99TH GENERAL ASSEMBLY
State of Illinois
2015 and 2016
SB1625
 
Introduced 2/20/2015, by Sen. Don Harmon - Pamela J. Althoff - Toi W. Hutchinson
 
SYNOPSIS AS INTRODUCED:



  
35 ILCS 5/1501 from Ch. 120, par. 15-1501

 Amends the Illinois Income Tax Act. Provides that the voting power or value of the beneficial interest or shares of a real estate investment trust does not include any voting power or value of beneficial interest or or shares in a real estate investment trust held directly or indirectly in a segregated asset account by a life insurance company for the benefit of persons who are immune or exempt from taxation under subtitle A of the Internal Revenue Code.



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FISCAL NOTE ACT MAY APPLY
 
 
A BILL FOR
 


SB1625LRB099 10674 HLH 30933 b



1 AN ACT concerning revenue.


2 Be it enacted by the People of the State of Illinois,

3represented in the General Assembly:



4 Section 5. The Illinois Income Tax Act is amended by 
5changing Section 1501 as follows:




6 (35 ILCS 5/1501) (from Ch. 120, par. 15-1501)


7 Sec. 1501. Definitions. 

8 (a) In general. When used in this Act, where not
otherwise 
9distinctly expressed or manifestly incompatible with the 
10intent
thereof:


11  (1) Business income. The term "business income" means 
12 all income that may be treated as apportionable business 
13 income under the Constitution of the United States. 
14 Business income is net of the deductions allocable thereto. 
15 Such term does not include compensation
or the deductions 
16 allocable thereto.
For each taxable year beginning on or 
17 after January 1, 2003, a taxpayer may
elect to treat all 
18 income other than compensation as business income. This

19 election shall be made in accordance with rules adopted by 
20 the Department and,
once made, shall be irrevocable.

21  (1.5) Captive real estate investment trust:

22   (A) The term "captive real estate investment 
23 trust" means a corporation, trust, or association:

 
 
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1    (i) that is considered a real estate 
2 investment trust for the taxable year under 
3 Section 856 of the Internal Revenue Code;

4    (ii) the certificates of beneficial interest 
5 or shares of which are not regularly traded on an 
6 established securities market; and
7    (iii) of which more than 50% of the voting 
8 power or value of the beneficial interest or 
9 shares, at any time during the last half of the 
10 taxable year, is owned or controlled, directly, 
11 indirectly, or constructively, by a single 
12 corporation.
13   (B) The term "captive real estate investment 
14 trust" does not include:
15    (i) a real estate investment trust of which 
16 more than 50% of the voting power or value of the 
17 beneficial interest or shares is owned or 
18 controlled, directly, indirectly, or 
19 constructively, by:
20     (a) a real estate investment trust, other 
21 than a captive real estate investment trust;
22     (b) a person who is exempt from taxation 
23 under Section 501 of the Internal Revenue Code, 
24 and who is not required to treat income 
25 received from the real estate investment trust 
26 as unrelated business taxable income under 
 
 
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1 Section 512 of the Internal Revenue Code;
2     (c) a listed Australian property trust, if 
3 no more than 50% of the voting power or value 
4 of the beneficial interest or shares of that 
5 trust, at any time during the last half of the 
6 taxable year, is owned or controlled, directly 
7 or indirectly, by a single person;
8     (d) an entity organized as a trust, 
9 provided a listed Australian property trust 
10 described in subparagraph (c) owns or 
11 controls, directly or indirectly, or 
12 constructively, 75% or more of the voting power 
13 or value of the beneficial interests or shares 
14 of such entity; or
15     (e) an entity that is organized outside of 
16 the laws of the United States and that 
17 satisfies all of the following criteria:
18      (1) at least 75% of the entity's total 
19 asset value at the close of its taxable 
20 year is represented by real estate assets 
21 (as defined in Section 856(c)(5)(B) of the 
22 Internal Revenue Code, thereby including 
23 shares or certificates of beneficial 
24 interest in any real estate investment 
25 trust), cash and cash equivalents, and 
26 U.S. Government securities;
 
 
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1      (2) the entity is not subject to tax on 
2 amounts that are distributed to its 
3 beneficial owners or is exempt from 
4 entity-level taxation;
5      (3) the entity distributes at least 
6 85% of its taxable income (as computed in 
7 the jurisdiction in which it is organized) 
8 to the holders of its shares or 
9 certificates of beneficial interest on an 
10 annual basis;
11      (4) either (i) the shares or 
12 beneficial interests of the entity are 
13 regularly traded on an established 
14 securities market or (ii) not more than 10% 
15 of the voting power or value in the entity 
16 is held, directly, indirectly, or 
17 constructively, by a single entity or 
18 individual; and
19      (5) the entity is organized in a 
20 country that has entered into a tax treaty 
21 with the United States; or 
22    (ii) during its first taxable year for which it 
23 elects to be treated as a real estate investment 
24 trust under Section 856(c)(1) of the Internal 
25 Revenue Code, a real estate investment trust the 
26 certificates of beneficial interest or shares of 
 
 
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1 which are not regularly traded on an established 
2 securities market, but only if the certificates of 
3 beneficial interest or shares of the real estate 
4 investment trust are regularly traded on an 
5 established securities market prior to the earlier 
6 of the due date (including extensions) for filing 
7 its return under this Act for that first taxable 
8 year or the date it actually files that return.
9   (C) For the purposes of this subsection (1.5), the 
10 constructive ownership rules prescribed under Section 
11 318(a) of the Internal Revenue Code, as modified by 
12 Section 856(d)(5) of the Internal Revenue Code, apply 
13 in determining the ownership of stock, assets, or net 
14 profits of any person.

15   (D) For the purposes of this item (1.5), the voting 
16 power or value of the beneficial interest or shares of 
17 a real estate investment trust does not include any 
18 voting power or value of beneficial interest or shares 
19 in a real estate investment trust held directly or 
20 indirectly in a segregated asset account by a life 
21 insurance company (as described in Section 817 of the 
22 Internal Revenue Code) to the extent such voting power 
23 or value is for the benefit of entities or persons who 
24 are either immune from taxation or exempt from taxation 
25 under subtitle A of the Internal Revenue Code. The 
26 changes to this item (1.5) made by this amendatory Act 
 
 
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1 of the 99th General Assembly are declarative of 
2 existing law and do not change the substantive 
3 operation of this item (1.5). 

4  (2) Commercial domicile. The term "commercial 
5 domicile" means the
principal
place from which the trade or 
6 business of the taxpayer is directed or managed.


7  (3) Compensation. The term "compensation" means wages, 
8 salaries,
commissions
and any other form of remuneration 
9 paid to employees for personal services.


10  (4) Corporation. The term "corporation" includes 
11 associations, joint-stock
companies, insurance companies 
12 and cooperatives. Any entity, including a
limited 
13 liability company formed under the Illinois Limited 
14 Liability Company
Act, shall be treated as a corporation if 
15 it is so classified for federal
income tax purposes.



16  (5) Department. The term "Department" means the 
17 Department of Revenue of
this State.


18  (6) Director. The term "Director" means the Director of 
19 Revenue of this
State.


20  (7) Fiduciary. The term "fiduciary" means a guardian, 
21 trustee, executor,
administrator, receiver, or any person 
22 acting in any fiduciary capacity for any
person.


23  (8) Financial organization.


24   (A) The term "financial organization" means
any

25 bank, bank holding company, trust company, savings 
26 bank, industrial bank,
land bank, safe deposit 
 
 
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1 company, private banker, savings and loan association,

2 building and loan association, credit union, currency 
3 exchange, cooperative
bank, small loan company, sales 
4 finance company, investment company, or any
person 
5 which is owned by a bank or bank holding company. For 
6 the purpose of
this Section a "person" will include 
7 only those persons which a bank holding
company may 
8 acquire and hold an interest in, directly or 
9 indirectly, under the
provisions of the Bank Holding 
10 Company Act of 1956 (12 U.S.C. 1841, et seq.),
except 
11 where interests in any person must be disposed of 
12 within certain
required time limits under the Bank 
13 Holding Company Act of 1956.


14   (B) For purposes of subparagraph (A) of this 
15 paragraph, the term
"bank" includes (i) any entity that 
16 is regulated by the Comptroller of the
Currency under 
17 the National Bank Act, or by the Federal Reserve Board, 
18 or by
the
Federal Deposit Insurance Corporation and 
19 (ii) any federally or State chartered
bank
operating as 
20 a credit card bank.


21   (C) For purposes of subparagraph (A) of this 
22 paragraph, the term
"sales finance company" has the 
23 meaning provided in the following item (i) or
(ii):


24    (i) A person primarily engaged in one or more 
25 of the following
businesses: the business of 
26 purchasing customer receivables, the business
of 
 
 
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1 making loans upon the security of customer 
2 receivables, the
business of making loans for the 
3 express purpose of funding purchases of
tangible 
4 personal property or services by the borrower, or 
5 the business of
finance leasing. For purposes of 
6 this item (i), "customer receivable"
means:


7     (a) a retail installment contract or 
8 retail charge agreement within
the
meaning
of 
9 the Sales Finance Agency Act, the Retail 
10 Installment Sales Act, or the
Motor Vehicle 
11 Retail Installment Sales Act;


12     (b) an installment, charge, credit, or 
13 similar contract or agreement
arising from
the 
14 sale of tangible personal property or services 
15 in a transaction involving
a deferred payment 
16 price payable in one or more installments 
17 subsequent
to the sale; or


18     (c) the outstanding balance of a contract 
19 or agreement described in
provisions
(a) or (b) 
20 of this item (i).


21    A customer receivable need not provide for 
22 payment of interest on
deferred
payments. A sales 
23 finance company may purchase a customer receivable 
24 from, or
make a loan secured by a customer 
25 receivable to, the seller in the original

26 transaction or to a person who purchased the 
 
 
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1 customer receivable directly or
indirectly from 
2 that seller.


3    (ii) A corporation meeting each of the 
4 following criteria:


5     (a) the corporation must be a member of an 
6 "affiliated group" within
the
meaning of 
7 Section 1504(a) of the Internal Revenue Code, 
8 determined
without regard to Section 1504(b) 
9 of the Internal Revenue Code;


10     (b) more than 50% of the gross income of 
11 the corporation for the
taxable
year
must be 
12 interest income derived from qualifying loans. 
13 A "qualifying
loan" is a loan made to a member 
14 of the corporation's affiliated group that

15 originates customer receivables (within the 
16 meaning of item (i)) or to whom
customer 
17 receivables originated by a member of the 
18 affiliated group have been
transferred, to
the 
19 extent the average outstanding balance of 
20 loans from that corporation
to members of its 
21 affiliated group during the taxable year do not 
22 exceed
the limitation amount for that 
23 corporation. The "limitation amount" for a

24 corporation is the average outstanding 
25 balances during the taxable year of
customer 
26 receivables (within the meaning of item (i)) 
 
 
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1 originated by
all members of the affiliated 
2 group.
If the average outstanding balances of 
3 the
loans made by a corporation to members of 
4 its affiliated group exceed the
limitation 
5 amount, the interest income of that 
6 corporation from qualifying
loans shall be 
7 equal to its interest income from loans to 
8 members of its
affiliated groups times a 
9 fraction equal to the limitation amount 
10 divided by
the average outstanding balances of 
11 the loans made by that corporation to
members 
12 of its affiliated group;


13     (c) the total of all shareholder's equity 
14 (including, without
limitation,
paid-in

15 capital on common and preferred stock and 
16 retained earnings) of the
corporation plus the 
17 total of all of its loans, advances, and other

18 obligations payable or owed to members of its 
19 affiliated group may not
exceed 20% of the 
20 total assets of the corporation at any time 
21 during the tax
year; and


22     (d) more than 50% of all interest-bearing 
23 obligations of the
affiliated group payable to 
24 persons outside the group determined in 
25 accordance
with generally accepted accounting 
26 principles must be obligations of the

 
 
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1 corporation.


2   This amendatory Act of the 91st General Assembly is 
3 declaratory of
existing
law.


4   (D) Subparagraphs
(B) and (C) of this paragraph are 
5 declaratory of
existing law and apply retroactively, 
6 for all tax years beginning on or before
December 31, 
7 1996,
to all original returns, to all amended returns 
8 filed no later than 30
days after the effective date of 
9 this amendatory Act of 1996, and to all
notices issued 
10 on or before the effective date of this amendatory Act 
11 of 1996
under subsection (a) of Section 903, subsection 
12 (a) of Section 904,
subsection (e) of Section 909, or 
13 Section 912.
A taxpayer that is a "financial 
14 organization" that engages in any transaction
with an 
15 affiliate shall be a "financial organization" for all 
16 purposes of this
Act.


17   (E) For all tax years beginning on or
before 
18 December 31, 1996, a taxpayer that falls within the 
19 definition
of a
"financial organization" under 
20 subparagraphs (B) or (C) of this paragraph, but
who 
21 does
not fall within the definition of a "financial 
22 organization" under the Proposed
Regulations issued by 
23 the Department of Revenue on July 19, 1996, may

24 irrevocably elect to apply the Proposed Regulations 
25 for all of those years as
though the Proposed 
26 Regulations had been lawfully promulgated, adopted, 
 
 
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1 and in
effect for all of those years. For purposes of 
2 applying subparagraphs (B) or
(C) of
this
paragraph to 
3 all of those years, the election allowed by this 
4 subparagraph
applies only to the taxpayer making the 
5 election and to those members of the
taxpayer's unitary 
6 business group who are ordinarily required to 
7 apportion
business income under the same subsection of 
8 Section 304 of this Act as the
taxpayer making the 
9 election. No election allowed by this subparagraph 
10 shall
be made under a claim
filed under subsection (d) 
11 of Section 909 more than 30 days after the
effective 
12 date of this amendatory Act of 1996.


13   (F) Finance Leases. For purposes of this 
14 subsection, a finance lease
shall be treated as a loan 
15 or other extension of credit, rather than as a
lease,

16 regardless of how the transaction is characterized for 
17 any other purpose,
including the purposes of any 
18 regulatory agency to which the lessor is subject.
A 
19 finance lease is any transaction in the form of a lease 
20 in which the lessee
is treated as the owner of the 
21 leased asset entitled to any deduction for

22 depreciation allowed under Section 167 of the Internal 
23 Revenue Code.


24  (9) Fiscal year. The term "fiscal year" means an 
25 accounting period of
12 months ending on the last day of 
26 any month other than December.

 
 
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1  (9.5) Fixed place of business. The term "fixed place of 
2 business" has the same meaning as that term is given in 
3 Section 864 of the Internal Revenue Code and the related 
4 Treasury regulations. 

5  (10) Includes and including. The terms "includes" and 
6 "including" when
used in a definition contained in this Act 
7 shall not be deemed to exclude
other things otherwise 
8 within the meaning of the term defined.


9  (11) Internal Revenue Code. The term "Internal Revenue 
10 Code" means the
United States Internal Revenue Code of 1954 
11 or any successor law or laws
relating to federal income 
12 taxes in effect for the taxable year.

13  (11.5) Investment partnership.
14   (A) The term "investment partnership" means any 
15 entity that is treated as a partnership for federal 
16 income tax purposes that meets the following 
17 requirements:
18    (i) no less than 90% of the partnership's cost 
19 of its total assets consists of qualifying 
20 investment securities, deposits at banks or other 
21 financial institutions, and office space and 
22 equipment reasonably necessary to carry on its 
23 activities as an investment partnership;
24    (ii) no less than 90% of its gross income 
25 consists of interest, dividends, and gains from 
26 the sale or exchange of qualifying investment 
 
 
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1 securities; and

2    (iii) the partnership is not a dealer in 
3 qualifying investment securities.
4   (B) For purposes of this paragraph (11.5), the term 
5 "qualifying investment securities" includes all of the 
6 following:

7    (i) common stock, including preferred or debt 
8 securities convertible into common stock, and 
9 preferred stock;
10    (ii) bonds, debentures, and other debt 
11 securities;
12    (iii) foreign and domestic currency deposits 
13 secured by federal, state, or local governmental 
14 agencies;
15    (iv) mortgage or asset-backed securities 
16 secured by federal, state, or local governmental 
17 agencies;
18    (v) repurchase agreements and loan 
19 participations;
20    (vi) foreign currency exchange contracts and 
21 forward and futures contracts on foreign 
22 currencies;
23    (vii) stock and bond index securities and 
24 futures contracts and other similar financial 
25 securities and futures contracts on those 
26 securities;

 
 
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1    (viii) options for the purchase or sale of any 
2 of the securities, currencies, contracts, or 
3 financial instruments described in items (i) to 
4 (vii), inclusive;

5    (ix) regulated futures contracts;

6    (x) commodities (not described in Section 
7 1221(a)(1) of the Internal Revenue Code) or 
8 futures, forwards, and options with respect to 
9 such commodities, provided, however, that any item 
10 of a physical commodity to which title is actually 
11 acquired in the partnership's capacity as a dealer 
12 in such commodity shall not be a qualifying 
13 investment security;


14    (xi) derivatives; and

15    (xii) a partnership interest in another 
16 partnership that is an investment partnership.


17  (12) Mathematical error. The term "mathematical error" 
18 includes the
following types of errors, omissions, or 
19 defects in a return filed by a
taxpayer which prevents 
20 acceptance of the return as filed for processing:


21   (A) arithmetic errors or incorrect computations on 
22 the return or
supporting schedules;


23   (B) entries on the wrong lines;


24   (C) omission of required supporting forms or 
25 schedules or the omission
of the information in whole 
26 or in part called for thereon; and


 
 
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1   (D) an attempt to claim, exclude, deduct, or 
2 improperly report, in a
manner
directly contrary to the 
3 provisions of the Act and regulations thereunder
any 
4 item of income, exemption, deduction, or credit.


5  (13) Nonbusiness income. The term "nonbusiness income" 
6 means all income
other than business income or 
7 compensation.


8  (14) Nonresident. The term "nonresident" means a 
9 person who is not a
resident.


10  (15) Paid, incurred and accrued. The terms "paid", 
11 "incurred" and
"accrued"
shall be construed according to 
12 the method of accounting upon the basis
of which the 
13 person's base income is computed under this Act.


14  (16) Partnership and partner. The term "partnership" 
15 includes a syndicate,
group, pool, joint venture or other 
16 unincorporated organization, through
or by means of which 
17 any business, financial operation, or venture is carried

18 on, and which is not, within the meaning of this Act, a 
19 trust or estate
or a corporation; and the term "partner" 
20 includes a member in such syndicate,
group, pool, joint 
21 venture or organization.


22  The term "partnership" includes any entity, including 
23 a limited
liability company formed under the Illinois

24 Limited Liability Company Act, classified as a partnership 
25 for federal income tax purposes.


26  The term "partnership" does not include a syndicate, 
 
 
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1 group, pool,
joint venture, or other unincorporated 
2 organization established for the
sole purpose of playing 
3 the Illinois State Lottery.


4  (17) Part-year resident. The term "part-year resident" 
5 means an individual
who became a resident during the 
6 taxable year or ceased to be a resident
during the taxable 
7 year. Under Section 1501(a)(20)(A)(i) residence
commences 
8 with presence in this State for other than a temporary or 
9 transitory
purpose and ceases with absence from this State 
10 for other than a temporary or
transitory purpose. Under 
11 Section 1501(a)(20)(A)(ii) residence commences
with the 
12 establishment of domicile in this State and ceases with the

13 establishment of domicile in another State.


14  (18) Person. The term "person" shall be construed to 
15 mean and include
an individual, a trust, estate, 
16 partnership, association, firm, company,
corporation, 
17 limited liability company, or fiduciary. For purposes of 
18 Section
1301 and 1302 of this Act, a "person" means (i) an 
19 individual, (ii) a
corporation, (iii) an officer, agent, or 
20 employee of a
corporation, (iv) a member, agent or employee 
21 of a partnership, or (v)
a member,
manager, employee, 
22 officer, director, or agent of a limited liability company

23 who in such capacity commits an offense specified in 
24 Section 1301 and 1302.


25  (18A) Records. The term "records" includes all data 
26 maintained by the
taxpayer, whether on paper, microfilm, 
 
 
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1 microfiche, or any type of
machine-sensible data 
2 compilation.


3  (19) Regulations. The term "regulations" includes 
4 rules promulgated and
forms prescribed by the Department.


5  (20) Resident. The term "resident" means:


6   (A) an individual (i) who is
in this State for 
7 other than a temporary or transitory purpose during the

8 taxable year; or (ii) who is domiciled in this State 
9 but is absent from
the State for a temporary or 
10 transitory purpose during the taxable year;


11   (B) The estate of a decedent who at his or her 
12 death was domiciled in
this
State;


13   (C) A trust created by a will of a decedent who at 
14 his death was
domiciled
in this State; and


15   (D) An irrevocable trust, the grantor of which was 
16 domiciled in this
State
at the time such trust became 
17 irrevocable. For purpose of this subparagraph,
a trust 
18 shall be considered irrevocable to the extent that the 
19 grantor is
not treated as the owner thereof under 
20 Sections 671 through 678 of the Internal
Revenue Code.


21  (21) Sales. The term "sales" means all gross receipts 
22 of the taxpayer
not allocated under Sections 301, 302 and 
23 303.


24  (22) State. The term "state" when applied to a 
25 jurisdiction other than
this State means any state of the 
26 United States, the District of Columbia,
the Commonwealth 
 
 
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1 of Puerto Rico, any Territory or Possession of the United

2 States, and any foreign country, or any political 
3 subdivision of any of the
foregoing. For purposes of the 
4 foreign tax credit under Section 601, the
term "state" 
5 means any state of the United States, the District of 
6 Columbia,
the Commonwealth of Puerto Rico, and any 
7 territory or possession of the
United States, or any 
8 political subdivision of any of the foregoing,
effective 
9 for tax years ending on or after December 31, 1989.


10  (23) Taxable year. The term "taxable year" means the 
11 calendar year, or
the fiscal year ending during such 
12 calendar year, upon the basis of which
the base income is 
13 computed under this Act. "Taxable year" means, in the
case 
14 of a return made for a fractional part of a year under the 
15 provisions
of this Act, the period for which such return is 
16 made.


17  (24) Taxpayer. The term "taxpayer" means any person 
18 subject to the tax
imposed by this Act.


19  (25) International banking facility. The term 
20 international banking
facility shall have the same meaning 
21 as is set forth in the Illinois Banking
Act or as is set 
22 forth in the laws of the United States or regulations of

23 the Board of Governors of the Federal Reserve System.


24  (26) Income Tax Return Preparer.


25   (A) The term "income tax return preparer"
means any 
26 person who prepares for compensation, or who employs 
 
 
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1 one or more
persons to prepare for compensation, any 
2 return of tax imposed by this Act
or any claim for 
3 refund of tax imposed by this Act. The preparation of a

4 substantial portion of a return or claim for refund 
5 shall be treated as
the preparation of that return or 
6 claim for refund.


7   (B) A person is not an income tax return preparer 
8 if all he or she does
is


9    (i) furnish typing, reproducing, or other 
10 mechanical assistance;


11    (ii) prepare returns or claims for refunds for 
12 the employer by whom he
or she is regularly and 
13 continuously employed;


14    (iii) prepare as a fiduciary returns or claims 
15 for refunds for any
person; or


16    (iv) prepare claims for refunds for a taxpayer 
17 in response to any
notice
of deficiency issued to 
18 that taxpayer or in response to any waiver of

19 restriction after the commencement of an audit of 
20 that taxpayer or of another
taxpayer if a 
21 determination in the audit of the other taxpayer 
22 directly or
indirectly affects the tax liability 
23 of the taxpayer whose claims he or she is

24 preparing.


25  (27) Unitary business group. 
26   (A) The term "unitary business group" means
a group 
 
 
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1 of persons related through common ownership whose 
2 business activities
are integrated with, dependent 
3 upon and contribute to each other. The group
will not 
4 include those members whose business activity outside 
5 the United
States is 80% or more of any such member's 
6 total business activity; for
purposes of this 
7 paragraph and clause (a)(3)(B)(ii) of Section 304,

8 business
activity within the United States shall be 
9 measured by means of the factors
ordinarily applicable 
10 under subsections (a), (b), (c), (d), or (h)
of Section

11 304 except that, in the case of members ordinarily 
12 required to apportion
business income by means of the 3 
13 factor formula of property, payroll and sales

14 specified in subsection (a) of Section 304, including 
15 the
formula as weighted in subsection (h) of Section 
16 304, such members shall
not use the sales factor in the 
17 computation and the results of the property
and payroll 
18 factor computations of subsection (a) of Section 304 
19 shall be
divided by 2 (by one if either
the property or 
20 payroll factor has a denominator of zero). The 
21 computation
required by the preceding sentence shall, 
22 in each case, involve the division of
the member's 
23 property, payroll, or revenue miles in the United 
24 States,
insurance premiums on property or risk in the 
25 United States, or financial
organization business 
26 income from sources within the United States, as the

 
 
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1 case may be, by the respective worldwide figures for 
2 such items. Common
ownership in the case of 
3 corporations is the direct or indirect control or

4 ownership of more than 50% of the outstanding voting 
5 stock of the persons
carrying on unitary business 
6 activity. Unitary business activity can
ordinarily be 
7 illustrated where the activities of the members are: 
8 (1) in the
same general line (such as manufacturing, 
9 wholesaling, retailing of tangible
personal property, 
10 insurance, transportation or finance); or (2) are 
11 steps in a
vertically structured enterprise or process 
12 (such as the steps involved in the
production of 
13 natural resources, which might include exploration, 
14 mining,
refining, and marketing); and, in either 
15 instance, the members are functionally
integrated 
16 through the exercise of strong centralized management 
17 (where, for
example, authority over such matters as 
18 purchasing, financing, tax compliance,
product line, 
19 personnel, marketing and capital investment is not 
20 left to each
member).

21   (B) In no event, shall any
unitary business group 
22 include members
which are ordinarily required to 
23 apportion business income under different
subsections 
24 of Section 304 except that for tax years ending on or 
25 after
December 31, 1987 this prohibition shall not 
26 apply to a holding company that would otherwise be a 
 
 
SB1625- 23 -LRB099 10674 HLH 30933 b


1 member of a unitary business group with taxpayers that 
2 apportion business income under any of subsections 
3 (b), (c), (c-1), or (d) of Section 304. If a unitary 
4 business
group would, but for the preceding sentence, 
5 include members that are
ordinarily required to 
6 apportion business income under different subsections 
7 of
Section 304, then for each subsection of Section 304 
8 for which there are two or
more members, there shall be 
9 a separate unitary business group composed of such

10 members. For purposes of the preceding two sentences, a 
11 member is "ordinarily
required to apportion business 
12 income" under a particular subsection of Section
304 if 
13 it would be required to use the apportionment method 
14 prescribed by such
subsection except for the fact that 
15 it derives business income solely from
Illinois. As 
16 used in this paragraph, the phrase "United States" 
17 means only the 50 states and the District of Columbia, 
18 but does not include any territory or possession of the 
19 United States or any area over which the United States 
20 has asserted jurisdiction or claimed exclusive rights 
21 with respect to the exploration for or exploitation of 
22 natural resources.

23   (C) Holding companies.
24    (i) For purposes of this subparagraph, a 
25 "holding company" is a corporation (other than a 
26 corporation that is a financial organization under 
 
 
SB1625- 24 -LRB099 10674 HLH 30933 b


1 paragraph (8) of this subsection (a) of Section 
2 1501 because it is a bank holding company under the 
3 provisions of the Bank Holding Company Act of 1956 
4 (12 U.S.C. 1841, et seq.) or because it is owned by 
5 a bank or a bank holding company) that owns a 
6 controlling interest in one or more other 
7 taxpayers ("controlled taxpayers"); that, during 
8 the period that includes the taxable year and the 2 
9 immediately preceding taxable years or, if the 
10 corporation was formed during the current or 
11 immediately preceding taxable year, the taxable 
12 years in which the corporation has been in 
13 existence, derived substantially all its gross 
14 income from dividends, interest, rents, royalties, 
15 fees or other charges received from controlled 
16 taxpayers for the provision of services, and gains 
17 on the sale or other disposition of interests in 
18 controlled taxpayers or in property leased or 
19 licensed to controlled taxpayers or used by the 
20 taxpayer in providing services to controlled 
21 taxpayers; and that incurs no substantial expenses 
22 other than expenses (including interest and other 
23 costs of borrowing) incurred in connection with 
24 the acquisition and holding of interests in 
25 controlled taxpayers and in the provision of 
26 services to controlled taxpayers or in the leasing 
 
 
SB1625- 25 -LRB099 10674 HLH 30933 b


1 or licensing of property to controlled taxpayers.
2    (ii) The income of a holding company which is a 
3 member of more than one unitary business group 
4 shall be included in each unitary business group of 
5 which it is a member on a pro rata basis, by 
6 including in each unitary business group that 
7 portion of the base income of the holding company 
8 that bears the same proportion to the total base 
9 income of the holding company as the gross receipts 
10 of the unitary business group bears to the combined 
11 gross receipts of all unitary business groups (in 
12 both cases without regard to the holding company) 
13 or on any other reasonable basis, consistently 
14 applied.
15    (iii) A holding company shall apportion its 
16 business income under the subsection of Section 
17 304 used by the other members of its unitary 
18 business group. The apportionment factors of a 
19 holding company which would be a member of more 
20 than one unitary business group shall be included 
21 with the apportionment factors of each unitary 
22 business group of which it is a member on a pro 
23 rata basis using the same method used in clause 
24 (ii).
25    (iv) The provisions of this subparagraph (C) 
26 are intended to clarify existing law.
 
 
SB1625- 26 -LRB099 10674 HLH 30933 b


1   (D) If including the base income and factors of a 
2 holding company in more than one unitary business group 
3 under subparagraph (C) does not fairly reflect the 
4 degree of integration between the holding company and 
5 one or more of the unitary business groups, the 
6 dependence of the holding company and one or more of 
7 the unitary business groups upon each other, or the 
8 contributions between the holding company and one or 
9 more of the unitary business groups, the holding 
10 company may petition the Director, under the 
11 procedures provided under Section 304(f), for 
12 permission to include all base income and factors of 
13 the holding company only with members of a unitary 
14 business group apportioning their business income 
15 under one subsection of subsections (a), (b), (c), or 
16 (d) of Section 304. If the petition is granted, the 
17 holding company shall be included in a unitary business 
18 group only with persons apportioning their business 
19 income under the selected subsection of Section 304 
20 until the Director grants a petition of the holding 
21 company either to be included in more than one unitary 
22 business group under subparagraph (C) or to include its 
23 base income and factors only with members of a unitary 
24 business group apportioning their business income 
25 under a different subsection of Section 304. 
26   (E) If the unitary business group members' 
 
 
SB1625- 27 -LRB099 10674 HLH 30933 b


1 accounting periods differ,
the common parent's 
2 accounting period or, if there is no common parent, the

3 accounting period of the member that is expected to 
4 have, on a recurring basis,
the greatest Illinois 
5 income tax liability must be used to determine whether 
6 to
use the apportionment method provided in subsection 
7 (a) or subsection (h) of
Section 304. The
prohibition 
8 against membership in a unitary business group for 
9 taxpayers
ordinarily required to apportion income 
10 under different subsections of Section
304 does not 
11 apply to taxpayers required to apportion income under 
12 subsection
(a) and subsection (h) of Section
304. The 
13 provisions of this amendatory Act of 1998 apply to tax

14 years ending on or after December 31, 1998.


15  (28) Subchapter S corporation. The term "Subchapter S 
16 corporation"
means a corporation for which there is in 
17 effect an election under Section
1362 of the Internal 
18 Revenue Code, or for which there is a federal election
to 
19 opt out of the provisions of the Subchapter S Revision Act 
20 of 1982 and
have applied instead the prior federal 
21 Subchapter S rules as in effect on July
1, 1982.

22  (30) Foreign person. The term "foreign person" means 
23 any person who is a nonresident alien individual and any 
24 nonindividual entity, regardless of where created or 
25 organized, whose business activity outside the United 
26 States is 80% or more of the entity's total business 
 
 
SB1625- 28 -LRB099 10674 HLH 30933 b


1 activity.



2 (b) Other definitions.


3  (1) Words denoting number, gender, and so forth,
when 
4 used in this Act, where not otherwise distinctly expressed 
5 or manifestly
incompatible with the intent thereof:


6   (A) Words importing the singular include and apply 
7 to several persons,
parties or things;


8   (B) Words importing the plural include the 
9 singular; and


10   (C) Words importing the masculine gender include 
11 the feminine as well.


12  (2) "Company" or "association" as including successors 
13 and assigns. The
word "company" or "association", when used 
14 in reference to a corporation,
shall be deemed to embrace 
15 the words "successors and assigns of such company
or 
16 association", and in like manner as if these last-named 
17 words, or words
of similar import, were expressed.


18  (3) Other terms. Any term used in any Section of this 
19 Act with respect
to the application of, or in connection 
20 with, the provisions of any other
Section of this Act shall 
21 have the same meaning as in such other Section.

22(Source: P.A. 96-641, eff. 8-24-09; 97-507, eff. 8-23-11; 
2397-636, eff. 6-1-12.)