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92_HB5799
LRB9215680SMdv
1 AN ACT concerning taxes.
2 Be it enacted by the People of the State of Illinois,
3 represented in the General Assembly:
4 Section 5. The Illinois Income Tax Act is amended by
5 changing Section 304 as follows:
6 (35 ILCS 5/304) (from Ch. 120, par. 3-304)
7 Sec. 304. Business income of persons other than
8 residents.
9 (a) In general. The business income of a person other
10 than a resident shall be allocated to this State if such
11 person's business income is derived solely from this State.
12 If a person other than a resident derives business income
13 from this State and one or more other states, then, for tax
14 years ending on or before December 30, 1998, for tax years
15 ending on or after December 31, 2002, and except as otherwise
16 provided by this Section, such person's business income shall
17 be apportioned to this State by multiplying the income by a
18 fraction, the numerator of which is the sum of the property
19 factor (if any), the payroll factor (if any) and 200% of the
20 sales factor (if any), and the denominator of which is 4
21 reduced by the number of factors other than the sales factor
22 which have a denominator of zero and by an additional 2 if
23 the sales factor has a denominator of zero. For tax years
24 ending on or after December 31, 1998, and except as otherwise
25 provided by this Section, persons other than residents who
26 derive business income from this State and one or more other
27 states shall compute their apportionment factor by weighting
28 their property, payroll, and sales factors as provided in
29 subsection (h) of this Section.
30 (1) Property factor.
31 (A) The property factor is a fraction, the
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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
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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
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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 (B-1) Patents, copyrights, trademarks, and similar
13 items of intangible personal property.
14 (i) Gross receipts from the licensing, sale,
15 or other disposition of a patent, copyright,
16 trademark, or similar item of intangible personal
17 property are in this State to the extent the item is
18 utilized in this State during the year the gross
19 receipts are included in gross income.
20 (ii) Place of utilization.
21 (I) A patent is utilized in a state to
22 the extent that it is employed in production,
23 fabrication, manufacturing, or other processing
24 in the state or to the extent that a patented
25 product is produced in the state. If a patent
26 is utilized in more than one state, the extent
27 to which it is utilized in any one state shall
28 be a fraction equal to the gross receipts of
29 the licensee or purchaser from sales or leases
30 of items produced, fabricated, manufactured, or
31 processed within that state using the patent
32 and of patented items produced within that
33 state, divided by the total of such gross
34 receipts for all states in which the patent is
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1 utilized.
2 (II) A copyright is utilized in a state
3 to the extent that printing or other
4 publication originates in the state. If a
5 copyright is utilized in more than one state,
6 the extent to which it is utilized in any one
7 state shall be a fraction equal to the gross
8 receipts from sales or licenses of materials
9 printed or published in that state divided by
10 the total of such gross receipts for all states
11 in which the copyright is utilized.
12 (III) Trademarks and other items of
13 intangible personal property governed by this
14 paragraph (B-1) are utilized in the state in
15 which the commercial domicile of the licensee
16 or purchaser is located.
17 (iii) If the state of utilization of an item
18 of property governed by this paragraph (B-1) cannot
19 be determined from the taxpayer's books and records
20 or from the books and records of any person related
21 to the taxpayer within the meaning of Section 267(b)
22 of the Internal Revenue Code, 26 U.S.C. 267, the
23 gross receipts attributable to that item shall be
24 excluded from both the numerator and the denominator
25 of the sales factor.
26 (B-2) Gross receipts from the license, sale, or
27 other disposition of patents, copyrights, trademarks, and
28 similar items of intangible personal property may be
29 included in the numerator or denominator of the sales
30 factor only if gross receipts from licenses, sales, or
31 other disposition of such items comprise more than 50% of
32 the taxpayer's total gross receipts included in gross
33 income during the tax year and during each of the 2
34 immediately preceding tax years; provided that, when a
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1 taxpayer is a member of a unitary business group, such
2 determination shall be made on the basis of the gross
3 receipts of the entire unitary business group.
4 (C) Sales, other than sales governed by paragraphs
5 (B) and (B-1), are in this State if:
6 (i) The income-producing activity is performed
7 in this State; or
8 (ii) The income-producing activity is
9 performed both within and without this State and a
10 greater proportion of the income-producing activity
11 is performed within this State than without this
12 State, based on performance costs.
13 (D) For taxable years ending on or after December
14 31, 1995, the following items of income shall not be
15 included in the numerator or denominator of the sales
16 factor: dividends; amounts included under Section 78 of
17 the Internal Revenue Code; and Subpart F income as
18 defined in Section 952 of the Internal Revenue Code. No
19 inference shall be drawn from the enactment of this
20 paragraph (D) in construing this Section for taxable
21 years ending before December 31, 1995.
22 (E) Paragraphs (B-1) and (B-2) shall apply to tax
23 years ending on or after December 31, 1999, provided that
24 a taxpayer may elect to apply the provisions of these
25 paragraphs to prior tax years. Such election shall be
26 made in the form and manner prescribed by the Department,
27 shall be irrevocable, and shall apply to all tax years;
28 provided that, if a taxpayer's Illinois income tax
29 liability for any tax year, as assessed under Section 903
30 prior to January 1, 1999, was computed in a manner
31 contrary to the provisions of paragraphs (B-1) or (B-2),
32 no refund shall be payable to the taxpayer for that tax
33 year to the extent such refund is the result of applying
34 the provisions of paragraph (B-1) or (B-2) retroactively.
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1 In the case of a unitary business group, such election
2 shall apply to all members of such group for every tax
3 year such group is in existence, but shall not apply to
4 any taxpayer for any period during which that taxpayer is
5 not a member of such group.
6 (b) Insurance companies.
7 (1) In general. Except as otherwise provided by
8 paragraph (2), business income of an insurance company
9 for a taxable year shall be apportioned to this State by
10 multiplying such income by a fraction, the numerator of
11 which is the direct premiums written for insurance upon
12 property or risk in this State, and the denominator of
13 which is the direct premiums written for insurance upon
14 property or risk everywhere. For purposes of this
15 subsection, the term "direct premiums written" means the
16 total amount of direct premiums written, assessments and
17 annuity considerations as reported for the taxable year
18 on the annual statement filed by the company with the
19 Illinois Director of Insurance in the form approved by
20 the National Convention of Insurance Commissioners or
21 such other form as may be prescribed in lieu thereof.
22 (2) Reinsurance. If the principal source of
23 premiums written by an insurance company consists of
24 premiums for reinsurance accepted by it, the business
25 income of such company shall be apportioned to this State
26 by multiplying such income by a fraction, the numerator
27 of which is the sum of (i) direct premiums written for
28 insurance upon property or risk in this State, plus (ii)
29 premiums written for reinsurance accepted in respect of
30 property or risk in this State, and the denominator of
31 which is the sum of (iii) direct premiums written for
32 insurance upon property or risk everywhere, plus (iv)
33 premiums written for reinsurance accepted in respect of
34 property or risk everywhere. For purposes of this
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1 paragraph, premiums written for reinsurance accepted in
2 respect of property or risk in this State, whether or not
3 otherwise determinable, may, at the election of the
4 company, be determined on the basis of the proportion
5 which premiums written for reinsurance accepted from
6 companies commercially domiciled in Illinois bears to
7 premiums written for reinsurance accepted from all
8 sources, or, alternatively, in the proportion which the
9 sum of the direct premiums written for insurance upon
10 property or risk in this State by each ceding company
11 from which reinsurance is accepted bears to the sum of
12 the total direct premiums written by each such ceding
13 company for the taxable year.
14 (c) Financial organizations.
15 (1) In general. Business income of a financial
16 organization shall be apportioned to this State by
17 multiplying such income by a fraction, the numerator of
18 which is its business income from sources within this
19 State, and the denominator of which is its business
20 income from all sources. For the purposes of this
21 subsection, the business income of a financial
22 organization from sources within this State is the sum of
23 the amounts referred to in subparagraphs (A) through (E)
24 following, but excluding the adjusted income of an
25 international banking facility as determined in paragraph
26 (2):
27 (A) Fees, commissions or other compensation
28 for financial services rendered within this State;
29 (B) Gross profits from trading in stocks,
30 bonds or other securities managed within this State;
31 (C) Dividends, and interest from Illinois
32 customers, which are received within this State;
33 (D) Interest charged to customers at places of
34 business maintained within this State for carrying
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1 debit balances of margin accounts, without deduction
2 of any costs incurred in carrying such accounts; and
3 (E) Any other gross income resulting from the
4 operation as a financial organization within this
5 State. In computing the amounts referred to in
6 paragraphs (A) through (E) of this subsection, any
7 amount received by a member of an affiliated group
8 (determined under Section 1504(a) of the Internal
9 Revenue Code but without reference to whether any
10 such corporation is an "includible corporation"
11 under Section 1504(b) of the Internal Revenue Code)
12 from another member of such group shall be included
13 only to the extent such amount exceeds expenses of
14 the recipient directly related thereto.
15 (2) International Banking Facility.
16 (A) Adjusted Income. The adjusted income of
17 an international banking facility is its income
18 reduced by the amount of the floor amount.
19 (B) Floor Amount. The floor amount shall be
20 the amount, if any, determined by multiplying the
21 income of the international banking facility by a
22 fraction, not greater than one, which is determined
23 as follows:
24 (i) The numerator shall be:
25 The average aggregate, determined on a
26 quarterly basis, of the financial
27 organization's loans to banks in foreign
28 countries, to foreign domiciled borrowers
29 (except where secured primarily by real estate)
30 and to foreign governments and other foreign
31 official institutions, as reported for its
32 branches, agencies and offices within the state
33 on its "Consolidated Report of Condition",
34 Schedule A, Lines 2.c., 5.b., and 7.a., which
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1 was filed with the Federal Deposit Insurance
2 Corporation and other regulatory authorities,
3 for the year 1980, minus
4 The average aggregate, determined on a
5 quarterly basis, of such loans (other than
6 loans of an international banking facility), as
7 reported by the financial institution for its
8 branches, agencies and offices within the
9 state, on the corresponding Schedule and lines
10 of the Consolidated Report of Condition for the
11 current taxable year, provided, however, that
12 in no case shall the amount determined in this
13 clause (the subtrahend) exceed the amount
14 determined in the preceding clause (the
15 minuend); and
16 (ii) the denominator shall be the average
17 aggregate, determined on a quarterly basis, of
18 the international banking facility's loans to
19 banks in foreign countries, to foreign
20 domiciled borrowers (except where secured
21 primarily by real estate) and to foreign
22 governments and other foreign official
23 institutions, which were recorded in its
24 financial accounts for the current taxable
25 year.
26 (C) Change to Consolidated Report of Condition
27 and in Qualification. In the event the Consolidated
28 Report of Condition which is filed with the Federal
29 Deposit Insurance Corporation and other regulatory
30 authorities is altered so that the information
31 required for determining the floor amount is not
32 found on Schedule A, lines 2.c., 5.b. and 7.a., the
33 financial institution shall notify the Department
34 and the Department may, by regulations or otherwise,
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1 prescribe or authorize the use of an alternative
2 source for such information. The financial
3 institution shall also notify the Department should
4 its international banking facility fail to qualify
5 as such, in whole or in part, or should there be any
6 amendment or change to the Consolidated Report of
7 Condition, as originally filed, to the extent such
8 amendment or change alters the information used in
9 determining the floor amount.
10 (d) Transportation services. Business income derived
11 from furnishing transportation services shall be apportioned
12 to this State in accordance with paragraphs (1) and (2):
13 (1) Such business income (other than that derived
14 from transportation by pipeline) shall be apportioned to
15 this 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 purposes of this
19 paragraph, a revenue mile is the transportation of 1
20 passenger or 1 net ton of freight the distance of 1 mile
21 for a consideration. Where a person is engaged in the
22 transportation of both passengers and freight, the
23 fraction above referred to shall be determined by means
24 of an average of the passenger revenue mile fraction and
25 the freight revenue mile fraction, weighted to reflect
26 the person's
27 (A) relative railway operating income from
28 total passenger and total freight service, as
29 reported to the Interstate Commerce Commission, in
30 the case of transportation by railroad, and
31 (B) relative gross receipts from passenger and
32 freight transportation, in case of transportation
33 other than by railroad.
34 (2) Such business income derived from
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1 transportation by pipeline shall be apportioned to this
2 State by multiplying such income by a fraction, the
3 numerator of which is the revenue miles of the person in
4 this State, and the denominator of which is the revenue
5 miles of the person everywhere. For the purposes of this
6 paragraph, a revenue mile is the transportation by
7 pipeline of 1 barrel of oil, 1,000 cubic feet of gas, or
8 of any specified quantity of any other substance, the
9 distance of 1 mile for a consideration.
10 (e) Combined apportionment. Where 2 or more persons are
11 engaged in a unitary business as described in subsection
12 (a)(27) of Section 1501, a part of which is conducted in this
13 State by one or more members of the group, the business
14 income attributable to this State by any such member or
15 members shall be apportioned by means of the combined
16 apportionment method.
17 (f) Alternative allocation. If the allocation and
18 apportionment provisions of subsections (a) through (e) and
19 of subsection (h) do not fairly represent the extent of a
20 person's business activity in this State, the person may
21 petition for, or the Director may require, in respect of all
22 or any part of the person's business activity, if reasonable:
23 (1) Separate accounting;
24 (2) The exclusion of any one or more factors;
25 (3) The inclusion of one or more additional factors
26 which will fairly represent the person's business
27 activities in this State; or
28 (4) The employment of any other method to
29 effectuate an equitable allocation and apportionment of
30 the person's business income.
31 (g) Cross reference. For allocation of business income
32 by residents, see Section 301(a).
33 (h) Apportionment of income. For tax years ending on or
34 after December 31, 1998, the apportionment factor of persons
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1 who apportion their business income to this State under
2 subsection (a) shall be equal to:
3 (1) for tax years ending on or after December 31,
4 1998 and before December 31, 1999, 16 2/3% of the
5 property factor plus 16 2/3% of the payroll factor plus
6 66 2/3% of the sales factor;
7 (2) for tax years ending on or after December 31,
8 1999 and before December 31, 2000, 8 1/3% of the property
9 factor plus 8 1/3% of the payroll factor plus 83 1/3% of
10 the sales factor;
11 (3) for tax years ending on or after December 31,
12 2000 and before December 31, 2002, the sales factor;
13 (4) for tax years ending on or after December 31,
14 2002, as provided in subsection (a).
15 If, in any tax year ending on or after December 31, 1998 and
16 before December 31, 2000, the denominator of the payroll,
17 property, or sales factor is zero, the apportionment factor
18 computed in paragraph (1) or (2) of this subsection for that
19 year shall be divided by an amount equal to 100% minus the
20 percentage weight given to each factor whose denominator is
21 equal to zero.
22 (Source: P.A. 90-562, eff. 12-16-97; 90-613, eff. 7-9-98;
23 91-541, eff. 8-13-99.)
24 Section 99. Effective date. This Act takes effect upon
25 becoming law.