Illinois Administrative Code
Title 86 - REVENUE
Part 100 - INCOME TAX
Subpart M - BUSINESS INCOME OF PERSONS OTHER THAN RESIDENTS
Section 100.3400 - Apportionment of Business Income of Financial Organizations for Taxable Years Ending Prior to December 31, 2008 (IITA Section 304(c))
Universal Citation: 86 IL Admin Code ยง 100.3400
Current through Register Vol. 48, No. 38, September 20, 2024
a) In General. For taxable years ending prior to December 31, 2008, business income of a financial organization shall be apportioned to this State by multiplying such income by a fraction, the numerator of which is its business income from sources within this State, and the denominator of which is its business income from all sources. (IITA Section 304(c)(1))
1) IITA Section 304(c)(1)
expressly provides that the adjusted income of an international banking
facility is excluded from the amounts sourced to Illinois under its provisions.
Adjusted income from an international banking facility is defined in IITA
Section 304(c)(2) to mean amounts reported on a Consolidated Report of
Condition which is filed with the Federal Deposit Insurance Corporation on
Schedule A, lines 2.c., 5.b. or 7.a., or any successor or substitute report
required by the Federal Deposit Insurance Corporation, as applicable to the tax
year in question. Accordingly, all references in this Section to items sourced
to Illinois must be read to exclude items comprising the adjusted income of an
international banking facility.
2)
Any item of income that is excluded from base income or subtracted in the
computation of base income of the financial organization must therefore be
excluded from the formula. See Continental Illinois National Bank and Trust
Company of Chicago v. Lenckos, 102 Ill.2d 210 (1984). For example, dividends
deducted from federal taxable income under
26 USC
243 or subtracted in the computation of base
income under IITA Section 203(b)(2)(O) are excluded from the apportionment
formula.
3) In determining the
amount of business income included in the numerator or the denominator of the
apportionment fraction, amounts of business income received during the tax year
shall not be reduced by any expenses allocable to the business. The
determination of gains or losses included in business income shall take into
account the taxpayer's basis in property sold or otherwise disposed of, but in
no event shall a loss included in business income reduce the numerator or
denominator of the apportionment fraction below zero.
b) Definitions. For purposes of this Section, the following definitions shall apply:
1)
Customer. A "customer" is a person for whom the financial organization provides
financial services directly or through an agent or other fiduciary of the
financial organization. Illustrative examples of this definition include:
A) In the case of a bank participating in a
syndicated loan, the borrower is a customer of the bank if the bank is a named
party to the original transaction for whom the lead bank is acting as agent.
However, if a bank purchases a participation in an existing loan, the borrower
is not a customer of the bank because the bank is not providing a financial
service to the borrower.
B) In the
case of a financial organization financing the accounts receivable of a
business, the obligor on the account is a customer of the financial
organization only if the financial organization purchases the receivable, thus
creating a direct relationship between itself and the obligor.
i) Example 1: If a financial organization
makes a loan to a company secured by the company's customer receivables, the
company is the customer of that financial organization but the company's
customers are not customers of the financial organization because the loan is a
financial service provided to the company rather than to the company's
customers.
ii) Example 2: If a
financial organization purchases a customer account receivable from a company,
the company's customer thereby becomes a customer of the financial
organization.
C) A
financial organization purchases a publicly-traded security of an issuer for
whom the organization provides financial services. If the purchase is unrelated
to any financial services provided by the financial organization to the issuer,
the issuer is not a customer of the financial organization for purposes of
sourcing the income derived from the security. If, however, the purchase of the
security is made in connection with a financial service provided to the issuer
as a customer of the financial organization, the issuer is a customer for
sourcing the income derived from the security.
2) Dividend. "Dividend" means any item
defined as a dividend under
26 USC 316 and
any other item of income characterized or treated as a dividend under the
Internal Revenue Code.
3) Fees,
Commissions or Other Compensation for Financial Services. "Fees, commissions or
other compensation for financial services" means all items of income, other
than interest, dividends and gross profit from trading in stocks, bonds or
other securities, paid to a financial organization by its customers for the
provision of those services characteristic of financial organizations, as
defined in Section
100.9710
of this Part. Such items include, to the extent received for services
characteristic of a financial organization:
A) Late payment fees or penalties to the
extent not properly characterized as interest;
B) Penalties for early withdrawal of deposits
or early repayment of debt; and
C)
Loan origination fees, charges for credit investigations, filing fees, etc., to
the extent not properly characterized as interest.
4) Gross Profits from Trading in Stocks,
Bonds or Other Securities. "Gross profits from trading in stocks, bonds or
other securities" of a financial organization means the net gain or net loss
realized on the sale, exchange or other disposition of a security other than a
security representing an interest in or obligation of that financial
organization. Gross profits from trading in stocks, bonds or other securities
do not include any amount that is properly characterized as a fee or commission
of the financial organization for the transaction or as interest or dividends.
Gross profits from trading in securities do include any net gain or loss
realized on the sale, exchange or other disposition of some or all of a
financial organization's interest in a loan or other indebtedness of a customer
of the financial organization payable to the financial organization.
5) Illinois Customer. "Illinois customer"
means:
A) A customer who is an Illinois
resident individual, trust or estate; or
B) A customer other than an individual, trust
or estate whose commercial domicile is in Illinois.
Unless a financial organization has actual knowledge that the residence or commercial domicile of a customer during a taxable year is in a state other than the state in which the customer's billing address is located, the customer shall be deemed to be an Illinois customer if the billing address of the customer, as shown in the records of the financial organization relating to the interest income being sourced, is located in Illinois and shall be deemed not to be an Illinois customer if that billing address is located outside Illinois.
6) Interest. "Interest" means "compensation
for the use or forbearance of money". See Deputy v. du Pont, 308 U.S. 488,
498(1940).
A) Interest does not include late
payment penalties that are in addition to interest expressly charged on any
past-due balance or that are computed without regard to the amount of the
past-due balance or the length of time a payment is late.
B) Interest includes the amortization of any
discount at which an obligation is purchased and is net of the amortization of
any premium at which an obligation is purchased. Any amount in excess of the
purchase price received in payment of an obligation purchased at an
arm's-length discount shall be rebuttably presumed to be interest.
C) Interest includes any amount received upon
the sale, exchange or other disposition of an obligation to the extent that
such amount represents the accrual of interest on the unpaid balance of the
obligation since the most recent payment made on that obligation.
7) Margin Account. "Margin
account" means any extension of credit made by a financial organization for the
purchase or carrying of securities by the borrower, within the meaning of 15
USC 78 g.
8) Stocks, Bonds or Other
Securities. "Stocks, bonds or other securities" means any share of stock in any
corporation, certificate of stock, or interest in any corporation, note, bond,
debenture, or other evidence of indebtedness, or any evidence of an interest in
or right to subscribe to or purchase any of the foregoing, within the meaning
of
26 USC
1236(c).
c) Sourcing Rules. For the purposes of this Section, business income (other than the adjusted income of an international banking facility) of a financial organization from sources within this State is the sum of the following amounts:
1) Fees, commissions or other compensation
for financial services rendered within this State. (IITA Section 304(c)(1)(A))
A) Scope. This subsection (c)(1) applies to
all payments received by a financial organization from its customers for
services characteristic of a financial organization, except to the extent the
payment is sourced according to subsection (c)(2), (c)(3) or (c)(4) of this
Section.
B) Application. Financial
services are "rendered within this State" if:
i) The income-producing activity is performed
in this State; or
ii) The
income-producing activity is performed both within and without this State and a
greater proportion of the income-producing activity is performed within this
State than without this State, based on performance costs.
If the performance costs of two or more income producing activities cannot readily be allocated among those activities, the gross income resulting from those activities shall be combined and sourced to Illinois using the combined performance costs for all those activities.
2) Gross profits from
trading in stocks, bonds or other securities managed within this State. (IITA
Section 304(c)(1)(B))
A) Scope. This
subsection (c)(2) applies only to net gains or losses realized on the sale or
exchange of securities. Dividends received on stocks and interest received on
securities are sourced pursuant to subsection (c)(3) of this Section.
B) Application. The trading of a stock, bond
or other security is "managed within this State" if:
i) The income producing activity is performed
in this State; or
ii) The income
producing activity is performed both within and without this State and a
greater proportion of the income producing activity is performed within this
State than without this State, based on performance costs.
If the performance costs of two or more income producing activities cannot readily be allocated among those activities, the gross income resulting from those activities shall be combined and sourced to Illinois using the combined performance costs for all those activities.
3) Dividends and
interest from Illinois customers, which are received within this State. (IITA
Section 304(c)(1)(C))
A) Scope. This
subsection (c)(3) applies to all dividends included in business income of the
financial organization and to all interest (other than interest on margin
accounts, which is sourced under the provisions in subsection (b)(4) of this
Section) received by the financial organization.
B) Application. Interest is never sourced to
Illinois under this subsection (c)(3) unless it is received from an Illinois
customer. Interest from an Illinois customer or dividends are "received in this
State" if the payment comes within the control of the financial organization or
of an agent or other fiduciary of the financial organization at a location
within the State of Illinois. If payment of an item of interest income that has
been accrued and included in base income for a tax year is not received prior
to the date the return for that tax year is filed, the financial organization
shall treat the payment as received at the location to which the borrower is
directed to send the payment or, if no single location is specified, at the
location at which the financial organization reasonably expects to receive the
interest. The following examples illustrate the principles for determining when
a payment comes within the control of a financial organization:
i) Example 3: A financial organization
directs its customers in the Midwest to mail all payments to a lock box located
in Detroit. Interest and dividend payments mailed to the Detroit lock box are
received in Detroit. Such payments are received in Detroit even if the checks
are first deposited by or on behalf of the financial organization in a bank
located outside Detroit because the checks come within the control of the
financial organization's agent when received at the lock box. Whether the lock
box is serviced by the financial organization's own employees or by a company
acting as agent for the financial organization is irrelevant, because receipt
by either an employee or an agent of the financial organization will give it
control.
ii) Example 4: An
electronic transfer of funds is received by a financial organization at the
location of the bank carrying the account of the financial organization into
which the funds are deposited. In the case of a bank with branches in both
Illinois and Missouri, whose Federal Reserve Bank account is maintained at the
Federal Reserve Bank of St. Louis, an electronic transfer via the Federal
Reserve is received by the bank in St. Louis, the location of its account. In
the case of a financial organization receiving an electronic transfer via the
Federal Reserve through that bank, the payment is received at the branch of the
bank in which the financial organization's account is maintained because the
payment is not within the financial organization's control until deposited into
its account by its bank. The deposit of funds into the account of the bank at
the Federal Reserve Bank does not place the funds within the control of the
financial organization because the bank, merely by participating in the
electronic transfer, is not acting as collection agent for the financial
organization.
iii) Example 5: A
credit card bank purchases its cardholders' balances from a retailer pursuant
to an agreement under which the retailer services the accounts. Payments are
received by the credit card bank at the location where the retailer receives
the payments on its behalf, not at the location to which the retailer forwards
the payments.
iv) Example 6: A bank
makes a loan to an Illinois customer secured by the customer's accounts
receivable. Pursuant to the loan agreement, the bank's customer directs its
customers to send their payments to the bank, which deposits the payments in an
account at its Chicago branch in the name of the customer, from which the bank
may withdraw loan payments to itself. The funds in the customer's account are
not within the control of the bank. Payments withdrawn by the bank from the
account at the Chicago branch pursuant to the agreement are received in
Illinois regardless of where the payments from the customers are received by
the bank. However, if the customer pays the bank by check drawn on the account
at the Chicago branch, payment is received by the bank in the state in which it
receives the check.
4) Interest charged to customers at places of
business maintained within this State for carrying debit balances of margin
accounts, without deduction of any costs incurred in carrying such accounts.
(IITA Section 304(c)(1)(D))
A) Scope. This
subsection (c)(4) applies to all interest on margin accounts.
B) Application. Interest on a margin account
is sourced to this State if the financial organization's place of business
through which the borrower ordinarily conducts business with the financial
organization is located within Illinois.
5) Any other gross income resulting from the
operation as a financial organization within this State. (IITA Section
304(c)(1))
A) Scope. This subsection (c)(5)
applies to every item of business income of a financial organization that is
not governed by subsections (c)(1) through (c)(4) of this Section.
B) Application. Gross income that results
from the operation of a taxpayer as a financial organization "within this
State" is allocable to this State if:
i) The
income producing activity is performed in this State; or
ii) The income producing activity is
performed both within and without this State and a greater proportion of the
income producing activity is performed within this State than without this
State, based on performance costs.
C) If the performance costs of two or more
income producing activities cannot readily be allocated among those activities,
the gross income resulting from those activities shall be combined and sourced
to Illinois using the combined performance costs for all those
activities.
Disclaimer: These regulations may not be the most recent version. Illinois may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
