Current through Register Vol. 48, No. 38, September 20, 2024
a) Taxpayers are
entitled to subtract from taxable income (adjusted gross income, in the case of
an individual) an amount equal to dividends paid by a corporation which
conducts business operations in an enterprise zone or zones created under the
Illinois Enterprise Zone Act or in a river edge redevelopment zone or zones
created under the River Edge Redevelopment Zone Act, and conducts all or
substantially all of its operations in the enterprise zone or zones or the
river edge redevelopment zone or zones (IITA Section 203(a)(2)(J),
203(b)(2)(K), 203(c)(2)(M) and 203(d)(2)(K)).
1) Dividends received from a corporation that
conducts all or substantially all of its operations in a river edge
redevelopment zone or zones are eligible for subtraction under this Section
only if received after July 12, 2006, the effective date of PA 94-1021, which
enacted this subtraction.
2)
Dividends received from a corporation that conducts all or substantially all of
its operations in an enterprise zone or zone are eligible for subtraction under
this Section only if received prior to August 7, 2012, the effective date of PA
97-905, which repealed this subtraction.
b) A corporation conducts substantially all
of its business within an enterprise zone or river edge redevelopment zone when
95% or more of its total business activity during a taxable year is operated
within an enterprise zone or river edge redevelopment zone. For the purpose of
this Section, business activity within an enterprise zone or river edge
redevelopment zone shall be measured by means of the factors ordinarily
applicable to the corporation under IITA Section 304 (a),(b),(c) or (d), except
that, in the case of a corporation ordinarily required to apportion business
income under IITA Section 304(a), the corporation shall not use the sales
factor in the computation. Thus, for example, for taxable years ending on or
after December 31, 2000, for purposes of determining whether dividends may be
subtracted under this Section, a corporation that apportions its business
income under IITA Section 304(a) using only the sales factor in accordance with
IITA Section (h) 304 must still compute its property and payroll factors. In
measuring the business activity of a corporation within an enterprise zone or
river edge redevelopment zone, the apportionment factors of that corporation
shall be determined without regard to the factors or business activity of any
other corporation and, in the case of a corporation engaged in a unitary
business with any other person, the apportionment factors of that corporation
shall be determined as if it were not engaged in a unitary business with such
other person.
1) Section 304(a) Corporations:
A corporation using Section 304(a) to apportion business income to Illinois
shall compare the corporation's property and payroll within an enterprise zone
or river edge redevelopment zone to the corporation's property and payroll
everywhere. The result of the property and payroll factor computations shall be
divided by 2 (by one if either the property or payroll factor has a denominator
of zero). If the amount so computed is 95% or greater, the dividends paid by
the corporation shall qualify for this subtraction. In the case where a
corporation does not have any payroll or property within an enterprise zone or
river edge redevelopment zone, the corporation is not conducting any of its
business operations within an enterprise zone or river edge redevelopment zone
for the purpose of this Section.
2)
All Other Corporations: A corporation using a 1-factor apportionment formula
under IITA Section 304(b),(c) or (d) shall determine business activity
conducted within an enterprise zone or river edge redevelopment zone by
comparing business income from sources within the enterprise zone or river edge
redevelopment zone and everywhere else pursuant to its ordinarily applicable
factor under IITA Section 304(b), (c) or (d). A corporation using an
alternative method of apportionment under Section 304(f) shall petition the
Department for approval of an appropriate method of determining its
qualification under this Section, and only upon the Department's approval shall
the corporation be allowed to use a method not provided in this
Section.
3) EXAMPLE: In the tax
year ending December 31, 1995, Taxpayer received dividends from a bank holding
company, whose sole asset was the stock in a bank with which it was conducting
a unitary business. Both the bank holding company and the bank are
headquartered in an enterprise zone created under the Illinois Enterprise Zone
Act. During 1995, the operations of the bank consisted of accepting deposits,
making loans and purchasing investments. The bank conducted business in its
branches located throughout the State. However, the bank holding company's sole
source of income on a separate-company basis was the dividends it received from
the bank, and all of this income was received within the enterprise zone. In
determining its business income apportionable to Illinois in 1995, the bank
holding company and the bank used the apportionment formula under IITA Section
304(c) on a combined basis. In order to determine whether 95% or more of its
income is from sources within the enterprise zone, the bank holding company is
required to use the same apportionment formula under IITA Section 304(c) as if
it were not engaged in a unitary business with the bank. Pursuant to the
formula, dividends which are received within this State are apportionable to
Illinois. As a result, the bank holding company in this case must compute the
percentage of dividends which are received within the enterprise zone to
determine income apportionable to the enterprise zone. Since it received all of
its business income from sources within the enterprise zone, the bank holding
company would meet the 95% test.
c) Taxpayers are entitled to this subtraction
in the taxable year in which qualifying dividends are paid by corporations.
1) Corporations paying dividends shall be
deemed to have started business operations within an enterprise zone from the
later of:
A) The date the enterprise zone in
which the corporation paying the dividends is located was officially designated
by the Department of Commerce and Economic Opportunity;
B) The date the corporation paying dividends
commenced operations in the enterprise zone; or
C) The effective date of the Public Act
enacting this subtraction (December 7, 1982).
2) Corporations paying dividends shall be
deemed to have started business operations within a river edge redevelopment
zone from the later of:
A) The date the river
edge redevelopment zone in which the corporation paying the dividends is
located was officially designated by the Department of Commerce and Economic
Opportunity;
B) The date the
corporation paying dividends commenced operations in the river edge
redevelopment zone; or
C) July 12,
2006, the effective date of PA 94-1021, which enacted this
subtraction.
d) Limitations
1) This Section allows taxpayers to subtract
distributions from a corporation only to the extent:
A) such distributions are characterized as
dividends;
B) such dividends are
included in federal taxable income (in the case of an individual, adjusted
gross income) of the taxpayer; and
C) the taxpayer has not subtracted such
dividends from federal taxable income (in the case of an individual, adjusted
gross income) under any other provision of IITA Section 203.
2) EXAMPLE: Taxpayer, a Subchapter
S corporation shareholder, receives a distribution from an S corporation which
conducts substantially all of its business in an enterprise zone. Although the
Subchapter S corporation satisfies the 95% test, Taxpayer is not entitled to
this subtraction modification since a distribution by a Subchapter S
corporation is generally not characterized as a dividend. See section 1368 of
the Internal Revenue Code.
3)
EXAMPLE: Taxpayer, a corporation, receives a dividend from another corporation
that qualifies for the 70% dividends received deduction under section 243(a)(1)
of the Internal Revenue Code. Because only 30% of the dividend is included in
Taxpayer's federal taxable income, this Section allows Taxpayer to subtract
only 30% of the dividend from its federal taxable income.
