Senate Bill 1544 / Amendment #1 & #2

1.    Franchise Tax and License Fee Amnesty Act of 2007

An amnesty for franchise taxes and fees is provided for the time period from February 1, 2008 through March 15, 2008.  Amounts paid under the amnesty will not subject to either penalties or interest.  The Secretary of State may not prosecute taxpayers under civil or criminal law for delinquent taxes paid as a result of the amnesty. 

2.    Addbacks for interest and intangible expenses paid to special apportionment taxpayers.

Provisions to tighten corporate income tax laws related to offshore affiliates. 

For taxable years ending on or after December 31, 2008, taxpayers must add back any interest or intangible expenses or costs paid, accrued, or incurred, directly or indirectly, to a foreign person who would be a member of the same unitary business group but for the non-combination rule for special apportionment taxpayers.

3.     Addition modification for insurance premium expenses paid to special apportionment taxpayers (New addback). 

Provisions to tighten up corporate income tax laws relating to offshore affiliated insurance companies.  For taxable years ending on or after December 31, 2008, taxpayers must add back any amount of insurance premium expenses and costs that were paid, accrued, or incurred, directly or indirectly to a person who would be a member of the same unitary business group but for the non-combination rule for taxpayers with different apportionment formulas.  The addition modification is reduced to the extent that dividends were included in the base income of the unitary business group for the same taxable year and received by the taxpayer or by a member of the taxpayer's unitary business group with respect to the stock of the same person to whom the intangible expenses or costs were directly or indirectly paid.  New subtraction for income from insurance premiums (net of deductions allocable thereto)  with respect to transactions with a person who would be a member of the UBG but for the non-combination rule for taxpayers with special apportionment formulas, but not to exceed the addition required for intangible expenses. 

4.    Exempt income deduction modified. 

With regard to exempt income from bonds or other obligations, the deduction will be for the income, net of bond premium amortization, and now also net of interest expense incurred on indebtedness to carry the bond or other obligation, expenses incurred in producing the income to be deducted, and all other related expenses.  The amount of expenses to be taken into account may not exceed the amount of income that is exempted. 

5.    Real Estate Investment Trust

Amends the corporate income tax to restrict perceived abuse of real estate investment trusts tax laws.  Changes the Illinois addition and subtraction provisions for taxable years beginning after December 31, 2008, for federal deduction for dividends paid and received by captive real estate investment trusts to avoid tax sheltering activities.  

Amendment #2 adopted by the House last night made changes to the provisions regarding REIT's.  A definition of "captive real estate investment trust" was added to the bill. 

6.     No change to taxation of investment partnerships

We are advised that this provision was inadvertently included and is to be eliminated.

7.     NOL adjustment for discharged debt.

Applies prospectively to taxable years ending on or after December 31, 2008.  Reduces NOL and NOL Carryforward by a pro rata share of debt discharged in bankruptcy. 

8,     Sourcing of Services for Apportionment purposes.

Moves to market place sourcing of service revenues.  Provides generally that sales of services are in this State if the benefit of the service is realized in this State.  The Department may adopt rules prescribing where the benefit of specific types of service, including, but not limited to, telecommunications, broadcast, cable, advertising, publishing, and utility service, is realized. 

9.    Changes Insurance Companies Apportionment Rules

Changes the definition of "direct premiums written" to include income from surplus line contracts (excluding deposit-type funds). 

10.    Changes Financial Organization Apportionment & Sourcing Rules.  Eliminates "lockbox" rule. 

Completely re-writes the corporate income tax provisions related to taxation of financial organizations using a marketplace approach. 

11.    Changes the Apportionment Formula for Transportation companies (other than airlines).

Mileage based apportionment for interstate or pass-throught shipments.  Full apportionment for shipments originating and concluding in Illinois.

12.    Changes Airline Apportionment Rules

Arrivals and departures of aircraft in Illinois (weighted as to cost of aircraft by type) over total arrivals and departures everywhere. 

13.    Alternative Allocation

The Director would now have the authority to permit or require special apportionment without a petition. 

14.   Withholding by partnerships, Subchapter S corporations, and trusts.

Requires Illinois partnerships and Subchapter S corporations, as well as trusts, to withhold Illinois income tax on distributive shares of income paid to partners and shareholders. 

15.    Changes definition of "corporation" to include real estate investment trusts.

If it's already treated as a corporation for federal purposes this provision does not represent a change.

16.    Eliminates sales tax exemption for rental vehicles. 

Eliminates the sales tax exemption for all vehicles that are subject to the Automobile Renting Occupation and Use Tax Act.