a)
In General
1) IITA Section 1501(a)(21)
defines the term "sales" to mean all gross receipts of the person not allocated
under IITA Sections 301, 302 and 303. Thus, for the purposes of the sales
factor of the apportionment formula for each trade or business of the person,
the term "sales" means all gross receipts derived by the person from
transactions and activity in the regular course of his or her trade or
business. The following are rules for determining "sales" in various
situations, except in instances in which an alternative method of determining
the sales factor is prescribed in Section
100.3380. If the determination
prescribed by this Section does not clearly reflect the taxpayer's business
activities in Illinois (for taxable years ending before December 31, 2008) or
the market for the taxpayer's goods, services or other sources of income in
Illinois (for taxable years ending on or after December 31, 2008), the taxpayer
may request the use of an alternative method of apportionment under Section
100.3390.
A) In the case of a person engaged in
manufacturing and selling or purchasing and reselling goods or products,
"sales" includes all gross receipts from the sales of those goods or products
(or other property of a kind that would properly be included in the inventory
of the person if on hand at the close of the tax period) held by the person
primarily for sale to customers in the ordinary course of its trade or
business. Gross receipts for this purpose means gross sales less returns and
allowances, and includes all interest income, service charges, carrying
charges, or time-price differential charges attendant to those sales. Federal
and State excise taxes (including sales taxes) shall be included as part of the
receipts if the taxes are passed on to the buyer or included as part of the
selling price of the product.
B) In
the case of cost plus fixed fee contracts, such as the operation of a
government-owned plant for a fee, "sales" includes the entire reimbursed cost,
plus the fee.
C) In the case of a
person engaged in providing services, such as the operation of an advertising
agency, or the performance of equipment service contracts, or research and
development contracts, "sales" includes the gross receipts from the performance
of those services, including fees, commissions and similar items.
D) In the case of a person engaged in renting
real or tangible property, "sales" includes the gross receipts from the rental,
lease or licensing of the use of the property.
E) In the case of a person engaged in the
sale, assignment or licensing of intangible personal property such as patents
and copyrights, "sales" includes the gross receipts therefrom.
F) If a person derives receipts from the sale
of equipment used in its business, those receipts constitute "sales". For
example, a truck express company owns a fleet of trucks and sells its trucks
under a regular replacement program. The gross receipts from the sales of the
trucks shall be included in the sales factor.
2) The following gross receipts are not
included in the sales factor:
A) For taxable
years ending on or after December 31, 1995, dividends; amounts included
under IRC section 78; and Subpart F income are excluded from the sales
factor under IITA Section 304(a)(3)(D).
B) Gross receipts that are excluded from or
deducted in the computation of federal taxable income or federal adjusted gross
income, and that are not added back in the computation of base income. For
example, in years ending prior to December 31, 1995, dividends received from a
domestic corporation are excluded from the sales factor to the extent the
taxpayer is allowed a deduction under IRC section 243 with respect to those
dividends.
C) Gross receipts that
are subtracted from federal taxable income or federal adjusted gross income in
the computation of base income or that are eliminated in the computation of
taxable income in the case of a unitary business group under Section
100.5270(b)(1).
Examples of gross receipts excluded from the sales factor under this provision
include:
i) Interest on federal obligations
subtracted under IITA Section 203(a)(2)(N), (b)(2)(J), (c)(2)(K) or
(d)(2)(G).
ii) For taxable years
ending prior to December 31, 1995, dividends included in federal taxable income
or federal adjusted gross income are excluded from the sales factor if
eliminated in combination or to the extent subtracted under IITA Section
203(a)(2)(J), (a)(2)(K), (b)(2)(K), (b)(2)(L), (b)(2)(O), (c)(2)(M), (c)(2)(O),
(d)(2)(K) or (d)(2)(M).
D) Gross receipts that are excluded from or
deducted in the computation of federal taxable income or federal adjusted gross
income, but are added back in the computation of base income, are included in
the sales factor unless subtracted or eliminated in combination. For example:
i) Interest on State obligations excluded
from federal taxable income or adjusted gross income under IRC section 103 and
added back in the computation of base income under IITA Section 203(a)(2)(A),
(b)(2)(A), (c)(2)(A) or (d)(2)(A) shall be included in the sales factor except
in the case of interest on certain Illinois obligations that is exempt from
Illinois Income Tax. (See 86 Ill. Adm. Code
100.2470(f).)
ii) Gross receipts from intercompany
transactions between two corporate members of a federal consolidated group, the
taxable income on which is deferred under
26 CFR
1.1502-13, shall be included in the sales
factor of the recipient unless subtracted under a provision of IITA Section 203
or eliminated in combination of the two corporations as members of a unitary
business group.
E) In
some cases, certain gross receipts should be disregarded in determining the
sales factor in order that the apportionment formula will operate fairly to
apportion to this State the income of the person's trade or business. (See 86
Ill. Adm. Code
100.3380(c).)
F) For taxable years ending on or after
December 31, 1999,
gross receipts from the licensing, sale, or other
disposition of a patent, copyright, trademark, or similar item of intangible
personal property may be included in the sales factor only if gross receipts
from licenses, sales, or other dispositions of these 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, the
determination shall be made on the basis of the gross receipts of the entire
unitary business group. (IITA Section 304(a)(3)(B-2)) For purposes of
this Section:
i) "Gross receipts from the
licensing, sale, or other disposition of a patent, copyright, trademark, or
similar item of intangible personal property" includes amounts received as
damages or settlements from claims of infringement.
ii) "Gross receipts from the licensing, sale,
or other disposition of a patent" includes only amounts received from a person
using the patent in the production, fabrication, manufacturing, or other
processing of a product or from a person producing, fabricating or
manufacturing a product subject to the patent.
iii) "Gross receipts from the licensing,
sale, or other disposition of a copyright" includes only amounts received by
the taxpayer from a person engaged in printing or other publication of the
material protected by the copyright, which are governed by Section
100.3373. The term does not
include gross receipts from broadcasting within the meaning of IITA Section
304(a)(3)(B-7) or from publishing or advertising within the meaning of IITA
Section 304(a)(3)(C-5)(iv).
iv) If
a taxpayer has been in existence less than three taxable years, its gross
receipts from the licensing, sale, or other disposition of patents, copyrights,
trademarks or similar items of intangible personal property shall be included
in its sales factor if those gross receipts comprise more than 50% of its total
gross receipts during each taxable year of its existence.
v) "Patent" means a patent issued under
35 U.S.C.
151.
vi) "Copyright" means a copyright registered
or eligible for registration under
17 U.S.C.
408.
vii) "Trademark" means a trademark registered
or eligible for registration under
15 U.S.C.
1051.
viii) A "similar item" means an item of
intellectual property that is registered or otherwise enforceable under a law
equivalent to 35 U.S.C.
151,
17 U.S.C.
408 or
15 U.S.C.
1051 or that is otherwise recognized in the
country under whose law the sale or license agreement would be enforced, or
under which an infringement claim would be brought.
ix) In the case of a unitary business group,
the "total gross receipts and gross receipts from the licensing, sale or other
disposition of a patent, copyright, trademark or similar item of intangible
personal property in the two years immediately preceding the tax year" includes
the gross receipts and gross receipts from the licensing, sale or other
disposition of a patent, copyright, trademark or similar item of intangible
personal property of all persons who are members of the unitary business group
at some time during the taxable year, whether or not those persons were also
members of the unitary business group in a preceding tax year, and only of
those persons.
3) In filing returns with this State, if the
person departs from or modifies the basis for excluding or including gross
receipts in the sales factor used in returns for prior years, the person shall
disclose in the return for the current year the nature and extent of the
modification. If the returns or reports filed by the person with all states to
which the person reports under Article IV of the Multistate Tax Compact or the
Uniform Division of Income for Tax Purposes Act are not uniform in the
inclusion or exclusion of gross receipts, the person shall disclose in its
return to this State the nature and extent of the variance.
4) For taxable years ending prior to December
31, 2008, sales of electricity are sales other than sales of tangible personal
property sourced under IITA Section 304(a)(3)(C). For taxable years ending on
or after December 31, 2008 and prior to July 16, 2009, sales of electricity are
sales of service sourced under IITA Section 304(a)(3)(C-5)(iv). For taxable
years ending after July 15, 2009, sales of electricity are sales of tangible
personal property sourced under IITA Section 304(a)(3)(B). (See Exelon Corp. v.
Department of Revenue, 234 Ill 2d 266 (2009)).
c) Numerator. The numerator of the sales
factor shall include the gross receipts attributable to this State and derived
by the person from transactions and activity in the regular course of its trade
or business. All interest income, service charges, carrying charges, or
time-price differential charges incidental to those gross receipts shall be
included regardless of the place where the accounting records are maintained or
the location of the contract or other evidence of indebtedness.
1) Sales of Tangible Personal Property in
this State
A) Gross receipts from the sales of
tangible personal property (except sales to the United States Government) (see
subsection (c)(2)) are in this State:
i) if
the property is delivered or shipped to a purchaser within this State
regardless of the f.o.b. (free on board) point or other conditions of sale;
or
ii) if the property is shipped
from an office, store, warehouse, factory or other place of storage in this
State and the taxpayer is not taxable in the state of the purchaser. However,
premises owned or leased by a person who has independently contracted with the
taxpayer for the printing of newspapers, periodicals or books shall not be
deemed to be an office, store, warehouse, factory or other place of
storage.
B) Property
shall be deemed to be delivered or shipped to a purchaser within this State if
the recipient is located in this State, even though the property is ordered
from outside this State.
EXAMPLE: A corporation, with inventory in State A, sold
$100,000 of its products to a purchaser having branch stores in several states
including this State. The order for the purchase was placed by the purchaser's
central purchasing department located in State B. $25,000 of the purchase order
was shipped directly to purchaser's branch store in this State. The branch
store in this State is the "purchaser within this State" with respect to
$25,000 of the corporation's sales.
C) Property is delivered or shipped to a
purchaser within this State if the shipment terminates in this State, even
though the property is subsequently transferred by the purchaser to another
state.
EXAMPLE: A corporation makes a sale to a purchaser who
maintains a central warehouse in this State at which all merchandise purchases
are received. The purchaser reships the goods to its branch stores in other
states for sale. All of the corporation's products shipped to the purchaser's
warehouse in this State is property "delivered or shipped to a purchaser within
this State".
D) The term
"purchaser within this State" shall include the ultimate recipient of the
property if the person in this State, at the designation of the purchaser,
delivers to or has the property shipped to the ultimate recipient within this
State.
EXAMPLE: A corporation in this State sold merchandise to a
purchaser in State A. The corporation directed the manufacturer or supplier of
the merchandise in State B to ship the merchandise to the purchaser's customer
in this State pursuant to purchaser's instructions. The sale by the corporation
is "in this State".
E) When
property being shipped by a seller from the state of origin to a consignee in
another state is diverted while en route to a purchaser in this State, the
sales are in this State.
EXAMPLE: Corporation X, a produce grower in State A, begins
shipment of perishable produce to the purchaser's place of business in State B.
While en route the produce is diverted to the purchaser's place of business in
this State in which state Corporation X is subject to tax. The sale by the
corporation is attributed to this State.
F) If the person is not taxable in the state
of the purchaser, the sale is attributed to this State if the property is
shipped from an office, store, warehouse, factory, or other place of storage in
this State (subject to the exception noted in (c)(1)(A)(ii)).
EXAMPLE: A corporation has its head office and factory in
State A. It maintains a branch office and inventory in this State. The
corporation's only activity in State B is the solicitation of orders by a
resident salesman. All orders by the State B salesman are sent to the branch
office in this State for approval and are filled by shipment from the inventory
in this State. Since the corporation is immune under Public Law 86-272 from tax
in State B, all sales of merchandise to purchasers in State B are attributed to
this State, the state from which the merchandise was shipped.
2) Sales of tangible personal
property to the United States Government in this State. Gross receipts from the
sales of tangible personal property to the United States Government are in this
State if the property is shipped from an office, store, warehouse, factory, or
other place of storage in this State. For the purposes of this regulation, only
sales for which the United States Government makes direct payment to the seller
pursuant to the terms of the contract constitute sales to the United States
Government. Thus, as a general rule, sales by a subcontractor to the prime
contractor, the party to the contract with the United States Government, do not
constitute sales to the United States Government.
EXAMPLE A: A corporation contracts with General Services
Administration to deliver X number of trucks that were paid for by the United
States Government. The sale is a sale to the United States Government.
EXAMPLE B: A corporation as a subcontractor to a prime
contractor with the National Aeronautics and Space Administration contracts to
build a component of a rocket for $1,000,000. The sale by the subcontractor to
the prime contractor is not a sale to the United States
Government.
3) For taxable
years ending on or after December 31, 1999,
gross receipts from the
licensing, sale, or other disposition of a patent, copyright, trademark, or
similar item of intangible personal property that are not excluded
from the sales factor under subsection (a)(2)(F) are included in the numerator
of the sales factor
to the extent the item is utilized in this State
during the year the gross receipts are included in gross income. (IITA
Section 304(a)(3)(B-1)) For purposes of this subsection (c)(3):
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 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 the gross receipts for all states in which the patent is utilized.
(IITA Section 304(a)(3)(B-1)(ii)(I))
B)
A copyright is utilized in a state
to the extent that printing or other publication originates in the
state. Printing or other publication originates at the place at which
the licensee of the copyright incorporates the copyrighted material into the
physical medium by which it will be delivered to the purchaser of the material
or, if the copyrighted material is delivered to the purchaser without use of a
physical medium, the place at which delivery of the copyrighted material to the
person purchasing the material from the licensee originates. 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 the gross receipts for all states in which the copyright is
utilized. (IITA Section 304(a)(3)(B-1)(ii)(II))
C)
Trademarks and other items of
intangible personal property governed by this subsection (c)(3) are utilized in
the state in which the commercial domicile of the licensee or purchaser is
located. (IITA Section 304(a)(3)(B-1)(ii)(III))
D) If the place of utilization of an item of
property under subsection (c)(3)(A), (B) or (C) 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 IRC section 267(b), the
gross receipts attributable to that item shall be excluded from both the
numerator and the denominator of the sales factor. (IITA Section
304(a)(3)(B-1)(iii))
4)
For taxable years ending on or after December 31, 2013, gross receipts
from winnings under the Illinois Lottery Law [20 ILCS 1605 ]
and from the assignment of a prize under Section 13-1 of the Illinois
Lottery Law are received in this State. (IITA Section
304(a)(3)(B-8))
5)
For
taxable years ending on or after December 31, 2019, gross receipts from
winnings from pari-mutuel wagering conducted at a wagering facility licensed
under the Illinois Horse Racing Act of 1975 [230 ILCS 5 ] or
from winnings from gambling games conducted on a riverboat or in a casino or
organization gaming facility licensed under the Illinois Gambling Act
[230 ILCS 10 ] are in this State. (IITA Section
304(a)(3)(B-9))
6)
For
taxable years ending on or after December 31, 2021, gross receipts from
winnings from sports wagering conducted in accordance with the Sports Wagering
Act [230 ILCS 45 ] are in this State. (IITA Section
304(a)(3)(B-10))
7) For taxable
years ending prior to December 31, 2008, gross receipts from transactions not
governed by the provisions of subsection (c)(1), (2), (3) or (4) and, for
taxable years ending on or after December 31, 2008, from transactions involving
intangible personal property when the taxpayer is not a dealer with respect to
the intangible personal property, are attributed to this State if the income
producing activity that gave rise to the receipts is performed wholly within
this State. Also, gross receipts are attributed to this State if, with respect
to a particular item of income, the income producing activity is performed in
this State, based on costs of performance.
A)
Income Producing Activity Defined. The term "income producing activity" applies
to each separate item of income and means the transactions and activity
directly engaged in by the person in the regular course of its trade or
business for the ultimate purpose of obtaining gains or profit. Income
producing activity does not include transactions and activities performed on
behalf of a person, such as those conducted on its behalf by an independent
contractor. The mere holding of intangible personal property is not, of itself,
an income producing activity. Accordingly, the income producing activity
includes but is not limited to the following:
i) The rendering of personal services by
employees or the utilization of tangible and intangible property by the person
in performing a service.
ii) The
sale, rental, leasing, licensing or other use of real property.
iii) The rental, leasing, licensing or other
use of tangible personal property.
iv) The sale, licensing or other use of
intangible personal property.
B) Costs of Performance Defined. The term
"costs of performance" means direct costs determined in a manner consistent
with generally accepted accounting principles and in accordance with accepted
conditions or practices in the trade or business of the person.
C) Application. Receipts sourced under this
subsection (c)(7) in respect to a particular income producing activity are in
this State if:
i) the income producing
activity is performed wholly within this State; or
ii) the income producing activity is
performed both in and outside this State and, based on costs of performance, a
greater proportion of the income producing activity is performed in this State
than without this State (for taxable years ending prior to December 31, 2008)
or a greater proportion of the income-producing activity of the taxpayer is
performed within this State than in any other state (for taxable years ending
on or after December 31, 2008).
D) Special Rules. The following are special
rules for determining when receipts from the income producing activities
described in this subsection (c)(7)(D) are in this State.
i) Gross receipts from the sale, lease,
rental or licensing of real property are in this State if the real property is
located in this State.
ii) Gross
receipts from the rental, lease, or licensing of tangible personal property are
in this State if the property is located in this State. The principal cost of
performance in a rental, leasing or licensing transaction is the depreciation
or amortization of the tangible personal property, and the depreciation or
amortization expense is incurred in the state in which the tangible personal
property is located. The rental, lease, licensing or other use of tangible
personal property in this State is a separate income producing activity from
the rental, lease, licensing or other use of the same property while located in
another state; consequently, if 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 which the time the property was
physically present or was used in this State bears to the total time or use of
the property everywhere during that period.
EXAMPLE: Corporation X is the owner of 10 railroad cars.
During the year, the total of the days each railroad car was present in this
State was 50 days for a total of 500 days. The receipts attributable to the use
of each of the railroad cars in this State are a separate item of income. Total
receipts attributable to this State shall be determined as follows:
(10 x 50)/3650 x Total Receipts
iii) Gross receipts for the performance of
personal services are attributable to this State to the extent those services
are performed partly within and partly outside this State. The gross receipts
for the performance of those services shall be attributable to this State only
if a greater portion of the services were performed in this State, based on
costs of performance. When services are performed partly within and partly
outside this State and the services performed in each state constitute a
separate income producing activity, the gross receipts for the performance of
services attributable to this State shall be measured by the ratio that the
time spent in performing the services in this State bears to the total time
spent in performing the services everywhere. Time spent in performing services
includes the amount of time expended in the performance of a contract or other
obligation that gives rise to the gross receipts. Personal service not directly
connected with the performance of the contract or other obligation, as for
example, time expended in negotiating the contract, is excluded from the
computations.
EXAMPLE 1: Corporation X, a road show, gave theatrical
performances at various locations in State X and in this State during the tax
period. All gross receipts from performances given in this State are attributed
to this State.
EXAMPLE 2: A public opinion survey corporation conducted a
poll by its employees in State X and in this State for the sum of $9,000. The
project required 600 man hours to obtain the basic data and prepare the survey
report. Two hundred of the 600 man hours were expended in this State. The
receipts attributable to this State are $3,000, calculated as follows:
200/600 x $9,000
8) For taxable years ending on or after
December 31, 2008, gross receipts from transactions not governed by the
provisions of subsection (c)(1), (2), (3), (4), (5), (6) or (7)
are in
this State if any of the following criteria are met:
A)
Sales from the sale or lease of
real property are in this State if the property is located in this
State. (IITA Section 304(a)(3)(C-5)(i))
B)
Sales from the lease or rental of
tangible personal property are in this State if the property is located in this
State during the rental period. Sales 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 in this State to the extent that the property is used in this
State. (IITA Section 304(a)(3)(C-5)(ii))
C)
In the case of interest, net gains
(but not less than zero) and other items of income from intangible personal
property, the sale is in this State if:
i)
in the case of a taxpayer
who:
* is a dealer in the item of intangible personal
property within the meaning of IRC section 475, the income or gain is received
from a customer in this State A taxpayer is a dealer with respect to
an item of intangible personal property if the taxpayer is a dealer with
respect to the item under IRC section 475(c)(1), or would be a dealer with
respect to the item under IRC section 475(c)(1) if the item were a security as
defined under IRC section 475(c)(2). For purposes of this subsection
(c)(8)(C)(i), a customer is in this State if the customer is an individual,
trust or estate who is a resident of this State and, for all other customers,
if the customer's commercial domicile is in this State. Unless the dealer has
actual knowledge of the residence or commercial domicile of a customer during a
taxable year, the customer shall be deemed to be a customer in this State if
the billing address of the customer, as shown in the records of the dealer, is
in this State. (IITA Section 304(a)(3)(C-5)(iii)(a)) A dealer shall
treat the person with whom it engages in a transaction as the customer, even
when that person is acting on behalf of a third party, unless the dealer has
actual knowledge of the party on whose behalf the person is acting. If a
taxpayer is a dealer with respect to an item of intangible personal property
and recognizes gain or loss with respect to that item other than in connection
with a transaction with a customer (for example, unrealized gain or loss from
marking the item to market under IRC section 475), that gain or loss shall be
excluded from the numerator and denominator of the sales factor; or
* is not a dealer with respect to the item
of intangible personal property, if the
income-producing activity of the taxpayer is performed in this State or, if the
income-producing activity of the taxpayer is performed both within and without
this State, if a greater proportion of the income-producing activity of the
taxpayer is performed within this State than in any other state, based on
performance costs. (IITA Section 304(a)(3)(C-5)(iii)(b)) (See
subsection (c)(7) of this Section.)
ii) For purposes of this subsection
(c)(8)(C), an item of "intangible personal property" includes only an item that
can ordinarily be resold or otherwise reconveyed by the person acquiring the
item from the taxpayer, and does not include any obligation of the taxpayer to
make any payment, perform any act, or otherwise provide anything of value to
another person.
EXAMPLE 1: A ticket to attend a sporting event would not be
an item of intangible personal property for the owner of the stadium who issues
the ticket and is obliged to grant admission to the holder of the ticket.
Rather, the sale of the ticket is a prepayment for a service to be provided.
However, the ticket would be an item of intangible personal property in the
hands of the original purchaser or any subsequent purchaser of the ticket, and
a ticket broker engaged in the business of buying and reselling tickets would
be a dealer with respect to the ticket.
EXAMPLE 2: A taxpayer selling canned computer software is
selling intangible personal property. (First National Bank of Springfield v.
Dept. of Revenue, 85 Ill.2d 84 (1981)) If the taxpayer sells software to
customers in the ordinary course of its business, it is a dealer with respect
to those sales. In contrast, a taxpayer providing programming or maintenance
services to its customers is selling services rather than intangible personal
property.
EXAMPLE 3: A taxpayer administers a "rewards program" for a
group of unrelated businesses. Under the program, a customer of one business
can earn discounts or rebates on products and services provided by any of the
businesses. As each customer earns rewards, measured in "units", from one of
the businesses, that business pays a specified amount per unit to the taxpayer.
When a customer uses units earned in the program to purchase products or
services at a discount from a participating business, the taxpayer pays that
business a specified amount per unit used by the customer. Rebates may be paid
to the customer directly by the taxpayer or by one of the businesses, which is
then reimbursed by the taxpayer. To the extent payments made to the taxpayer by
businesses awarding units exceed the payments the taxpayer must make for
discounts and rebates, the excess is payment for operating the program. The
units awarded are obligations of the taxpayer to make payments to the business
providing products or services at a discount or to pay rebates. Accordingly,
payments received by the taxpayer from the participating businesses for units
awarded are not income from sales of intangible personal property by the
taxpayer.
D)
Sales of services are in this State if the services are received in
this State. (IITA Section 304(a)(3)(C-5)(iv))
i) General Rule. Gross receipts from services
are assigned to the numerator of the sales factor to the extent that the
receipts may be attributed to services received in Illinois.
ii) A contract that involves the provision of
a service by the taxpayer and the use of property of the taxpayer by the
service recipient shall be treated as a sale of service unless the contract is
properly treated as a lease of property under IRC section 7701(e)(1), taking
into account all relevant factors, including whether:
* the service recipient is in physical possession of the
property;
* the service recipient controls the property;
* the service recipient has a significant economic or
possessory interest in the property;
* the service provider does not bear any risk of
substantially diminished receipts or substantially increased expenditures if
there is nonperformance under the contract;
* the service provider does not use the property concurrently
to provide significant services to entities unrelated to the service recipient;
and
* the total contract price does not substantially exceed the
rental value of the property for the contract period.
EXAMPLE: A taxpayer selling access to an online database or
applications software, and who is required to perform regular update services
to the database or software, retains control over the contents of the database
or software, and provides access to the same database or software to multiple
customers is not selling or licensing an item of intangible personal property
to its customers, but rather is providing a service.
iii) Services received in this State include,
but are not limited to:
* When the subject matter of the service is an item of
tangible personal property, the service is received in this State if possession
of the property is restored to the recipient of the service under the
principles in subsection (c)(1) for determining whether a sale of that property
is in this State.
EXAMPLE 1: A customer returns a computer to the manufacturer
for repair. The manufacturer performs the repairs in Indiana and ships the
computer to the customer's Illinois address. The service is received in this
State.
EXAMPLE 2: Individual purchases clothing from Merchant at a
store in this State, using a credit card issued by Bank A pursuant to a
licensing agreement with Credit Card Company. Credit Card Company is not a
financial organization required to apportion its business income under Section
100.3405. Bank A remits the
purchase price to Credit Card Company, which deposits the purchase price with
Merchant's bank, minus a fee or discount. All fees and discounts earned by
Credit Card Company in connection with this purchase are for services received
in this State.
* When the subject matter of the service is an item of real
property, the service is received in the state in which the real property is
located.
EXAMPLE 3: Individual purchases a parcel of land in Illinois
and constructs a house on the parcel. Services performed at an architect's
office in Wisconsin regarding the design and construction of the house are
received in this State.
* When the service is performed on or with respect to the
person of an individual (for example, medical treatment services), the service
is received in the state in which the individual is located at the time the
service is performed.
* Services performed by a taxpayer that are directly
connected to or in support of services received in this State are also services
received in this State.
EXAMPLE 4: Individual purchases automobile repair services
from Automobile Dealership at its facility located in this State, using a
credit card issued by Bank A pursuant to a licensing agreement with Credit Card
Company. Bank A remits the purchase price to Credit Card Company, which
deposits the purchase price with Automobile Dealership's bank, minus a fee or
discount. All fees and discounts earned by Credit Card Company in connection
with this purchase are for services received in this State.
EXAMPLE 5: Services performed by an investment fund on behalf
of an investor are received in this State if the investor resides in this State
(in the case of an individual) or has its ordering or billing address in this
State (for other investors). In the case of services provided by Taxpayer to or
on behalf of the investment fund that are directly connected with services
provided separately to the investors, such as preparation of communications and
statements to investors, and allocations of earnings and distributions to
investors, the service is also received in this State to the extent the
investors reside (or have their ordering or billing address) in this State.
Accordingly, receipts of Taxpayer for these services are allocated to this
State on the basis of the ratio of: the average of the outstanding shares in
the fund owned by shareholders, partners or other investors residing (or having
their ordering or billing address) within this State at the beginning and end
of each taxable year of the taxpayer; and the average of the total number of
outstanding shares in the fund at the beginning and end of each year. Residence
or ordering or billing address of the shareholder, partner or other investor is
determined by the mailing address in the records of the investment fund or the
taxpayer. Services provided to an investment fund that are not directly
connected to or in support of services provided separately to investors, such
as brokerage services or investment advising, are not received by the customer
at the location of its investors.
iv) Special Rules
* Under IITA Section 304(a)(3)(C-5)(iv), if the state
where the services are received is not readily determinable, the services shall
be deemed to be received at the location of the office of the customer from
which the services were ordered in the regular course of the customer's trade
or business, or, if the ordering office cannot be determined, at the office of
the customer to which the services are billed. If the service is
provided to an individual who provides a residential address as the place from
which the services are ordered or to which the services are billed, rather than
an office address, the residential address shall be used. For purposes of this
provision, the state where services are received is not readily determinable if
the facts necessary to make the determination are not contained in the books
and records of the taxpayer or any person related to the taxpayer within the
meaning of IRC section 267(b) or if the available facts would allow reasonable
persons to reach different determinations of the state in which the services
were received.
* Under IITA Section 304(a)(3)(C-5)(iv), if the
services are provided to a corporation, partnership, or trust and the services
are received in a state in which the corporation, partnership, or trust does
not maintain a fixed place of business (as defined in Section
100.3405(b)(1)),
the services shall be deemed to be received at the location of the
office of the customer from which the services were ordered in the regular
course of the customer's trade or business, or, if the ordering office cannot
be determined, at the office of the customer to which the services are
billed. For purposes of this provision, in the case of services
performed by the taxpayer as a subcontractor or as an agent acting on behalf of
a principal, if either the contractor or principal has a fixed place of
business in the state in which the services are received or the customer of the
contractor or principal either is an individual or has a fixed place of
business in the state in which the services are received, the service shall be
treated as received in a state in which the customer of the taxpayer has a
fixed place of business.
* Under IITA Section 304(a)(3)(C-5)(iv), if the
taxpayer is not taxable in the state in which the services are received or
deemed to be received, the gross receipts attributed to those services must be
excluded from both the numerator and denominator of the sales factor.
(See Section 100.3200 for guidance on
determining when a taxpayer is taxable in another state.)
