Illinois State Tax Rulings

Our multistate unitary group thinks Illinois's standard single-sales-factor throwback formula grossly overstates our Illinois income -- can we petition to use an equally weighted three-factor formula, or drop throwback sales, instead?

Not on this showing. Illinois lets a taxpayer petition for an alternative apportionment method under IITA § 304(f), but only by proving the standard formula produces a genuinely distorted result -- no…

My out-of-state company has no offices or employees in Illinois, but we own inventory that sits in an Illinois contract packager's warehouse before being shipped to customers nationwide -- does that create Illinois income tax nexus?

The Department won't give a binding yes/no on nexus outside of an audit -- it's too fact-specific for a letter ruling. But it did flag that owning a stock of merchandise sitting in an Illinois warehou…

My out-of-state company licenses highly customized software and provides equipment to an Illinois customer, but we keep ownership of both and have no employees or offices in Illinois -- is this revenue Illinois-source income for corporate tax purposes?

The Department wouldn't give a final yes or no -- nexus and income-sourcing questions like this are considered too fact-specific for a letter ruling and are resolved only in an audit. It did lay out t…

My reinsurance company wants to switch how it sources Illinois reinsurance premiums for apportionment -- from tracking each ceding company's own ratio of Illinois-located risk to simply counting premiums from ceding companies domiciled in Illinois -- can I get permission to make that change?

Yes -- the Department granted the requested election change under IITA Section 304(b)(2) and 86 Ill. Adm. Code 100.3420(e)(2), letting the taxpayer switch from 'Method B' (tracking each ceding company…

My out-of-state S-corp's only Illinois connection is a minority interest in a Chicago hotel partnership -- can I petition to allocate 100% of that partnership's K-1 income to Illinois instead of using the standard apportionment formula?

Not as an alternative-apportionment petition -- the taxpayer's petition didn't provide the evidence Illinois requires (proof the standard formula produces a genuinely distorted, out-of-proportion resu…

My partnership owns rental real estate, a lending business, and oil and gas ventures across several states, and Illinois's single-sales-factor formula makes our Illinois apportionment badly out of proportion to our actual Illinois activity -- can we use separate accounting instead?

The Department denied this specific petition because the taxpayer didn't submit enough evidence to meet the demanding 'clear and cogent evidence' standard for alternative apportionment (and even left …

My manufacturing company's Illinois throwback sales are inflating our single-sales-factor apportionment -- can we add property and payroll factors, or alternatively drop throwback sales, to more fairly reflect our actual Illinois activity?

No -- the Department denied the petition because merely showing that a three-factor (property/payroll/sales) formula produces a smaller, different apportionment percentage isn't enough; the taxpayer n…

I petitioned Illinois to use separate accounting instead of the standard apportionment formula, but I didn't file the petition until after my return was due -- can the Department still consider it?

No -- the Department denied this petition purely on timeliness grounds and never reached the merits of whether separate accounting was actually a fairer apportionment method. The taxpayer's petition f…

My company ships products to third-party distributor warehouses that then reship them elsewhere -- for Illinois sales-factor purposes, do I source the sale to where I deliver the goods, or to wherever the distributor eventually sends them?

You source the sale to where delivery to the distributor's warehouse terminates, not to any later destination the distributor chooses. If the third-party distributor warehouse (or a new hub-style ware…

If our out-of-state manufactured products are already sold to customers outside Illinois but pass through a third-party distribution center in Illinois for a few days to be consolidated onto other trucks, do those sales count as Illinois sales for our sales-factor apportionment?

No -- the Department ruled that a brief, functional stop at a third-party-operated Illinois distribution center, used only to consolidate and reroute already-sold shipments to their predetermined out-…

My company's foreign brand-licensing royalties are excluded from my Illinois sales factor because they're under 50% of gross receipts -- can I get alternative apportionment to include them anyway, since they're a big, high-margin chunk of our income?

No -- the Department denied the petition. Illinois's rule excluding intangible-property royalties from the sales factor unless they exceed 50% of gross receipts is not inherently distortive just becau…

My partnership does most of its business outside Illinois but co-owns another partnership that operates entirely inside Illinois, and using the standard single-sales-factor formula makes our Illinois apportionment look much bigger than our actual Illinois activity -- can we use separate accounting instead?

No -- the Department denied this petition because the taxpayer never submitted evidence about the market for its goods or services, or any evidence showing the standard single-sales-factor formula fai…

My out-of-state SaaS company is going to start having customers headquartered in Illinois -- does that create nexus requiring us to file an Illinois corporate income tax return, and if so, what sales threshold triggers it?

The Department would not say definitively whether selling SaaS to Illinois customers creates Illinois corporate income tax nexus -- nexus determinations are considered too fact-specific for a letter r…

Our sales factor excludes our foreign licensing royalties because they're under Illinois's 50%-of-gross-receipts threshold -- can we get alternative apportionment to include them anyway since they're a big, high-margin chunk of our income?

No -- the Department denied the petition because the taxpayer only showed that the statutory 50%-of-gross-receipts test excludes its foreign royalties from the sales factor and that a different formul…

We sold a discrete segment of our multi-state business, and the small Illinois piece of that segment was only a sliver of the deal's value -- can we get Illinois to apportion the gain using just that entity's actual share instead of the standard sales-factor formula?

What does Illinois General Information Letter IT 23-0007-GIL conclude about Base Income — Elimination Of?

YES, confirmed -- because the >90%-owned partnership is treated as a full member of the Illinois unitary business group, the intercompany royalty, service-fee, and interest items (and the IP-transfer …

What does Illinois General Information Letter IT 23-0002-GIL conclude about Alternative Apportionment?

The Illinois Department of Revenue DENIED the taxpayer's petition for alternative apportionment, at least for now, because the taxpayer did not meet its burden of proving the standard single-sales-fac…

What does Illinois General Information Letter IT 23-0001-GIL conclude about Base Income; Modifications?

NO, this Medicare premium income is NOT exempt from Illinois income tax (the federal premium-tax preemption doesn't reach Illinois's general net-income tax), so no add-back question arises since the i…

When a company sells its entire business division, is the goodwill gain apportioned to Illinois, or can the company get alternative apportionment instead?

Neither. The Illinois Department of Revenue held that gain from selling an entire business segment, including the goodwill portion, must be excluded ENTIRELY from the sales factor (both numerator and …

What did Illinois tell a nationwide state-tax survey about its corporate income tax rules on bonus depreciation and net-operating-loss carryforwards?

This is not a ruling on one taxpayer's facts. It's the Illinois Department of Revenue's answers to an outside publisher's annual, roughly 90-question survey of every state's corporate income tax rules…

Is the gain from selling a non-unitary limited-partnership interest taxed by Illinois, or allocated to the seller's home state?

Conditionally, yes: IDOR concluded the gain would be allocated to the taxpayer's out-of-state commercial domicile, not apportioned to Illinois, but only because it took the taxpayer's own representati…

Can an insurance company that changed its mind get Illinois's permission to switch how it sources reinsurance premiums for apportionment purposes?

Yes. The Illinois Department of Revenue granted the taxpayer's request to change its IITA Section 304(b)(2) election for sourcing reinsurance premiums, moving from Method B (each ceding company's in-s…

Does a non-resident Illinois taxpayer have to prorate (reduce) their standard exemption when some of their income comes from outside Illinois?

Yes. Under IITA Section 204(a), if a taxpayer's total base income is greater than their Illinois income, the taxpayer must prorate their standard exemption to account for income from sources outside o…

Does having one full-time remote employee working from her home in Illinois create Illinois corporate income tax nexus for an out-of-state company with zero Illinois sales?

IDOR wouldn't say -- it does not issue rulings on whether nexus exists, since that determination is 'extremely fact-specific.' But it explained that under IITA Section 502(a), if the company has zero …

For Illinois income-tax apportionment purposes, is bitcoin treated as intangible personal property, and is it treated like a patent, copyright, or trademark?

Yes and no. The Illinois Department of Revenue treats bitcoin as 'intangible personal property' under the state's apportionment statute (35 ILCS 5/304), but bitcoin is NOT treated as a 'patent, copyri…

Can a taxpayer use alternative apportionment to include gain from selling media outlets (mostly attributable to goodwill) in its Illinois sales factor, when that gain would otherwise be excluded under the Occasional Sale Rule?

No. The Department denied the taxpayer's petition for alternative apportionment. It held that the standard Occasional Sale Rule (86 Ill. Adm. Code 100.3380(c)(2)) properly excludes the gross receipts …

When an Illinois resident pays alimony and earns income taxed by another state that won't let her deduct the alimony against that nonresident income, does the alimony still reduce her Illinois credit for taxes paid to that other state?

Yes. The Department ruled that because Article 3 of the Illinois Income Tax Act would let a nonresident allocate 100% of an alimony deduction to Illinois, the alimony deduction must be allocated to th…

Is a U.S. REIT that is more than 50%-owned by publicly traded foreign REIT-type entities a 'captive REIT' under Illinois law, requiring it to add back its federal dividends-paid deduction?

No. The Illinois Department of Revenue ruled that the taxpayer, a U.S. REIT more than 50%-owned (directly and constructively) by a Dutch REIT-type entity whose Class A shares are staple-traded on fore…

Can a company exclude the sale proceeds of its inventory from the Illinois sales-factor when it sells off an entire division, using Illinois's alternative apportionment petition process?

No, not on the facts presented here. The Department agreed that the accounts-receivable and fixed-asset portions of the sale qualified for the 'occasional sale' exclusion from the sales factor, but it…

Can a taxpayer exclude the inventory portion of proceeds from selling an entire business division out of its Illinois sales apportionment factor?

No, not on the facts presented here. The Department denied the taxpayer's petition for alternative apportionment. It agreed that the accounts-receivable and fixed-asset portions of the division sale q…

Can a taxpayer get permission to use an alternative apportionment method (separate accounting) to exclude a non-unitary investment entity from its Illinois sales factor?

Not through this request. The Department denied the petition outright because it was not timely filed under 86 Ill. Adm. Code 100.3390(e)(1) — it needed to have been submitted at least 120 days before…

Can a taxpayer get permission to use an alternative apportionment method (based on trading volume by exchange location) instead of the statutory sales-factor sourcing rules?

Not on this record. The Illinois Department of Revenue denied the petition because the taxpayer never first calculated its apportionment under the standard statutory method (sourcing dealer income to …

What does Illinois Private Letter Ruling IT 19-0004-PLR conclude about (Alternative Apportionment) Alternative Method of Apportionment?

IDOR ruled that this taxpayer could not use Illinois's standard sales-factor apportionment for its earn-out and installment-sale income -- because excluding those receipts under the occasional-sale ru…

Does Illinois source an investment advisor's fee receipts to the location of the investment funds' underlying investors, or to the billing address of the fund itself?

In this Private Letter Ruling, the Illinois Department of Revenue concluded that the taxpayer's investment advisory fee receipts are sourced, for Illinois sales factor purposes, to the office of the i…

What does Illinois Private Letter Ruling IT 19-0001-PLR conclude about Sales Factor?

IT 19-0001-PLR ruled that an investment advisor's gross receipts from advising investment funds are sourced to the billing office of the fund's custodian, not to the location of the funds' individual …

What does Illinois Private Letter Ruling IT 19-0003-PLR conclude about Apportionment - Sales Factor?

Illinois ruled that when an S corporation's stock sale is treated as a deemed sale of all its assets under a federal Section 338(h)(10) election, the resulting gain is business income, but the gross r…

If I'm an Illinois resident and both Illinois and Indiana taxed my gambling winnings, can I get an Illinois credit for the tax I paid to Indiana?

No, in most cases the credit works out to zero. Illinois's credit for taxes paid to other states is capped based on how much of your income would be sourced to other states under Illinois's own sourci…

What does Illinois Private Letter Ruling IT 18-0011-PLR conclude about Sales Factor -Intangible Property?

Yes -- the Illinois Department of Revenue ruled that a taxpayer originating senior secured loans to customers in the ordinary course of business is treated as a 'dealer' for purposes of the Illinois s…

What does Illinois Private Letter Ruling IT 18-0009-PLR conclude about Sales Factor -Intangible Property?

Yes -- the Illinois Department of Revenue ruled that a taxpayer who regularly originates loans to customers in the ordinary course of business is treated as a 'dealer in securities' for purposes of th…

Under Illinois Income Tax Act Section 304(a)(3)(C-5)(iii)(a), is a company that originates loans to customers a 'dealer' for sales-factor sourcing purposes even though it qualifies for the federal 'negligible sales' exemption from mark-to-market accounting?

Yes -- the Illinois Department of Revenue ruled that a taxpayer regularly originating loans to customers is a 'dealer in securities' for Illinois sales-factor sourcing purposes under 35 ILCS 5/304(a)(…

For Illinois sales-factor sourcing purposes, is a taxpayer that regularly originates loans to customers still a 'dealer in securities' even though it qualifies for the federal negligible-sales exemption from mark-to-market accounting?

Yes -- the Illinois Department of Revenue ruled that a taxpayer originating loans to customers in the ordinary course of business is a 'dealer in securities' for purposes of the Illinois sales-factor …

Under Illinois Private Letter Ruling IT 18-0006-PLR, is a loan-originating taxpayer still a 'dealer' for Illinois sales-factor sourcing purposes even though it qualifies for the federal 'negligible sales' exemption from mark-to-market accounting?

Yes -- Illinois PLR IT 18-0006-PLR holds that a taxpayer who regularly originates loans to customers in the ordinary course of business is still considered a 'dealer' under 35 ILCS 5/304(a)(3)(C-5)(ii…

What does Illinois Private Letter Ruling IT 18-0005-PLR conclude about Sales Factor -Intangible Property?

Yes -- the Illinois Department of Revenue ruled that the taxpayer, which regularly originates loans to customers in the ordinary course of business, is a 'dealer' for purposes of the Illinois sales-fa…

What does Illinois Private Letter Ruling IT 18-0004-PLR conclude about Sales Factor -Intangible Property?

Yes -- the Illinois Department of Revenue ruled that a taxpayer who regularly originates loans to customers in the ordinary course of business is treated as a 'dealer' for purposes of the Illinois sal…

What does Illinois Private Letter Ruling IT 18-0003-PLR conclude about Sales Factor -Intangible Property?

Yes -- even though the taxpayer qualified for the federal 'negligible sales' exemption from mark-to-market dealer accounting under Treas. Reg. 1.475(c)-1(c), the Illinois Department of Revenue ruled i…

What does Illinois General Information Letter IT 18-0003-GIL conclude about Alternative Apportionment?

The Department denied the taxpayer's petition for alternative apportionment because the taxpayer's letter gave no information about the market for its goods or services showing that standard single-sa…

Does the sale of jointly-owned real estate by a sale-leaseback company count in its Illinois sales-factor apportionment, and if so, how?

Yes -- the Illinois Department of Revenue ruled that the taxpayer's distributive share of gross proceeds from its joint venture's sale of investment real property must be included in its Illinois sale…

How does Illinois source a nonresident self-employed consultant's income when the client is headquartered in Illinois but the work is mostly done elsewhere?

Illinois says the income is business income, not wages, so it is sourced under the state's services-sourcing rule rather than by counting workdays: because the consultant's client was a corporation wi…

Does a private equity fund member or its management company have Illinois income tax nexus, and how is income from selling LLC units or receiving management fees apportioned to Illinois?

The Department will not issue a nexus ruling because nexus determinations are too fact-specific, but it points to Illinois' general apportionment rules: gains from selling intangible property (like LL…

When a multi-state wind-power company sells its interest in a partnership that owns a wind farm, is the gain sourced to Illinois based on where the buyer is located or based on where the company's own work took place?

Illinois ruled the gain is sourced to the buyer's (customer's) location, not the seller's activity location, because the taxpayer qualified as a "dealer" in the partnership interest under Illinois' mo…

How should the royalty income earned by nonresident members of a musical band (organized as a partnership) be sourced to Illinois for income tax purposes?

A nonresident partner in a partnership (like a band) must include in Illinois net income his or her distributive share of the partnership's business income that is apportioned to Illinois under IITA S…

Can a corporation subtract a refund of out-of-state taxes from its federal taxable income when computing Illinois base income?

No. Illinois law does not provide any subtraction modification for a refund of state or local taxes included in a corporation's federal taxable income, even if the refund relates to years before the c…

Were an online retailer's mandatory shipping-and-handling fees taxable, and could it allocate fees between taxable and exempt items?

Yes. Customers had to choose shipping and could not pick up at the fulfillment centers, so shipping and handling were inseparably linked to taxable merchandise and entered taxable gross receipts. For …

Did Illinois separately recognize foreign subsidiaries that had elected federal disregarded-entity status?

No. A subsidiary disregarded as separate from its corporate owner for federal income-tax purposes was also disregarded for Illinois income tax. Its income and loss became items of the owner, and its p…

Could a nonresident use Illinois passive losses before federal law allowed them, and how were released losses sourced to Illinois?

No loss was available for Illinois before it was allowed in federal adjusted gross income. Illinois had no separate modification overriding the federal Section 469 limitation. When a suspended passive…