minuend);
31             and
32                  (ii)  the  denominator  shall  be  the  average
33             aggregate, determined on a quarterly basis,  of  the
34             international  banking  facility's loans to banks in
                            -8-                LRB9009102KDcd
 1             foreign countries, to  foreign  domiciled  borrowers
 2             (except  where secured primarily by real estate) and
 3             to foreign governments and  other  foreign  official
 4             institutions,  which  were recorded in its financial
 5             accounts for the current taxable year.
 6             (C)  Change to Consolidated Report of Condition  and
 7        in  Qualification.   In the event the Consolidated Report
 8        of Condition which is  filed  with  the  Federal  Deposit
 9        Insurance Corporation and other regulatory authorities is
10        altered  so that the information required for determining
11        the floor amount is not found on Schedule A, lines  2.c.,
12        5.b. and 7.a., the financial institution shall notify the
13        Department  and  the  Department  may,  by regulations or
14        otherwise,  prescribe  or  authorize  the   use   of   an
15        alternative  source  for  such information. The financial
16        institution shall also notify the Department  should  its
17        international  banking  facility fail to qualify as such,
18        in whole or in part, or should there be any amendment  or
19        change  to  the  Consolidated  Report  of  Condition,  as
20        originally  filed, to the extent such amendment or change
21        alters the information  used  in  determining  the  floor
22        amount.
23        (d)  Transportation  services.  Business  income  derived
24    from  furnishing transportation services shall be apportioned
25    to this State in accordance with paragraphs (1) and (2):
26             (1)  Such business income (other than  that  derived
27        from  transportation by pipeline) shall be apportioned to
28        this State by multiplying such income by a fraction,  the
29        numerator  of which is the revenue miles of the person in
30        this State, and the denominator of which is  the  revenue
31        miles  of  the  person  everywhere.  For purposes of this
32        paragraph, a revenue mile  is  the  transportation  of  1
33        passenger  or 1 net ton of freight the distance of 1 mile
34        for a consideration. Where a person  is  engaged  in  the
                            -9-                LRB9009102KDcd
 1        transportation   of  both  passengers  and  freight,  the
 2        fraction above referred to shall be determined  by  means
 3        of  an average of the passenger revenue mile fraction and
 4        the freight revenue mile fraction,  weighted  to  reflect
 5        the person's
 6                  (A)  relative  railway  operating  income  from
 7             total   passenger  and  total  freight  service,  as
 8             reported to the Interstate Commerce  Commission,  in
 9             the case of transportation by railroad, and
10                  (B)  relative gross receipts from passenger and
11             freight  transportation,  in  case of transportation
12             other than by railroad.
13             (2)  Such    business    income     derived     from
14        transportation  by  pipeline shall be apportioned to this
15        State by multiplying  such  income  by  a  fraction,  the
16        numerator  of which is the revenue miles of the person in
17        this State, and the denominator of which is  the  revenue
18        miles  of the person everywhere. For the purposes of this
19        paragraph,  a  revenue  mile  is  the  transportation  by
20        pipeline of 1 barrel of oil, 1,000 cubic feet of gas,  or
21        of  any  specified  quantity  of any other substance, the
22        distance of 1 mile for a consideration.
23        (e)  Combined apportionment.  Where 2 or more persons are
24    engaged in a unitary  business  as  described  in  subsection
25    (a)(27) of Section 1501, a part of which is conducted in this
26    State  by  one  or  more  members  of the group, the business
27    income attributable to this  State  by  any  such  member  or
28    members  shall  be  apportioned  by  means  of  the  combined
29    apportionment method.
30        (f)  Alternative   allocation.   If  the  allocation  and
31    apportionment provisions of subsections (a) through  (e)  and
32    of  subsection  (h)  do  not fairly represent the extent of a
33    person's business activity in  this  State,  the  person  may
34    petition  for, or the Director may require, in respect of all
                            -10-               LRB9009102KDcd
 1    or any part of the person's business activity, if reasonable:
 2             (1)  Separate accounting;
 3             (2)  The exclusion of any one or more factors;
 4             (3)  The inclusion of one or more additional factors
 5        which  will  fairly  represent  the   person's   business
 6        activities in this State; or
 7             (4)  The   employment   of   any   other  method  to
 8        effectuate an equitable allocation and  apportionment  of
 9        the person's business income.
10        (g)  Cross  reference.  For allocation of business income
11    by residents, see Section 301(a).
12        (h)  Sales factor.  For tax  years  ending  on  or  after
13    December  31,  1998,  persons other than residents who derive
14    business income from this State and one or more other  states
15    shall  apportion  their  business  income  to  this  State by
16    multiplying the income by the sales factor.
17             (1)  The sales factor is a fraction,  the  numerator
18        of  which  is the total sales of the person in this State
19        during the taxable year, and the denominator of which  is
20        the  total  sales  of  the  person  everywhere during the
21        taxable year.
22             (2)  Sales of tangible personal property are in this
23        State if the  property  is  delivered  or  shipped  to  a
24        purchaser  within  this  State  regardless  of the f.o.b.
25        point or other conditions of the sale.
26             (3)  Sales, other than sales  of  tangible  personal
27        property, are in this State if:
28                  (A)  the income producing activity is performed
29             in this State; or
30                  (B)  the income producing activity is performed
31             both  within  and  without  this State and a greater
32             proportion  of  the  income-producing  activity   is
33             performed within this State than without this State,
34             based on performance costs.
                            -11-               LRB9009102KDcd
 1             (4)  The  following  items  of  income  shall not be
 2        included in the numerator or  denominator  of  the  sales
 3        factor:  dividends;  amounts included under Section 78 of
 4        the Internal  Revenue  Code;  and  Subpart  F  income  as
 5        defined in Section 952 of the Internal Revenue Code.
 6    (Source:  P.A.  89-379,  eff.  1-1-96;  89-399, eff. 8-20-95;
 7    89-626, eff. 8-9-96; 90-562, eff. 12-16-97.)
 8        (35 ILCS 5/804) (from Ch. 120, par. 8-804)
 9        Sec. 804.  Failure to Pay Estimated Tax.
10        (a)  In general. In case of any underpayment of estimated
11    tax by a taxpayer, except as provided in  subsection  (d)  or
12    (e),  the  taxpayer shall be liable to a penalty in an amount
13    determined at the rate  prescribed  by  Section  3-3  of  the
14    Uniform  Penalty  and  Interest  Act  upon  the amount of the
15    underpayment  (determined  under  subsection  (b))  for  each
16    required installment.
17        (b)  Amount of underpayment. For purposes  of  subsection
18    (a), the amount of the underpayment shall be the excess of:
19             (1)  the  amount  of  the installment which would be
20        required to be paid under subsection (c), over
21             (2)  the amount, if any, of the installment paid  on
22        or before the last date prescribed for payment.
23        (c)  Amount of Required Installments.
24             (1)  Amount.
25                  (A)  In   General.    Except   as  provided  in
26             paragraph  (2),   the   amount   of   any   required
27             installment  shall  be  25%  of  the required annual
28             payment.
29                  (B)  Required Annual Payment.  For purposes  of
30             subparagraph (A), the term "required annual payment"
31             means the lesser of
32                       (i)  90%  of  the  tax shown on the return
33                  for the taxable year, or if no return is filed,
                            -12-               LRB9009102KDcd
 1                  90% of the tax for such year, or
 2                       (ii)  100% of the tax shown on the  return
 3                  of  the taxpayer for the preceding taxable year
 4                  if a return showing a  liability  for  tax  was
 5                  filed by the taxpayer for the preceding taxable
 6                  year and such preceding year was a taxable year
 7                  of 12 months.
 8             (2)  Lower  Required  Installment  where  Annualized
 9        Income  Installment  is Less Than Amount Determined Under
10        Paragraph (1).
11                  (A)  In General.  In the case of  any  required
12             installment  if  a  taxpayer  establishes  that  the
13             annualized  income  installment  is  less  than  the
14             amount determined under paragraph (1),
15                       (i)  the    amount    of   such   required
16                  installment  shall  be  the  annualized  income
17                  installment, and
18                       (ii)  any   reduction   in   a    required
19                  installment  resulting  from the application of
20                  this  subparagraph  shall  be   recaptured   by
21                  increasing  the  amount  of  the  next required
22                  installment determined under paragraph  (1)  by
23                  the amount of such reduction, and by increasing
24                  subsequent  required installments to the extent
25                  that the  reduction  has  not  previously  been
26                  recaptured under this clause.
27                  (B)  Determination    of    Annualized   Income
28             Installment.   In   the   case   of   any   required
29             installment,  the  annualized  income installment is
30             the excess, if any, of
31                       (i)  an amount  equal  to  the  applicable
32                  percentage  of  the  tax  for  the taxable year
33                  computed by placing on an annualized basis  the
34                  net  income  for  months  in  the  taxable year
                            -13-               LRB9009102KDcd
 1                  ending before the due date for the installment,
 2                  over
 3                       (ii)  the aggregate amount  of  any  prior
 4                  required installments for the taxable year.
 5                  (C)  Applicable Percentage.
 6             In the case of the following          The applicable
 7             required installments:                percentage is:
 8             1st ...............................            22.5%
 9             2nd ...............................              45%
10             3rd ...............................            67.5%
11             4th ...............................              90%
12                  (D)  Annualized  Net  Income; Individuals.  For
13             individuals,  net  income  shall  be  placed  on  an
14             annualized basis by:
15                       (i)  multiplying by 12, or in the case  of
16                  a  taxable  year of less than 12 months, by the
17                  number of months in the taxable year,  the  net
18                  income  computed without regard to the standard
19                  exemption for the months in  the  taxable  year
20                  ending   before   the   month   in   which  the
21                  installment is required to be paid;
22                       (ii)  dividing the resulting amount by the
23                  number of months in  the  taxable  year  ending
24                  before the month in which such installment date
25                  falls; and
26                       (iii)  deducting   from  such  amount  the
27                  standard exemption allowable  for  the  taxable
28                  year,  such standard exemption being determined
29                  as of the last date prescribed for  payment  of
30                  the installment.
31                  (E)  Annualized  Net Income; Corporations.  For
32             corporations, net  income  shall  be  placed  on  an
33             annualized  basis  by  multiplying by 12 the taxable
34             income
                            -14-               LRB9009102KDcd
 1                       (i)  for the first 3 months of the taxable
 2                  year, in the case of the  installment  required
 3                  to be paid in the 4th month,
 4                       (ii)  for  the  first  3 months or for the
 5                  first 5 months of the taxable year, in the case
 6                  of the installment required to be paid  in  the
 7                  6th month,
 8                       (iii)  for  the  first 6 months or for the
 9                  first 8 months of the taxable year, in the case
10                  of the installment required to be paid  in  the
11                  9th month, and
12                       (iv)  for  the  first  9 months or for the
13                  first 11 months of the  taxable  year,  in  the
14                  case  of the installment required to be paid in
15                  the 12th month of the taxable year,
16             then dividing the resulting amount by the number  of
17             months  in the taxable year (3, 5, 6, 8, 9, or 11 as
18             the case may be).
19        (d)  Exceptions. Notwithstanding the  provisions  of  the
20    preceding  subsections, the penalty imposed by subsection (a)
21    shall not be imposed if the taxpayer was not required to file
22    an Illinois income tax return for the preceding taxable year,
23    or if the taxpayer has underpaid taxes solely because of  the
24    increased  rate in effect during the period from July 1, 1989
25    through December 1989, or, for individuals, if  the  taxpayer
26    had  no tax liability for the preceding taxable year and such
27    year was a taxable year of 12 months. The penalty imposed  by
28    subsection (a) shall also not be imposed on any underpayments
29    of  estimated  tax  due  before  the  effective  date of this
30    amendatory  Act  of  1998  which  underpayments  are   solely
31    attributable  to  the change in apportionment from subsection
32    (a) to subsection (h) of Section 304.  The provisions of this
33    amendatory Act of 1998 apply to tax years ending on or  after
34    December 31, 1998.
                            -15-               LRB9009102KDcd
 1        (e)  The  penalty  imposed  for underpayment of estimated
 2    tax by subsection (a) of this Section shall not be imposed to
 3    the extent that the Department or his  designate  determines,
 4    pursuant  to  Section 3-8 of the Uniform Penalty and Interest
 5    Act that the penalty should not be imposed.
 6        (f)  Definition of tax. For purposes of  subsections  (b)
 7    and  (c),  the term "tax" means the excess of the tax imposed
 8    under Article 2  of  this  Act,  over  the  amounts  credited
 9    against such tax under Sections 601(b) (3) and (4).
10        (g)  Application  of  Section  in case of tax withheld on
11    compensation.  For purposes of applying this Section  in  the
12    case  of  an individual, tax withheld under Article 7 for the
13    taxable year shall be deemed a payment of estimated tax,  and
14    an  equal  part  of  such amount shall be deemed paid on each
15    installment date for such taxable year, unless  the  taxpayer
16    establishes  the  dates  on  which  all amounts were actually
17    withheld, in which case the  amounts  so  withheld  shall  be
18    deemed  payments  of estimated tax on the dates on which such
19    amounts were actually withheld.
20        (g-5)  Amounts  withheld  under  the  State  Salary   and
21    Annuity  Withholding  Act.   An  individual  who  has amounts
22    withheld under paragraph (10)  of  Section  4  of  the  State
23    Salary  and  Annuity  Withholding Act may elect to have those
24    amounts treated as payments of  estimated  tax  made  on  the
25    dates on which those amounts are actually withheld.
26        (i)  Short taxable year.  The application of this Section
27    to  taxable  years  of  less  than  12  months  shall  be  in
28    accordance with regulations prescribed by the Department.
29        The  changes  in  this  Section made by Public Act 84-127
30    shall apply to taxable years ending on or  after  January  1,
31    1986.
32    (Source: P.A. 90-448, eff. 8-16-97.)
33        (35 ILCS 5/1501) (from Ch. 120, par. 15-1501)
                            -16-               LRB9009102KDcd
 1        Sec. 1501.  Definitions.
 2        (a)  In  general.  When  used  in  this  Act,  where  not
 3    otherwise  distinctly  expressed  or  manifestly incompatible
 4    with the intent thereof:
 5             (1)  Business income.  The  term  "business  income"
 6        means  income  arising  from transactions and activity in
 7        the regular course of the taxpayer's trade  or  business,
 8        net  of  the  deductions  allocable thereto, and includes
 9        income from  tangible  and  intangible  property  if  the
10        acquisition,  management, and disposition of the property
11        constitute integral parts of the taxpayer's regular trade
12        or  business  operations.  Such  term  does  not  include
13        compensation or the deductions allocable thereto.
14             (2)  Commercial  domicile.  The   term   "commercial
15        domicile"  means the principal place from which the trade
16        or business of the taxpayer is directed or managed.
17             (3)  Compensation.  The  term  "compensation"  means
18        wages,  salaries,  commissions  and  any  other  form  of
19        remuneration paid to employees for personal services.
20             (4)  Corporation. The  term  "corporation"  includes
21        associations,  joint-stock companies, insurance companies
22        and  cooperatives.  Any  entity,  including   a   limited
23        liability  company  formed  under  the  Illinois  Limited
24        Liability  Company Act, shall be treated as a corporation
25        if it is so classified for federal income tax purposes.
26             (5)  Department. The  term  "Department"  means  the
27        Department of Revenue of this State.
28             (6)  Director.   The   term   "Director"  means  the
29        Director of Revenue of this State.
30             (7)  Fiduciary.  The  term   "fiduciary"   means   a
31        guardian,  trustee, executor, administrator, receiver, or
32        any person acting  in  any  fiduciary  capacity  for  any
33        person.
34             (8)  Financial organization.
                            -17-               LRB9009102KDcd
 1                  (A)  The  term  "financial  organization" means
 2             any  bank,  bank  holding  company,  trust  company,
 3             savings  bank,  industrial  bank,  land  bank,  safe
 4             deposit company, private banker,  savings  and  loan
 5             association,  building  and loan association, credit
 6             union, currency exchange,  cooperative  bank,  small
 7             loan  company,  sales  finance  company,  investment
 8             company,  or  any person which is owned by a bank or
 9             bank holding  company.   For  the  purpose  of  this
10             Section  a  "person" will include only those persons
11             which a bank holding company may acquire and hold an
12             interest  in,  directly  or  indirectly,  under  the
13             provisions of the Bank Holding Company Act  of  1956
14             (12 U.S.C. 1841, et seq.), except where interests in
15             any  person  must  be  disposed  of  within  certain
16             required  time limits under the Bank Holding Company
17             Act of 1956.
18                  (B)  For purposes of subparagraph (A)  of  this
19             paragraph,  the  term "bank" includes (i) any entity
20             that is regulated by the Comptroller of the Currency
21             under the National  Bank  Act,  or  by  the  Federal
22             Reserve  Board,  or by the Federal Deposit Insurance
23             Corporation  and  (ii)  any   federally   or   State
24             chartered bank operating as a credit card bank.
25                  (C)  For  purposes  of subparagraph (A) of this
26             paragraph, the term "sales finance company" means  a
27             person   primarily   engaged   in  the  business  of
28             purchasing or making  loans  upon  the  security  of
29             retail   installment   contracts  or  retail  charge
30             agreements or the outstanding  balances  under  such
31             contracts  or  agreements.  The term includes but is
32             not limited  to  persons:  (i)  to  whom  the  Sales
33             Finance  Agency  Act  is  rendered  inapplicable  by
34             subsection  (b)  of Section 17 thereof; (ii) engaged
                            -18-               LRB9009102KDcd
 1             in consumer sales finance activities governed by the
 2             Sales Finance Agency Act or that would  be  governed
 3             by  that  Act  if  conducted  in  this  State; (iii)
 4             engaged  in  activities  governed  by   the   Retail
 5             Installment  Sales  Act,  including  the  making  or
 6             purchasing of retail installment contracts or retail
 7             charge  agreements  for  "goods"  or  "services"  as
 8             defined  in  that  Act,  or activities that would be
 9             governed by that Act if  conducted  in  this  State;
10             (iv)  engaged  in  activities  governed by the Motor
11             Vehicle Retail Installment Sales Act or  that  would
12             be  governed by that Act if conducted in this State;
13             (v)  engaged  in   commercial   finance   activities
14             governed  by the Illinois Uniform Commercial Code or
15             that would be governed by that Code if conducted  in
16             this  State;  or (vi) engaged in the finance leasing
17             of  tangible  personal   property   where   "finance
18             leasing" is activity that is the economic equivalent
19             of  an extension of credit and for which a deduction
20             for depreciation under Section 167 of  the  Internal
21             Revenue Code of 1986 is not available to a lessor.
22                  (D)  Subparagraphs   (B)   and   (C)   of  this
23             paragraph are declaratory of existing law and  apply
24             retroactively,  for  all  tax  years beginning on or
25             before December 31, 1996,  to all original  returns,
26             to  all  amended returns filed no later than 30 days
27             after the effective date of this amendatory  Act  of
28             1996,  and  to  all  notices issued on or before the
29             effective date of this amendatory Act of 1996  under
30             subsection  (a)  of  Section  903, subsection (a) of
31             Section 904,  subsection  (e)  of  Section  909,  or
32             Section   912.  A  taxpayer  that  is  a  "financial
33             organization" that engages in any  transaction  with
34             an affiliate shall be a "financial organization" for
                            -19-               LRB9009102KDcd
 1             all purposes of this Act.
 2                  (E)  For  all  tax years beginning on or before
 3             December 31, 1996, a taxpayer that falls within  the
 4             definition   of  a  "financial  organization"  under
 5             subparagraphs (B) or (C) of this paragraph, but  who
 6             does  not fall within the definition of a "financial
 7             organization" under the Proposed Regulations  issued
 8             by  the  Department of Revenue on July 19, 1996, may
 9             irrevocably elect to apply the Proposed  Regulations
10             for  all  of  those  years  as  though  the Proposed
11             Regulations had been lawfully promulgated,  adopted,
12             and  in effect for all of those years.  For purposes
13             of  applying  subparagraphs  (B)  or  (C)  of   this
14             paragraph  to  all  of  those  years,  the  election
15             allowed  by  this  subparagraph  applies only to the
16             taxpayer making the election and to those members of
17             the  taxpayer's  unitary  business  group  who   are
18             ordinarily  required  to  apportion  business income
19             under the same subsection of Section 304 of this Act
20             as the taxpayer making the  election.   No  election
21             allowed  by  this subparagraph shall be made under a
22             claim filed under subsection (d) of Section 909 more
23             than 30  days  after  the  effective  date  of  this
24             amendatory Act of 1996.
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
                            -20-               LRB9009102KDcd
 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,
                            -21-               LRB9009102KDcd
 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
                            -22-               LRB9009102KDcd
 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
                            -23-               LRB9009102KDcd
 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
                            -24-               LRB9009102KDcd
 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),  and  (d),  or  (h)  of
19        Section   304   except  that,  in  the  case  of  members
20        ordinarily required to apportion business income by means
21        of the 3 factor formula of property,  payroll  and  sales
22        specified  in  subsection  (a)  of  Section  304,  or the
23        single-factor sales formula specified in  subsection  (h)
24        of  Section  304,  such  members  shall not use the sales
25        factor in the computation and the results of the property
26        and payroll factor  computations  of  subsection  (a)  of
27        Section  304  shall be divided by 2 (by one if either the
28        property or payroll factor has a  denominator  of  zero).
29        The computation required by the preceding sentence shall,
30        in  each  case,  involve  the  division  of  the member's
31        property, payroll, or revenue miles in the United States,
32        insurance premiums on property  or  risk  in  the  United
33        States,  or  financial  organization business income from
34        sources within the United States, as the case may be,  by
                            -25-               LRB9009102KDcd
 1        the  respective worldwide figures for such items.  Common
 2        ownership in the case of corporations is  the  direct  or
 3        indirect  control  or  ownership  of more than 50% of the
 4        outstanding voting  stock  of  the  persons  carrying  on
 5        unitary business activity.  Unitary business activity can
 6        ordinarily  be  illustrated  where  the activities of the
 7        members are:  (1) in  the  same  general  line  (such  as
 8        manufacturing,   wholesaling,   retailing   of   tangible
 9        personal property, insurance, transportation or finance);
10        or (2) are steps in a vertically structured enterprise or
11        process  (such as the steps involved in the production of
12        natural  resources,  which  might  include   exploration,
13        mining,   refining,   and   marketing);  and,  in  either
14        instance, the members are functionally integrated through
15        the exercise of strong centralized management (where, for
16        example,  authority  over  such  matters  as  purchasing,
17        financing,  tax  compliance,  product  line,   personnel,
18        marketing  and  capital  investment  is  not left to each
19        member). In no event, however, will any unitary  business
20        group  include  members  which are ordinarily required to
21        apportion business income under different subsections  of
22        Section  304 except that for tax years ending on or after
23        December 31, 1987 this prohibition shall not apply  to  a
24        unitary  business group composed of one or more taxpayers
25        all  of  which  apportion  business  income  pursuant  to
26        subsection (b) of Section 304, or all of which  apportion
27        business  income  pursuant  to  subsection (d) of Section
28        304,  and  a  holding  company  of   such   single-factor
29        taxpayers (see definition of "financial organization" for
30        rule    regarding    holding   companies   of   financial
31        organizations).  If a unitary business group  would,  but
32        for  the  preceding  sentence,  include  members that are
33        ordinarily required to apportion  business  income  under
34        different  subsections  of  Section  304,  then  for each
                            -26-               LRB9009102KDcd
 1        subsection of Section 304 for which there are two or more
 2        members, there shall be a separate unitary business group
 3        composed of such members.  For purposes of the  preceding
 4        two  sentences,  a  member  is  "ordinarily  required  to
 5        apportion  business income" under a particular subsection
 6        of Section 304  if  it  would  be  required  to  use  the
 7        apportionment method prescribed by such subsection except
 8        for  the fact that it derives business income solely from
 9        Illinois.   If  the  unitary  business   group   members'
10        accounting periods differ, the common parent's accounting
11        period  or,  if there is no common parent, the accounting
12        period of the member that  is  expected  to  have,  on  a
13        recurring   basis,   the  greatest  Illinois  income  tax
14        liability must be used to determine whether  to  use  the
15        apportionment   method  provided  in  subsection  (a)  or
16        subsection (h) of Section 304.  The  prohibition  against
17        membership  in  a  unitary  business  group for taxpayers
18        ordinarily required to apportion income  under  different
19        subsections  of  Section  304 does not apply to taxpayers
20        required to apportion income  under  subsection  (a)  and
21        subsection  (h)  of  Section 304.  The provisions of this
22        amendatory Act of 1998 apply to tax years  ending  on  or
23        after December 31, 1998.
24             (28)  Subchapter    S    corporation.     The   term
25        "Subchapter S corporation" means a corporation for  which
26        there  is in effect an election under Section 1362 of the
27        Internal Revenue Code, or for which there  is  a  federal
28        election to opt out of the provisions of the Subchapter S
29        Revision  Act  of 1982 and have applied instead the prior
30        federal Subchapter S rules as in effect on July 1, 1982.
31        (b)  Other definitions.
32             (1)  Words denoting number, gender,  and  so  forth,
33        when  used  in  this  Act, where not otherwise distinctly
34        expressed or  manifestly  incompatible  with  the  intent
                            -27-               LRB9009102KDcd
 1        thereof:
 2                  (A)  Words  importing  the singular include and
 3             apply to several persons, parties or things;
 4                  (B)  Words importing  the  plural  include  the
 5             singular; and
 6                  (C)  Words   importing   the  masculine  gender
 7             include the feminine as well.
 8             (2)  "Company"   or   "association"   as   including
 9        successors   and   assigns.   The   word   "company"   or
10        "association", when used in reference to  a  corporation,
11        shall  be  deemed  to  embrace  the words "successors and
12        assigns of such company  or  association",  and  in  like
13        manner  as if these last-named words, or words of similar
14        import, were expressed.
15             (3)  Other terms. Any term used in  any  Section  of
16        this  Act  with  respect  to  the  application  of, or in
17        connection with, the provisions of any other  Section  of
18        this  Act  shall  have  the same meaning as in such other
19        Section.
20    (Source: P.A. 88-480;  89-399,  eff.  8-20-95;  89-711,  eff.
21    2-14-97.)
22        Section  99.  Effective date.  This Act takes effect upon
23    becoming law.

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