Current through Register Vol. 48, No. 38, September 20, 2024
a) In General. For taxable years ending on or
after December 31, 2008, the 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 gross receipts from sources in this State or
otherwise attributable to this State's marketplace and the denominator of which
is its gross receipts everywhere during the taxable year. (IITA Section
304(c)(3)) Any gross receipt that is excluded from base income or subtracted in
the computation of base income of the financial organization must be excluded
from the numerator and denominator of this 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.
b) Definitions. For
purposes of this Section, the following definitions shall apply:
1) Fixed Place of Business. The term "fixed
place of business" has the same meaning as that term is given in Section 864 of
the Internal Revenue Code and the related Treasury regulations. (IITA Section
1501(a)(9.5))
A) As a general rule, a "fixed
place of business" is a fixed facility, that is, a place, site, structure or
other similar facility, through which the taxpayer engages in a trade or
business. (See 26 CFR 1.864 - 7(b)(1).)
B) A taxpayer is not considered to have a
fixed place of business merely because the taxpayer uses another person's fixed
place of business, whether or not the other person and the taxpayer are related
persons, through which to transact a trade or business, if the trade or
business activities of the taxpayer in that fixed place of business are
relatively sporadic or infrequent, taking into account the overall needs and
conduct of that trade or business. (See 26 CFR 1.864 - 7(b)(2).)
C) A fixed place of business of an agent of
the taxpayer who is not an independent agent is not a fixed place of business
of the taxpayer unless the agent has the authority to negotiate and conclude
contracts in the name of the taxpayer, and regularly exercises that authority.
(See 26 CFR 1.864 - 7(d)(1)(i).)
D)
A fixed place of business of an independent agent of the taxpayer shall not be
treated as the office or other fixed place of business of the taxpayer,
irrespective of whether the agent has authority to negotiate and conclude
contracts in the name of the principal and regularly exercises that authority.
(See 26 CFR 1.864 - 7(d)(2).)
E)
For purposes of this subsection (b)(1), "independent agent" means a general
commission agent, broker or other agent of an independent status acting in the
ordinary course of his or her business in that capacity. (See 26 CFR 1.864 -
7(d)(3).)
2) Gross
Receipts. "Gross receipts" means gross income, including net taxable gain on
disposition of assets, including securities and money market instruments, when
derived from transactions and activities in the regular course of the financial
organization's trade or business. (IITA Section 304(c)(3))
3) State of Residence or Commercial Domicile.
Unless a financial organization has actual knowledge that the residence or
commercial domicile of a person is in a state other than the state in which the
person's billing address is located, the person shall be deemed to be a
resident or have its commercial domicile in the state in which the billing
address is located.
4) Substantive
Contacts. "Substantive contacts" with an investment asset or trading activity
means the research, approval and administration activities conducted by
employees of the taxpayer in connection with its investments or trading, and
are conducted at the fixed place of business at which the employees involved in
these activities perform services for the taxpayer.
A) Research. "Research" means the procedures
and activities whereby employees of the taxpayer evaluate potential investments
or trades.
B) Approval. "Approval"
means the procedures whereby employees of the taxpayer make the final
determination to invest in or dispose of assets or to engage in a specific
trading activity.
C)
Administration. "Administration" means the management of investments or trading
activities, and includes bookkeeping, collection or making of payments,
communications with brokers, customers and other persons with regard to
investment or trading activities, and reporting to management on investment or
trading activities.
c) Sourcing Rules. For the purposes of this
Section, gross receipts from sources in this State or otherwise attributable to
this State's marketplace is the sum of the following amounts:
1) Lease and Rental Receipts.
A) Receipts from the lease or rental of real
or tangible personal property are in this State if the property is located in
this State during the rental period.
B) Receipts from the lease or rental of
tangible personal property that is characteristically moving property,
including, but not limited to, motor vehicles, rolling stock, aircraft,
vessels, or mobile equipment, are from sources in this State to the extent that
the property is used in this State. (IITA Section 304(c)(3)(i)) If the property
is within and without this State during the rental, lease or licensing period,
gross receipts attributable to this State shall be measured by the ratio
comparing the time the property was physically present or was used in this
State with the total time or use of the property everywhere during that
period.
2) Interest
income, commissions, fees, gains on disposition, and other receipts from assets
in the nature of loans that are secured primarily by real estate or tangible
personal property are from sources in this State if the security is located in
this State. (IITA Section 304(c)(3)(ii))
A)
For tangible personal property, the property is located in this State if the
debtor is a resident of this State (in the case of an individual, trust or
estate) or has its commercial domicile in this State as of the date the loan is
made.
B) In the case of a loan
secured by property located within and without this State, the gross receipts
from the loan that are from sources within this State equal the total gross
receipts times a fraction equal to the value of the real estate and tangible
property securing the loan that is located within this State at the time the
loan is made, divided by the total value of the real estate and tangible
property securing the loan at the time the loan is made.
3) Interest income, commissions, fees, gains
on disposition, and other receipts from consumer loans that are not secured by
real or tangible personal property are from sources in this State if the debtor
is a resident of this State. (IITA Section 304(c)(3)(iii))
4) Interest income, commissions, fees, gains
on disposition, and other receipts from commercial loans and installment
obligations that are not secured by real or tangible personal property are from
sources in this State if the proceeds of the loan are to be applied in this
State. If it cannot be determined where the funds are to be applied, the income
and receipts are from sources in this State if the office of the borrower from
which the loan was negotiated in the regular course of business is located in
this State. If the location of this office cannot be determined, the income and
receipts shall be excluded from the numerator and denominator of the sales
factor. (IITA Section 304(c)(3)(iv))
5) Interest income, fees, gains on
disposition, service charges, merchant discount income, and other receipts from
credit card receivables are from sources in this State if the card charges are
regularly billed to a customer in this State. (IITA Section
304(c)(3)(v))
6) Receipts from the
performance of services, including, but not limited to, fiduciary, advisory,
and brokerage services, are in this State if the services are received in this
State within the meaning of IITA Section 304(a)(3)(C-5)(iv). (IITA Section
304(c)(3)(vi)) See Section
100.3370(c)(6)(D)
for more guidance.
7) Receipts from
the issuance of travelers checks and money orders are from sources in this
State if the checks and money orders are issued from a location within this
State. (IITA Section 304(c)(3)(vii))
8) Receipts from investment assets and
activities and trading assets and activities are included in the receipts
factor as follows:
A) Interest, dividends,
net gains (but not less than zero) and other income from investment assets and
activities from trading assets and activities shall be included in the receipts
factor. Investment assets and activities and trading assets and activities
include but are not limited to: investment securities; trading account assets;
federal funds; securities purchased and sold under agreements to resell or
repurchase; options; futures contracts; forward contracts; notional principal
contracts such as swaps; equities; and foreign currency transactions. (IITA
Section 304(c)(3)(viii)(1))
i) The receipts
factor shall include the amount by which interest from federal funds sold and
securities purchased under resale agreements exceeds interest expense on
federal funds purchased and securities sold under repurchase agreements. (IITA
Section 304(c)(3)(viii)(1)(A))
ii)
The receipts factor shall include the amount by which interest, dividends,
gains and other income from trading assets and activities, including but not
limited to assets and activities in the matched book, in the arbitrage book,
and foreign currency transactions, exceed amounts paid in lieu of interest,
amounts paid in lieu of dividends, and losses from such assets and activities.
(IITA Section 304(c)(3)(viii)(1)(B))
B) The numerator of the receipts factor
includes interest, dividends, net gains (but not less than zero), and other
income from investment assets and activities and from trading assets and
activities that are attributable to this State, as follows:
i) The amount of interest, dividends, net
gains (but not less than zero), and other income from investment assets and
activities in the investment account to be attributed to this State and
included in the numerator is determined by multiplying all such income from
such assets and activities by a fraction, the numerator of which is the gross
income from such assets and activities which are properly assigned to a fixed
place of business of the taxpayer within this State, and the denominator of
which is the gross income from all such assets and activities. (IITA Section
304(c)(3)(viii)(2)(A))
ii) The
amount of interest from federal funds sold and purchased and from securities
purchased under resale agreements and securities sold under repurchase
agreements attributable to this State and included in the numerator is
determined by multiplying the total of those items by a fraction, the numerator
of which is the gross income from such funds and such securities which are
properly assigned to a fixed place of business of the taxpayer within this
State and the denominator of which is the gross income from all such funds and
such securities. (IITA Section 304(c)(3)(viii)(2)(B))
iii) The amount of interest, dividends,
gains, and other income from trading assets and activities, including but not
limited to assets and activities in the matched book, in the arbitrage book and
foreign currency transactions, but excluding amounts described in subsection
(c)(8)(B)(i) or (ii), attributable to this State and included in the numerator
is determined by multiplying the total of those items by a fraction, the
numerator of which is the gross income from such trading assets and activities
which are properly assigned to a fixed place of business of the taxpayer within
this State, and the denominator of which is the gross income from all such
assets and activities. (IITA Section 304(c)(3)(viii)(2)(C))
iv) An investment or trading asset or
activity is assigned to the fixed place of business with which it has a
preponderanceof substantive contacts. An investment or trading asset or
activity assigned by the taxpayer to a fixed place of business without the
State shall be presumed to have been properly assigned if:
* the taxpayer has assigned, in the regular course of its
business, such asset or activity on its records to a fixed place of business
consistent with federal or state regulatory requirements; (IITA Section
304(c)(3)(viii)(2)(D)(1))
* such assignment on its records is based upon substantive
contacts of the asset or activity to such fixed place of business; and (IITA
Section 304(c)(3)(viii)(2)(D)(2))
* the taxpayer uses such records reflecting assignment of
such assets or activities for the filing of all state and local tax returns for
which an assignment of such assets or activities to a fixed place of business
is required. (IITA Section 304(c)(3)(viii)(2)(D)(3))
v) The presumption of proper assignment of an
investment or trading asset or activity provided in subsection (c)(8)(B)(iv)
may be rebutted upon a showing by the Department, supported by a preponderance
of the evidence, that the preponderance of substantive contacts regarding such
asset or activity did not occur at the fixed place of business to which it was
assigned on the taxpayer's records. If the fixed place of business that has a
preponderance of substantive contacts cannot be determined for an investment or
trading asset or activity to which the presumption of proper assignment does
not apply or with respect to which that presumption has been rebutted, that
asset or activity is properly assigned to the state in which the taxpayer's
commercial domicile is located. For purposes of this subsection (c)(8)(B)(v),
it is presumed, subject to rebuttal, that taxpayer's commercial domicile is in
the state of the United States or the District of Columbia to which the
greatest number of employees are regularly connected with themanagement of the
investment or trading income or out of which they are working, irrespective of
where the services of such employees are performed, as of the last day of the
taxable year. (IITA Section 304(c)(3)(viii)(2)(E))
9) Any receipts that are
includable in the denominator of the fraction in subsection (a) and that are
not governed by subsection (c)(1) through (8) are from sources within this
State to the extent the receipts would be characterized as "sales in this
State" under IITA Section 304(a)(3) and Sections
100.3370
and
100.3380
of this Part, except that the provisions in IITA Section 304(a)(3)(B-2)
(excluding gross receipts from the licensing, sale or other disposition of
patents, copyrights, trademarks and similar items from the numerator and
denominator of the apportionment factor, unless those items comprise more than
50% of the taxpayer's gross receipts) do not apply.