Statutes > Illinois Statutes > CHAPTER 35 REVENUE > 35 ILCS 5/ Illinois Income Tax Act. > Article 3 - Allocation And Apportionment Of Base Income

Article 3 - Allocation And Apportionment Of Base Income


      (35 ILCS 5/Art. 3 heading)
ARTICLE 3. ALLOCATION AND APPORTIONMENT OF BASE INCOME.

    (35 ILCS 5/301) (from Ch. 120, par. 3‑301)
    Sec. 301. General Rule.
    (a) Residents. All items of income or deduction which were taken into account in the computation of base income for the taxable year by a resident shall be allocated to this State.
    (b) Part‑year residents. All items of income or deduction which were taken into account in the computation of base income for the taxable year by a part‑year resident shall, for that part of the year the part‑year resident was a resident of this State, be allocated to this State and, for the remaining part of the year, be allocated to this State only to the extent provided by Section 302, 303 or 304 (relating to compensation, nonbusiness income and business income, respectively).
    (c) Other persons.
        (1) In general. Any item of income or deduction
     which was taken into account in the computation of base income for the taxable year by any person other than a resident and which is referred to in Section 302, 303 or 304 (relating to compensation, nonbusiness income and business income, respectively) shall be allocated to this State only to the extent provided by such section.
        (2) Unspecified items. Any item of income or
     deduction which was taken into account in the computation of base income for the taxable year by any person other than a resident and which is not otherwise specifically allocated or apportioned pursuant to Section 302, 303 or 304 (including, without limitation, interest, dividends, items of income taken into account under the provisions of Sections 401 through 425 of the Internal Revenue Code, and benefit payments received by a beneficiary of a supplemental unemployment benefit trust which is referred to in Section 501(c)(17) of the Internal Revenue Code):
            (A) in the case of an individual, trust, or
         estate, shall not be allocated to this State; and
            (B) in the case of a corporation or a
         partnership, shall be allocated to this State if the taxpayer had its commercial domicile in this State at the time such item was paid, incurred or accrued.
(Source: P.A. 90‑491, eff. 1‑1‑98; 90‑562, eff. 12‑16‑97.)

    (35 ILCS 5/302) (from Ch. 120, par. 3‑302)
    Sec. 302. Compensation paid to nonresidents.
    (a) In general. All items of compensation paid in this State (as determined under Section 304(a)(2)(B)) to an individual who is a nonresident at the time of such payment and all items of deduction directly allocable thereto, shall be allocated to this State.
    (b) Reciprocal exemption. The Director may enter into an agreement with the taxing authorities of any state which imposes a tax on or measured by income to provide that compensation paid in such state to residents of this State shall be exempt from such tax; in such case, any compensation paid in this State to residents of such state shall not be allocated to this State. All reciprocal agreements shall be subject to the requirements of Section 2505‑575 of the Department of Revenue Law (20 ILCS 2505/2505‑575).
    (c) Cross references.
        (1) For allocation of amounts received by
     nonresidents from certain employee trusts, see Section 301(b)(2).
        (2) For allocation of compensation by residents, see
     Section 301(a).
(Source: P.A. 90‑491, eff. 1‑1‑98; 91‑239, eff. 1‑1‑00.)

    (35 ILCS 5/303) (from Ch. 120, par. 3‑303)
    Sec. 303. (a) In general. Any item of capital gain or loss, and any item of income from rents or royalties from real or tangible personal property, interest, dividends, and patent or copyright royalties, and prizes awarded under the Illinois Lottery Law, to the extent such item constitutes nonbusiness income, together with any item of deduction directly allocable thereto, shall be allocated by any person other than a resident as provided in this Section.
    (b) Capital gains and losses. (1) Real property. Capital gains and losses from sales or exchanges of real property are allocable to this State if the property is located in this State.
    (2) Tangible personal property. Capital gains and losses from sales or exchanges of tangible personal property are allocable to this State if, at the time of such sale or exchange:
    (A) The property had its situs in this State; or
    (B) The taxpayer had its commercial domicile in this State and was not taxable in the state in which the property had its situs.
    (3) Intangibles. Capital gains and losses from sales or exchanges of intangible personal property are allocable to this State if the taxpayer had its commercial domicile in this State at the time of such sale or exchange.
    (c) Rents and royalties. (1) Real property. Rents and royalties from real property are allocable to this State if the property is located in this State.
    (2) Tangible personal property. Rents and royalties from tangible personal property are allocable to this State:
    (A) If and to the extent that the property is utilized in this State; or
    (B) In their entirety if, at the time such rents or royalties were paid or accrued, the taxpayer had its commercial domicile in this State and was not organized under the laws of or taxable with respect to such rents or royalties in the state in which the property was utilized. The extent of utilization of tangible personal property in a state is determined by multiplying the rents or royalties derived from such property by a fraction, the numerator of which is the number of days of physical location of the property in the state during the rental or royalty period in the taxable year and the denominator of which is the number of days of physical location of the property everywhere during all rental or royalty periods in the taxable year. If the physical location of the property during the rental or royalty period is unknown or unascertainable by the taxpayer, tangible personal property is utilized in the state in which the property was located at the time the rental or royalty payer obtained possession.
    (d) Patent and copyright royalties.
    (1) Allocation. Patent and copyright royalties are allocable to this State:
    (A) If and to the extent that the patent or copyright is utilized by the payer in this State; or
    (B) If and to the extent that the patent or copyright is utilized by the payer in a state in which the taxpayer is not taxable with respect to such royalties and, at the time such royalties were paid or accrued, the taxpayer had its commercial domicile in this State.
    (2) Utilization.
    (A) A patent is utilized in a state to the extent that it is employed in production, fabrication, manufacturing or other processing in the state or to the extent that a patented product is produced in the state. If the basis of receipts from patent royalties does not permit allocation to states or if the accounting procedures do not reflect states of utilization, the patent is utilized in this State if the taxpayer has its commercial domicile in this State.
    (B) A copyright is utilized in a state to the extent that printing or other publication originates in the state. If the basis of receipts from copyright royalties does not permit allocation to states or if the accounting procedures do not reflect states of utilization, the copyright is utilized in this State if the taxpayer has its commercial domicile in this State.
    (e) Illinois lottery prizes. Prizes awarded under the "Illinois Lottery Law", approved December 14, 1973, are allocable to this State.
    (f) Taxability in other state. For purposes of allocation of income pursuant to this Section, a taxpayer is taxable in another state if:
    (1) In that state he is subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, or a corporate stock tax; or
    (2) That state has jurisdiction to subject the taxpayer to a net income tax regardless of whether, in fact, the state does or does not.
    (g) Cross references. (1) For allocation of interest and dividends by persons other than residents, see Section 301(c)(2).
    (2) For allocation of nonbusiness income by residents, see Section 301(a).
(Source: P.A. 79‑743.)

    (35 ILCS 5/304)(from Ch. 120, par. 3‑304)
    Sec. 304. Business income of persons other than residents.
    (a) In general. The business income of a person other than a resident shall be allocated to this State if such person's business income is derived solely from this State. If a person other than a resident derives business income from this State and one or more other states, then, for tax years ending on or before December 30, 1998, and except as otherwise provided by this Section, such person's business income shall be apportioned to this State by multiplying the income by a fraction, the numerator of which is the sum of the property factor (if any), the payroll factor (if any) and 200% of the sales factor (if any), and the denominator of which is 4 reduced by the number of factors other than the sales factor which have a denominator of zero and by an additional 2 if the sales factor has a denominator of zero. For tax years ending on or after December 31, 1998, and except as otherwise provided by this Section, persons other than residents who derive business income from this State and one or more other states shall compute their apportionment factor by weighting their property, payroll, and sales factors as provided in subsection (h) of this Section.
    (1) Property factor.
        (A) The property factor is a fraction, the numerator
     of which is the average value of the person's real and tangible personal property owned or rented and used in the trade or business in this State during the taxable year and the denominator of which is the average value of all the person's real and tangible personal property owned or rented and used in the trade or business during the taxable year.
        (B) Property owned by the person is valued at its
     original cost. Property rented by the person is valued at 8 times the net annual rental rate. Net annual rental rate is the annual rental rate paid by the person less any annual rental rate received by the person from sub‑rentals.
        (C) The average value of property shall be
     determined by averaging the values at the beginning and ending of the taxable year but the Director may require the averaging of monthly values during the taxable year if reasonably required to reflect properly the average value of the person's property.
    (2) Payroll factor.
        (A) The payroll factor is a fraction, the numerator
     of which is the total amount paid in this State during the taxable year by the person for compensation, and the denominator of which is the total compensation paid everywhere during the taxable year.
        (B) Compensation is paid in this State if:
            (i) The individual's service is performed
         entirely within this State;
            (ii) The individual's service is performed both
         within and without this State, but the service performed without this State is incidental to the individual's service performed within this State; or
            (iii) Some of the service is performed within
         this State and either the base of operations, or if there is no base of operations, the place from which the service is directed or controlled is within this State, or the base of operations or the place from which the service is directed or controlled is not in any state in which some part of the service is performed, but the individual's residence is in this State.
            (iv) Compensation paid to nonresident
         professional athletes.
            (a) General. The Illinois source income of a
         nonresident individual who is a member of a professional athletic team includes the portion of the individual's total compensation for services performed as a member of a professional athletic team during the taxable year which the number of duty days spent within this State performing services for the team in any manner during the taxable year bears to the total number of duty days spent both within and without this State during the taxable year.
            (b) Travel days. Travel days that do not involve
         either a game, practice, team meeting, or other similar team event are not considered duty days spent in this State. However, such travel days are considered in the total duty days spent both within and without this State.
            (c) Definitions. For purposes of this subpart
         (iv):
                (1) The term "professional athletic team"
             includes, but is not limited to, any professional baseball, basketball, football, soccer, or hockey team.
                (2) The term "member of a professional
             athletic team" includes those employees who are active players, players on the disabled list, and any other persons required to travel and who travel with and perform services on behalf of a professional athletic team on a regular basis. This includes, but is not limited to, coaches, managers, and trainers.
                (3) Except as provided in items (C) and (D)
             of this subpart (3), the term "duty days" means all days during the taxable year from the beginning of the professional athletic team's official pre‑season training period through the last game in which the team competes or is scheduled to compete. Duty days shall be counted for the year in which they occur, including where a team's official pre‑season training period through the last game in which the team competes or is scheduled to compete, occurs during more than one tax year.
                    (A) Duty days shall also include days on
                 which a member of a professional athletic team performs service for a team on a date that does not fall within the foregoing period (e.g., participation in instructional leagues, the "All Star Game", or promotional "caravans"). Performing a service for a professional athletic team includes conducting training and rehabilitation activities, when such activities are conducted at team facilities.
                    (B) Also included in duty days are game
                 days, practice days, days spent at team meetings, promotional caravans, preseason training camps, and days served with the team through all post‑season games in which the team competes or is scheduled to compete.
                    (C) Duty days for any person who joins a
                 team during the period from the beginning of the professional athletic team's official pre‑season training period through the last game in which the team competes, or is scheduled to compete, shall begin on the day that person joins the team. Conversely, duty days for any person who leaves a team during this period shall end on the day that person leaves the team. Where a person switches teams during a taxable year, a separate duty‑day calculation shall be made for the period the person was with each team.
                    (D) Days for which a member of a
                 professional athletic team is not compensated and is not performing services for the team in any manner, including days when such member of a professional athletic team has been suspended without pay and prohibited from performing any services for the team, shall not be treated as duty days.
                    (E) Days for which a member of a
                 professional athletic team is on the disabled list and does not conduct rehabilitation activities at facilities of the team, and is not otherwise performing services for the team in Illinois, shall not be considered duty days spent in this State. All days on the disabled list, however, are considered to be included in total duty days spent both within and without this State.
                (4) The term "total compensation for services
             performed as a member of a professional athletic team" means the total compensation received during the taxable year for services performed:
                    (A) from the beginning of the official
                 pre‑season training period through the last game in which the team competes or is scheduled to compete during that taxable year; and
                    (B) during the taxable year on a date
                 which does not fall within the foregoing period (e.g., participation in instructional leagues, the "All Star Game", or promotional caravans).
                This compensation shall include, but is not
             limited to, salaries, wages, bonuses as described in this subpart, and any other type of compensation paid during the taxable year to a member of a professional athletic team for services performed in that year. This compensation does not include strike benefits, severance pay, termination pay, contract or option year buy‑out payments, expansion or relocation payments, or any other payments not related to services performed for the team.
                For purposes of this subparagraph, "bonuses"
             included in "total compensation for services performed as a member of a professional athletic team" subject to the allocation described in Section 302(c)(1) are: bonuses earned as a result of play (i.e., performance bonuses) during the season, including bonuses paid for championship, playoff or "bowl" games played by a team, or for selection to all‑star league or other honorary positions; and bonuses paid for signing a contract, unless the payment of the signing bonus is not conditional upon the signee playing any games for the team or performing any subsequent services for the team or even making the team, the signing bonus is payable separately from the salary and any other compensation, and the signing bonus is nonrefundable.
    (3) Sales factor.
        (A) The sales factor is a fraction, the numerator of
     which is the total sales of the person in this State during the taxable year, and the denominator of which is the total sales of the person everywhere during the taxable year.
        (B) Sales of tangible personal property are in this
     State if:
            (i) The property is delivered or shipped to a
         purchaser, other than the United States government, within this State regardless of the f. o. b. point or other conditions of the sale; or
            (ii) The property is shipped from an office,
         store, warehouse, factory or other place of storage in this State and either the purchaser is the United States government or the person is not taxable in the state of the purchaser; provided, however, that premises owned or leased by a person who has independently contracted with the seller for the printing of newspapers, periodicals or books shall not be deemed to be an office, store, warehouse, factory or other place of storage for purposes of this Section. Sales of tangible personal property are not in this State if the seller and purchaser would be members of the same unitary business group but for the fact that either the seller or purchaser is a person with 80% or more of total business activity outside of the United States and the property is purchased for resale.
        (B‑1) Patents, copyrights, trademarks, and similar
     items of intangible personal property.
            (i) Gross receipts from the licensing, sale, or
         other disposition of a patent, copyright, trademark, or similar item of intangible personal property, other than gross receipts governed by paragraph (B‑7) of this item (3), are in this State to the extent the item is utilized in this State during the year the gross receipts are included in gross income.
            (ii) Place of utilization.
                (I) A patent is utilized in a state to the
             extent that it is employed in production, fabrication, manufacturing, or other processing in the state or to the extent that a patented product is produced in the state. If a patent is utilized in more than one state, the extent to which it is utilized in any one state shall be a fraction equal to the gross receipts of the licensee or purchaser from sales or leases of items produced, fabricated, manufactured, or processed within that state using the patent and of patented items produced within that state, divided by the total of such gross receipts for all states in which the patent is utilized.
                (II) A copyright is utilized in a state to
             the extent that printing or other publication originates in the state. If a copyright is utilized in more than one state, the extent to which it is utilized in any one state shall be a fraction equal to the gross receipts from sales or licenses of materials printed or published in that state divided by the total of such gross receipts for all states in which the copyright is utilized.
                (III) Trademarks and other items of
             intangible personal property governed by this paragraph (B‑1) are utilized in the state in which the commercial domicile of the licensee or purchaser is located.
            (iii) If the state of utilization of an item of
         property governed by this paragraph (B‑1) cannot be determined from the taxpayer's books and records or from the books and records of any person related to the taxpayer within the meaning of Section 267(b) of the Internal Revenue Code, 26 U.S.C. 267, the gross receipts attributable to that item shall be excluded from both the numerator and the denominator of the sales factor.
        (B‑2) Gross receipts from the license, sale, or
     other disposition of patents, copyrights, trademarks, and similar items of intangible personal property, other than gross receipts governed by paragraph (B‑7) of this item (3), may be included in the numerator or denominator of the sales factor only if gross receipts from licenses, sales, or other disposition of such items comprise more than 50% of the taxpayer's total gross receipts included in gross income during the tax year and during each of the 2 immediately preceding tax years; provided that, when a taxpayer is a member of a unitary business group, such determination shall be made on the basis of the gross receipts of the entire unitary business group.
        (B‑5) For taxable years ending on or after December
     31, 2008, except as provided in subsections (ii) through (vii), receipts from the sale of telecommunications service or mobile telecommunications service are in this State if the customer's service address is in this State.
            (i) For purposes of this subparagraph (B‑5), the
         follow terms have the following meanings:
            "Ancillary services" means services that are
         associated with or incidental to the provision of "telecommunications services", including but not limited to "detailed telecommunications billing", "directory assistance", "vertical service", and "voice mail services".
            "Air‑to‑Ground Radiotelephone service" means a
         radio service, as that term is defined in 47 CFR 22.99, in which common carriers are authorized to offer and provide radio telecommunications service for hire to subscribers in aircraft.
            "Call‑by‑call Basis" means any method of charging
         for telecommunications services where the price is measured by individual calls.
            "Communications Channel" means a physical or
         virtual path of communications over which signals are transmitted between or among customer channel termination points.
            "Conference bridging service" means an "ancillary
         service" that links two or more participants of an audio or video conference call and may include the provision of a telephone number. "Conference bridging service" does not include the "telecommunications services" used to reach the conference bridge.
            "Customer Channel Termination Point" means the
         location where the customer either inputs or receives the communications.
            "Detailed telecommunications billing service"
         means an "ancillary service" of separately stating information pertaining to individual calls on a customer's billing statement.