Current through Register Vol. 48, No. 38, September 20, 2024
a) In General.
Except as otherwise provided in this Section, business income of an
insurance company for a taxable year shall be apportioned to this State by
multiplying such income by a fraction, the numerator of which is the direct
premiums written for insurance upon property or risk in this State, and the
denominator of which is the direct premiums written for insurance upon property
or risk everywhere. [IITA Section 304(b)(1)]
b) Insurance Company. For purposes of the
IITA, an "insurance company" means any taxpayer properly treated as an
insurance company for purposes of federal income taxation under subchapter L of
the Internal Revenue Code (IRC sections 801 through 848). (See IITA Section
102.) No other taxpayer may be treated as an insurance company for purposes of
the IITA.
c) Direct Premiums
Written. "Direct premiums written" means the total amount of direct
premiums written, assessments and annuity considerations as reported for the
taxable year on the annual statement filed by the company with the Illinois
Director of Insurance in the form approved by the National Convention of
Insurance Commissioners (currently known as the National Association
of Insurance Commissioners) or such other form as may be prescribed in
lieu of the National Association of Insurance Commissioners form.
1) The apportionment factor shall take into
account only those receipts that are included in either "gross premiums
written" under IRC section 832(b)(4)(A) or "gross amount of premiums" under IRC
section 803(a)(1)(A). Only receipts that are included in federal taxable income
of the taxpayer, and that are not subtracted in the computation of base income
under a provision of Section 203 of the IITA, may be included in the
apportionment factor. (See Continental Illinois National Bank and Trust Company
of Chicago v. Lenckos, 102 Ill.2d 210 (1984).)
2) Only direct premiums written for
insurance, assessments against mutual policyholders and consideration for
annuity contracts that include elements of insurance are included in the
apportionment factor. Other receipts are excluded from the apportionment
factor, even if included in net income.
3) Examples of receipts that are excluded
from the apportionment factor include:
A)
Interest, dividends and other income from investments.
B) Gains or losses from the adjustment of
reserves, salvage or subrogation.
C) Deposit-type funds. This is due to the
fact that deposit-type funds involve no insurance risk and are therefore
reported separately from premiums, assessments and annuity considerations on
the annual report.
D) Premiums on
which State income taxes are prohibited by federal law.
4) Premiums rebated or repaid to
policyholders and reported as negative amounts on the annual statement are
treated as negative amounts in the computation of the apportionment factor.
However, neither the numerator nor the denominator of the apportionment factor
may be reduced below zero.
d) Insurance on Property or Risk in this
State. A direct premium is written for insurance upon property or risk in this
State and included in the numerator of the apportionment factor if it is
allocated to this State in the annual statement filed by the insurance company
with the Director of Insurance. If an insurance company does not file an annual
statement with the Director of Insurance or if any direct premiums written by
an insurance company are not allocated to a specific state on its annual
statement, that insurance company shall include in the numerator of its
apportionment factor the direct premiums written for insurance on property or
risk in this State, determined in accordance with the determination of gross
taxable premium written under Section 409(1) of the Illinois Insurance Code [
215 ILCS
5/409(1)] , provided that the
determination shall be made without allowing the exceptions in that Section
409(1) for premiums on annuities, premiums on which State premium taxes are
prohibited by federal law, premiums paid by the State for Medicaid eligible
insureds, premiums paid for health care services included as an element of
tuition charges at any university or college owned and operated by the State of
Illinois, premiums on group insurance contracts under the State Employees Group
Insurance Act of 1971 [ 5 ILCS 375 ], or premiums for deferred compensation
plans for employees of the State, units of local government or school
districts.
e) Reinsurance.
If the principal source of premiums written by an insurance company
consists of premiums for reinsurance accepted by it, the business income of
such company shall be apportioned to this State by multiplying such income by a
fraction, the numerator of which is the sum of direct premiums written for
insurance upon property or risk in this State, plus premiums written for
reinsurance accepted in respect of property or risk in this State, and the
denominator of which is the sum of direct premiums written for insurance upon
property or risk everywhere, plus premiums written for reinsurance accepted in
respect of property or risk everywhere. (IITA Section 304(b)(2))
1) The principal source of premiums written
by an insurance company consists of premiums for reinsurance accepted by the
taxpayer for a taxable year if the premiums written for reinsurance accepted
that would be includable in the denominator of the apportionment fraction for
the taxable year under this subsection (e) exceed the direct premiums written
for insurance that would be includable in the denominator of the apportionment
fraction under this subsection (e).
2) Property or risk in this State. An
insurance company may determine the amount of
premiums written for
reinsurance accepted in respect of property or risk in this State by
consideration of each premium written, or the premiums
may, at the
election of the company, be determined on the basis of:
A)
the proportion which premiums
written for reinsurance accepted from companies commercially domiciled in
Illinois bears to premiums written for reinsurance accepted from all
sources; or
B)
the proportion which the sum of
the direct premiums written for insurance upon property or risk in this State
by each ceding company from which reinsurance is accepted bears to the sum of
the total direct premiums written by each such ceding company for the taxable
year.
3) The
election to determine the portion of reinsurance premiums accepted in respect
of property or risk in this State for a particular tax year, by consideration
of each premium written or by either of the alternative methods outlined in
subsection (e)(2), shall be made by using the chosen method on the taxpayer's
return for the taxable year. For taxable years ending prior to December 31,
2011, the election may be made or changed at any time.
The election
made by a company for its first taxable year ending on or after December 31,
2011 is binding for that company for that taxable year and for all subsequent
taxable years, and may be altered only with the written permission of the
Department, which shall not be unreasonably withheld. (IITA Section
304(b)(2))
A) A request for permission to
alter an election shall be submitted to the Department as a request for a
private letter ruling under 2 Ill. Adm. Code
1200.110,
and permission to alter an election shall be granted by private letter ruling.
Requests may be made for the change to take effect for a taxable year ending
prior to the date the request is filed, provided that the request shall be
granted only if the statute of limitations for assessment of additional tax is
open for that taxable year and every subsequent taxable year as of the date the
Department responds to the request. The taxpayer and the Department may agree
in writing to extend the statute of limitations under IITA Section 905(f) in
order to allow the Department time to process the request.
B) If permission to alter an election is
denied, the taxpayer may challenge the denial by filing its return for each
taxable year to which the requested alteration was to apply and for which a
return has not been filed, using the previously-elected method, and:
i) paying the excess of its tax liability
shown on the return over the liability that would be shown using the requested
method under protest pursuant to Section 2a.1 of the State Officers and
Employees Money Disposition Act [
30 ILCS
230/2a.1] and filing a complaint as provided in that
Act; or
ii) by filing a refund
claim for that taxable year and any subsequent year for which a return has been
filed, using the method requested and filing a protest with the Department or a
petition with the Illinois Independent Tax Tribunal in response to a denial of
the claim.
