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92_SB0541 LRB9205007SMdv 1 AN ACT concerning taxation. 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, and 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 a fraction, the numerator of which is the sum of 18 the property factor (if any), the payroll factor (if any) and 19 200% of the sales factor (if any), and the denominator of 20 which is 4 reduced by the number of factors other than the 21 sales factor which have a denominator of zero and by an 22 additional 2 if the sales factor has a denominator of zero. 23 For tax years ending on or after December 31, 1998, and 24 except as otherwise provided by this Section, persons other 25 than residents who derive business income from this State and 26 one or more other states shall compute their apportionment 27 factor by weighting their property, payroll, and sales 28 factors as provided in subsection (h) of this Section. 29 (1) Property factor. 30 (A) The property factor is a fraction, the 31 numerator of which is the average value of the person's -2- LRB9205007SMdv 1 real and tangible personal property owned or rented and 2 used in the trade or business in this State during the 3 taxable year and the denominator of which is the average 4 value of all the person's real and tangible personal 5 property owned or rented and used in the trade or 6 business during the taxable year. 7 (B) Property owned by the person is valued at its 8 original cost. Property rented by the person is valued at 9 8 times the net annual rental rate. Net annual rental 10 rate is the annual rental rate paid by the person less 11 any annual rental rate received by the person from 12 sub-rentals. 13 (C) The average value of property shall be 14 determined by averaging the values at the beginning and 15 ending of the taxable year but the Director may require 16 the averaging of monthly values during the taxable year 17 if reasonably required to reflect properly the average 18 value of the person's property. 19 (2) Payroll factor. 20 (A) The payroll factor is a fraction, the numerator 21 of which is the total amount paid in this State during 22 the taxable year by the person for compensation, and the 23 denominator of which is the total compensation paid 24 everywhere during the taxable year. 25 (B) Compensation is paid in this State if: 26 (i) The individual's service is performed 27 entirely within this State; 28 (ii) The individual's service is performed 29 both within and without this State, but the service 30 performed without this State is incidental to the 31 individual's service performed within this State; or 32 (iii) Some of the service is performed within 33 this State and either the base of operations, or if 34 there is no base of operations, the place from which -3- LRB9205007SMdv 1 the service is directed or controlled is within this 2 State, or the base of operations or the place from 3 which the service is directed or controlled is not 4 in any state in which some part of the service is 5 performed, but the individual's residence is in this 6 State. 7 Beginning with taxable years ending on or after 8 December 31, 1992, for residents of states that impose a 9 comparable tax liability on residents of this State, for 10 purposes of item (i) of this paragraph (B), in the case 11 of persons who perform personal services under personal 12 service contracts for sports performances, services by 13 that person at a sporting event taking place in Illinois 14 shall be deemed to be a performance entirely within this 15 State. 16 (3) Sales factor. 17 (A) 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 (B) Sales of tangible personal property are in this 23 State if
: (i)the property is delivered or shipped to a 24 purchaser , other than the United States government,25 within this State regardless of the f. o. b. point or 26 other conditions of the sale. ; or (ii) The property is27 shipped from an office, store, warehouse, factory or28 other place of storage in this State and either the29 purchaser is the United States government or the person30 is not taxable in the state of the purchaser; provided,31 however, that premises owned or leased by a person who32 has independently contracted with the seller for the33 printing of newspapers, periodicals or books shall not be34 deemed to be an office, store, warehouse, factory or-4- LRB9205007SMdv 1 other place of storage for purposes of this Section.2 Sales of tangible personal property are not in this State 3 if the seller and purchaser would be members of the same 4 unitary business group but for the fact that either the 5 seller or purchaser is a person with 80% or more of total 6 business activity outside of the United States and the 7 property is purchased for resale. 8 (B-1) Patents, copyrights, trademarks, and similar 9 items of intangible personal property. 10 (i) Gross receipts from the licensing, sale, 11 or other disposition of a patent, copyright, 12 trademark, or similar item of intangible personal 13 property are in this State to the extent the item is 14 utilized in this State during the year the gross 15 receipts are included in gross income. 16 (ii) Place of utilization. 17 (I) A patent is utilized in a state to 18 the extent that it is employed in production, 19 fabrication, manufacturing, or other processing 20 in the state or to the extent that a patented 21 product is produced in the state. If a patent 22 is utilized in more than one state, the extent 23 to which it is utilized in any one state shall 24 be a fraction equal to the gross receipts of 25 the licensee or purchaser from sales or leases 26 of items produced, fabricated, manufactured, or 27 processed within that state using the patent 28 and of patented items produced within that 29 state, divided by the total of such gross 30 receipts for all states in which the patent is 31 utilized. 32 (II) A copyright is utilized in a state 33 to the extent that printing or other 34 publication originates in the state. If a -5- LRB9205007SMdv 1 copyright is utilized in more than one state, 2 the extent to which it is utilized in any one 3 state shall be a fraction equal to the gross 4 receipts from sales or licenses of materials 5 printed or published in that state divided by 6 the total of such gross receipts for all states 7 in which the copyright is utilized. 8 (III) Trademarks and other items of 9 intangible personal property governed by this 10 paragraph (B-1) are utilized in the state in 11 which the commercial domicile of the licensee 12 or purchaser is located. 13 (iii) If the state of utilization of an item 14 of property governed by this paragraph (B-1) cannot 15 be determined from the taxpayer's books and records 16 or from the books and records of any person related 17 to the taxpayer within the meaning of Section 267(b) 18 of the Internal Revenue Code, 26 U.S.C. 267, the 19 gross receipts attributable to that item shall be 20 excluded from both the numerator and the denominator 21 of the sales factor. 22 (B-2) Gross receipts from the license, sale, or 23 other disposition of patents, copyrights, trademarks, and 24 similar items of intangible personal property may be 25 included in the numerator or denominator of the sales 26 factor only if gross receipts from licenses, sales, or 27 other disposition of such items comprise more than 50% of 28 the taxpayer's total gross receipts included in gross 29 income during the tax year and during each of the 2 30 immediately preceding tax years; provided that, when a 31 taxpayer is a member of a unitary business group, such 32 determination shall be made on the basis of the gross 33 receipts of the entire unitary business group. 34 (C) Sales, other than sales governed by paragraphs -6- LRB9205007SMdv 1 (B) and (B-1), are in this State if: 2 (i) The income-producing activity is performed 3 in this State; or 4 (ii) The income-producing activity is 5 performed both within and without this State and a 6 greater proportion of the income-producing activity 7 is performed within this State than without this 8 State, based on performance costs. 9 (D) For taxable years ending on or after December 10 31, 1995, the following items of income shall not be 11 included in the numerator or denominator of the sales 12 factor: dividends; amounts included under Section 78 of 13 the Internal Revenue Code; and Subpart F income as 14 defined in Section 952 of the Internal Revenue Code. No 15 inference shall be drawn from the enactment of this 16 paragraph (D) in construing this Section for taxable 17 years ending before December 31, 1995. 18 (E) Paragraphs (B-1) and (B-2) shall apply to tax 19 years ending on or after December 31, 1999, provided that 20 a taxpayer may elect to apply the provisions of these 21 paragraphs to prior tax years. Such election shall be 22 made in the form and manner prescribed by the Department, 23 shall be irrevocable, and shall apply to all tax years; 24 provided that, if a taxpayer's Illinois income tax 25 liability for any tax year, as assessed under Section 903 26 prior to January 1, 1999, was computed in a manner 27 contrary to the provisions of paragraphs (B-1) or (B-2), 28 no refund shall be payable to the taxpayer for that tax 29 year to the extent such refund is the result of applying 30 the provisions of paragraph (B-1) or (B-2) retroactively. 31 In the case of a unitary business group, such election 32 shall apply to all members of such group for every tax 33 year such group is in existence, but shall not apply to 34 any taxpayer for any period during which that taxpayer is -7- LRB9205007SMdv 1 not a member of such group. 2 (b) Insurance companies. 3 (1) In general. Except as otherwise provided by 4 paragraph (2), business income of an insurance company 5 for a taxable year shall be apportioned to this State by 6 multiplying such income by a fraction, the numerator of 7 which is the direct premiums written for insurance upon 8 property or risk in this State, and the denominator of 9 which is the direct premiums written for insurance upon 10 property or risk everywhere. For purposes of this 11 subsection, the term "direct premiums written" means the 12 total amount of direct premiums written, assessments and 13 annuity considerations as reported for the taxable year 14 on the annual statement filed by the company with the 15 Illinois Director of Insurance in the form approved by 16 the National Convention of Insurance Commissioners or 17 such other form as may be prescribed in lieu thereof. 18 (2) Reinsurance. If the principal source of 19 premiums written by an insurance company consists of 20 premiums for reinsurance accepted by it, the business 21 income of such company shall be apportioned to this State 22 by multiplying such income by a fraction, the numerator 23 of which is the sum of (i) direct premiums written for 24 insurance upon property or risk in this State, plus (ii) 25 premiums written for reinsurance accepted in respect of 26 property or risk in this State, and the denominator of 27 which is the sum of (iii) direct premiums written for 28 insurance upon property or risk everywhere, plus (iv) 29 premiums written for reinsurance accepted in respect of 30 property or risk everywhere. For purposes of this 31 paragraph, premiums written for reinsurance accepted in 32 respect of property or risk in this State, whether or not 33 otherwise determinable, may, at the election of the 34 company, be determined on the basis of the proportion -8- LRB9205007SMdv 1 which premiums written for reinsurance accepted from 2 companies commercially domiciled in Illinois bears to 3 premiums written for reinsurance accepted from all 4 sources, or, alternatively, in the proportion which the 5 sum of the direct premiums written for insurance upon 6 property or risk in this State by each ceding company 7 from which reinsurance is accepted bears to the sum of 8 the total direct premiums written by each such ceding 9 company for the taxable year. 10 (c) Financial organizations. 11 (1) In general. Business income of a financial 12 organization shall be apportioned to this State by 13 multiplying such income by a fraction, the numerator of 14 which is its business income from sources within this 15 State, and the denominator of which is its business 16 income from all sources. For the purposes of this 17 subsection, the business income of a financial 18 organization from sources within this State is the sum of 19 the amounts referred to in subparagraphs (A) through (E) 20 following, but excluding the adjusted income of an 21 international banking facility as determined in paragraph 22 (2): 23 (A) Fees, commissions or other compensation 24 for financial services rendered within this State; 25 (B) Gross profits from trading in stocks, 26 bonds or other securities managed within this State; 27 (C) Dividends, and interest from Illinois 28 customers, which are received within this State; 29 (D) Interest charged to customers at places of 30 business maintained within this State for carrying 31 debit balances of margin accounts, without deduction 32 of any costs incurred in carrying such accounts; and 33 (E) Any other gross income resulting from the 34 operation as a financial organization within this -9- LRB9205007SMdv 1 State. In computing the amounts referred to in 2 paragraphs (A) through (E) of this subsection, any 3 amount received by a member of an affiliated group 4 (determined under Section 1504(a) of the Internal 5 Revenue Code but without reference to whether any 6 such corporation is an "includible corporation" 7 under Section 1504(b) of the Internal Revenue Code) 8 from another member of such group shall be included 9 only to the extent such amount exceeds expenses of 10 the recipient directly related thereto. 11 (2) International Banking Facility. 12 (A) Adjusted Income. The adjusted income of 13 an international banking facility is its income 14 reduced by the amount of the floor amount. 15 (B) Floor Amount. The floor amount shall be 16 the amount, if any, determined by multiplying the 17 income of the international banking facility by a 18 fraction, not greater than one, which is determined 19 as follows: 20 (i) The numerator shall be: 21 The average aggregate, determined on a 22 quarterly basis, of the financial 23 organization's loans to banks in foreign 24 countries, to foreign domiciled borrowers 25 (except where secured primarily by real estate) 26 and to foreign governments and other foreign 27 official institutions, as reported for its 28 branches, agencies and offices within the state 29 on its "Consolidated Report of Condition", 30 Schedule A, Lines 2.c., 5.b., and 7.a., which 31 was filed with the Federal Deposit Insurance 32 Corporation and other regulatory authorities, 33 for the year 1980, minus 34 The average aggregate, determined on a -10- LRB9205007SMdv 1 quarterly basis, of such loans (other than 2 loans of an international banking facility), as 3 reported by the financial institution for its 4 branches, agencies and offices within the 5 state, on the corresponding Schedule and lines 6 of the Consolidated Report of Condition for the 7 current taxable year, provided, however, that 8 in no case shall the amount determined in this 9 clause (the subtrahend) exceed the amount 10 determined in the preceding clause (the 11 minuend); and 12 (ii) the denominator shall be the average 13 aggregate, determined on a quarterly basis, of 14 the international banking facility's loans to 15 banks in foreign countries, to foreign 16 domiciled borrowers (except where secured 17 primarily by real estate) and to foreign 18 governments and other foreign official 19 institutions, which were recorded in its 20 financial accounts for the current taxable 21 year. 22 (C) Change to Consolidated Report of Condition 23 and in Qualification. In the event the Consolidated 24 Report of Condition which is filed with the Federal 25 Deposit Insurance Corporation and other regulatory 26 authorities is altered so that the information 27 required for determining the floor amount is not 28 found on Schedule A, lines 2.c., 5.b. and 7.a., the 29 financial institution shall notify the Department 30 and the Department may, by regulations or otherwise, 31 prescribe or authorize the use of an alternative 32 source for such information. The financial 33 institution shall also notify the Department should 34 its international banking facility fail to qualify -11- LRB9205007SMdv 1 as such, in whole or in part, or should there be any 2 amendment or change to the Consolidated Report of 3 Condition, as originally filed, to the extent such 4 amendment or change alters the information used in 5 determining the floor amount. 6 (d) Transportation services. Business income derived 7 from furnishing transportation services shall be apportioned 8 to this State in accordance with paragraphs (1) and (2): 9 (1) Such business income (other than that derived 10 from transportation by pipeline) shall be apportioned to 11 this State by multiplying such income by a fraction, the 12 numerator of which is the revenue miles of the person in 13 this State, and the denominator of which is the revenue 14 miles of the person everywhere. For purposes of this 15 paragraph, a revenue mile is the transportation of 1 16 passenger or 1 net ton of freight the distance of 1 mile 17 for a consideration. Where a person is engaged in the 18 transportation of both passengers and freight, the 19 fraction above referred to shall be determined by means 20 of an average of the passenger revenue mile fraction and 21 the freight revenue mile fraction, weighted to reflect 22 the person's 23 (A) relative railway operating income from 24 total passenger and total freight service, as 25 reported to the Interstate Commerce Commission, in 26 the case of transportation by railroad, and 27 (B) relative gross receipts from passenger and 28 freight transportation, in case of transportation 29 other than by railroad. 30 (2) Such business income derived from 31 transportation by pipeline shall be apportioned to this 32 State by multiplying such income by a fraction, the 33 numerator of which is the revenue miles of the person in 34 this State, and the denominator of which is the revenue -12- LRB9205007SMdv 1 miles of the person everywhere. For the purposes of this 2 paragraph, a revenue mile is the transportation by 3 pipeline of 1 barrel of oil, 1,000 cubic feet of gas, or 4 of any specified quantity of any other substance, the 5 distance of 1 mile for a consideration. 6 (e) Combined apportionment. Where 2 or more persons are 7 engaged in a unitary business as described in subsection 8 (a)(27) of Section 1501, a part of which is conducted in this 9 State by one or more members of the group, the business 10 income attributable to this State by any such member or 11 members shall be apportioned by means of the combined 12 apportionment method. 13 (f) Alternative allocation. If the allocation and 14 apportionment provisions of subsections (a) through (e) and 15 of subsection (h) do not fairly represent the extent of a 16 person's business activity in this State, the person may 17 petition for, or the Director may require, in respect of all 18 or any part of the person's business activity, if reasonable: 19 (1) Separate accounting; 20 (2) The exclusion of any one or more factors; 21 (3) The inclusion of one or more additional factors 22 which will fairly represent the person's business 23 activities in this State; or 24 (4) The employment of any other method to 25 effectuate an equitable allocation and apportionment of 26 the person's business income. 27 (g) Cross reference. For allocation of business income 28 by residents, see Section 301(a). 29 (h) For tax years ending on or after December 31, 1998, 30 the apportionment factor of persons who apportion their 31 business income to this State under subsection (a) shall be 32 equal to: 33 (1) for tax years ending on or after December 31, 34 1998 and before December 31, 1999, 16 2/3% of the -13- LRB9205007SMdv 1 property factor plus 16 2/3% of the payroll factor plus 2 66 2/3% of the sales factor; 3 (2) for tax years ending on or after December 31, 4 1999 and before December 31, 2000, 8 1/3% of the property 5 factor plus 8 1/3% of the payroll factor plus 83 1/3% of 6 the sales factor; 7 (3) for tax years ending on or after December 31, 8 2000, the sales factor. 9 If, in any tax year ending on or after December 31, 1998 and 10 before December 31, 2000, the denominator of the payroll, 11 property, or sales factor is zero, the apportionment factor 12 computed in paragraph (1) or (2) of this subsection for that 13 year shall be divided by an amount equal to 100% minus the 14 percentage weight given to each factor whose denominator is 15 equal to zero. 16 (Source: P.A. 90-562, eff. 12-16-97; 90-613, eff. 7-9-98; 17 91-541, eff. 8-13-99.) 18 Section 99. Effective date. This Act takes effect upon 19 becoming law.
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