# Record and brief — Chicago Bridge & Iron Co. v. Caterpillar Tractor Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Record and brief
- **Published:** January 1, 1981
- **Citation:** 454 U.S. 1029

## Text

— YUBWAIEIS
- jeuoyoipsuny

Office Supreme Court, US.
8 l k IT LED
| 349 AUG 24 198!
No. ALEXAND -? L. STEVAS,
CLERK
IN THE
Supreme Court of the United States
Ocrosrr Tzrm, 1981
CHICAGO BRIDGE & IRON COMPANY,
Appellant,
v.
CATERPILLAR TRACTOR CO., ILLINOIS
DEPARTMENT OF REVENUE, et al,
Appellees.

——_————
—————

Appeal from the Supreme Court of Illinois
JURISDICTIONAL STATEMENT

Wu P. Surrer
One First National Plaza
Chicago, Illinois 60603
(312) 558-6616
Attorney for Appellant

Of Counsel:

Ricuarp BroMiey
One First National Plaza
Chicago, Illinois 60603
(312) 558-6614

i

QUESTIONS PRESENTED

This appeal presents the following questions under the
United States Constitution :
Does imposition of the Illinois income tax on the ap-
portioned combined worldwide business income of a
group of related corporations, including foreign cor-
porations, create a substantial risk of international

multiple taxation, and thus violate the Commerce
Clause?

Does imposition of the Illinois income tax on the ap-
portioned combined worldwide business income of a
group of related corporations, including foreign cor-
porations, prevent the Federal Government from speak-
ing with one voice when regulating commercial rela-
tions with foreign governments, and thus violate the
Commerce Clause?

Does imposition of the Illinois income tax on an Illi-
nois taxpayer, where the amount of its income subject
to tax is measured by reference to the income, prop-
erty, payroll and sales of all members of a group of
related corporations doing a worldwide business, vio-
late the Fourteenth Amendment requirements of due
process and equal protection of the laws?

PARTIES

Pursuant to Supreme Court Rules 12 and 15, the appel-
lant files this, its statement of the bases on which it con-
tends that the Supreme Court of the United States has
appellate jurisdiction to review on appeal the judgment
appealed from herein. The appellees are Caterpillar Tractor
Co., Caterpillar Americas Co., Caterpillar Credit Corp.,
Caterpillar Finance Corp., Caterpillar Machinery Corp.,

ii

Daniel J. Lenckos, Acting Director, and Illinois Depart-
ment of Revenue.'

1 Other parties to the proceeding in the Illinois Supreme Court
who have elected not to join in this appeal are The Coca-Cola Com-
pany, Coca-Cola Bottling Company of Chicago, Canners for Coca-
Cola Bottlers, Inc., C. B. Boiler Service, Inc., Universal Water
Softener Corp., Johns-Manville Products Corporation, Johns-Man-
ville Sales Corporation, Johns-Manville Service Corporation, Johns-
Manville Perlite Corporation, John Brand Corporation, National
Ceiling Systems Corporation, Deere & Company, E. R. Squibb &
Sons, Inc., Sears, Roebuck & Co. and International Harvester Com-
pany. The names of parent companies, subsidiaries (except wholly-
owned subsidiaries) and affiliates of appellant, as required by Rule
28.1, were listed in appellant’s Application for Extension of Time
for Docketing Appeal. Although Deere & Company filed a notice of
appeal in this case, it has chosen not to participate further and has
not joined in this jurisdictional statement.

iii
TABLE OF CONTENTS

Constitutional Provisions and Statute Involved ......
ee Or ee... iwi de oule Dadbmes ce
Reasons Why Questions Presented Are Substantial . . .

I. Combined Reporting Has Never Been Presented
I eETaC EN is so Se eb e tah heasewbawe ©

II. Worldwide Combined Reporting Creates a: Sub-
stantial Risk of International Multiple Taxation,
Thereby Violating the Commerce Clause ........

III. Combined Reporting Prevents the Federal Gov-
ernment From “Speaking With One Voice When
Regulating Commercial Relations with Foreign
Governments,” and Creates a Risk of Retaliation
by Foreign Governments, Thereby Violating the
COIN IID cir oo Ses bo Beldecogenulec os’

IV. Combined Reporting Imposes A Tax on One Cor-
poration Measured By the Income of Another and
Thereby Violates The Fourteenth Amendment’s
Requirements of Due Process and Equal Protec-
SU eG be ghRAGh SA's Beeen cc pcecesechawen case

a ee ake alt cae

12

18

iv

TABLE OF AUTHORITIES

Cases

Adams Express Co. v. Ohio State Auditor, 165 U.S.
194, 41 L.Ed. 683, 17 S.Ct. 305 (1896) .............

American Smelting ¢ Refining Co. v. Idaho State Taz
Commission, 99 Idaho 924, 592 P.2d 39 (1979),
vacated, 445 U.S. 939, 63 L.Ed.2d 773, 100 S.Ct.
hs 06 CAVERN Uae cece cd benteds.s dct,

Asiatic Petroleum Co. v. Commission of Internal Reve-
nue, T9F .2d 234 (2d Cir. 1935), certiorari denied, 296
U.S. 645, 80 L.Ed. 459, 56 S.Ct. 248 (1935), rehearing
denied, 296 U.S. 664, 80 L.Ed. 474, 56 S.Ct. 369 (1935)

Butler Brothers v. McColgan, 315 U.S. 501, 86 L.Ed.
991, 62 S.Ct. 701 (1942), affirming 17 Cal. 2d 664,
RE, RE SS a a Pa

Chicago Bridge & Iron v. Caterpillar Tractor Co., 84
Ill. 2d 102, 417 N.E. 2d 1343 ....................-.

Coca Cola Co. v. Department of Revenue, 271 Ore. 517,
EE OE oe ns enc vanidvasin sent.

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 51
L.Ed. 2d 326, 97 S.Ct. 1076, rehearing denied, 430
UU Bohr cide coca. . Gees sacceddode

Container Corporation of America v. Franchise Taz
Board, 1/Civil 48990 (1981) ............ecseeeeeee

Edison California Stores, Inc. v. McColgan, 30 Cal. 2d
iy Se ae OO CRIED cc cpiitc ccccoscccvisesdveres

Ezxazon Corp. v. Wisconsin Department of Revenue, 447
U.S. 207, 65 L.Ed.2d 66, 100 S.Ct. 2109 (1980) ......

Hoeper v. Taz Commission of Wisconsin, 284 U.S. 206,
76 L.Ed. 248, 52 S.Ct. 120 (1931) ...............-.

17

13, 17

=
3
?
b
=
QO

ounty of Los Angeles, 441 U.S.
434, 60 L.Ed.2d 336, 99 S.Ct. 1813 (1979) ....... rae

C-3

The unitary apportionment methvud or as it is described
in the case of a group of commonly owned and controlled
corporations, the combined reporting method of reporting
the income of the plaintiffs from what are literally world-
wide sources, should have been applied, the plaintiffs said,
since they qualified as a unitary business group. A unitary
business operation is one in which there is a high degree
of interrelationship and interdependence between, typically,
one corporation, which generally is a parent corporation,
and its corporate subsidiaries or otherwise associated cor-
porations, which group is usually engaged in multistate,
and in some cases in international, business operations.
Because of this integrated relationship, which is reflected
in all phases of the business operations, it is extremely
difficult, for purposes of taxation, to determine accurately,
the measure of taxable income generated within a State
by an individual corporation of the unitary group which
is conducting business in the State. Typically, tae corpo-
ration’s transactions and the income derived from them
actually represent the business efforts of the individual
corporation, plus efforts of other and possibly all mem-
bers of the unitary business operation. As a result, the
claimed income of each member of the group standing
alone does not, in a real sense, reflect the conducting of
a unitary business operation because the income is not
attributable solely to the effort of the particular corpo-
ration.

The plaintiffs in their separately filed claims for re-
funds maintained that in order to fairly measure the tax-
able business income of each unitary member, a unitary
method of apportionment should have been applied. They
argued that under this formula, which they asserted was
authorized under section 304(a) of the Illinois Income Tax
Act, each corporation’s in-State, i.e., Illinois, data for its
property, payroll and sales should have been compared

C4

with the combined worldwide totals of the entire unitary
group, which included the plaintiffs and 21 other corpo-
rate subsidiaries of Caterpillar Tractor. The plaintiffs, in
their State returns, compared only the in-State totals of
each corporation with the in-State and out-of-State totals
for property, payroll and sales of the same corporation and
not of the unitary business group.

The plaintiffs argued that the unitary method of ap-
portionment should be applied for each of the plaintiffs
for the years 1970 through 1974 but not as to 1969. The
basis for excluding 1969 was the contention that the uni-
tary method of reporting did not accurately reflect the
amount of taxable income for that year since the Illinois
Income Tax Act did not take effect until August of 1969
(Ill. Rev. Stat. 1969, ch. 120, par. 1—101 et seq.). The
proposed application by the plaintiffs of the unitary
method of apportioament, and the claimed deductions for
dividend income, subpart F income, and foreign income
taxes paid, were denied by the Director. Timely protests
were filed by the plaintiffs.

At the later administra‘ive hearing, the plaintiffs in-
troduced extensive evidence showing a strong integrated
relationship between Caterpillar Tractor, the parent cor-
poration, and its multistate and multinational subsidiaries.
Based on this and on a strict policy of Caterpillar Tractor
to maintain worldwide uniformity in all phases of its
operations, including production, marketing and employer-
employee relationships, all of which were kept subject to
the central control of the parent corporation, the plaintiffs
contended that they should be considered members of a
unitary business group. The Director agreed and then
applied a unitary apportionment formula under section
304 of the Illinois Income Tax Act (Ill. Rev. Stat. 1977,
ch. 120, par. 3—304), using the combined worldwide busi-

C-5

ness income of Caterpillar Tractor and its 25 subsidiaries
in order to determine the appropriate percentage of busi-
ness income attributable to Illinois for each corporate
plaintiff for all six years in question, 1969 through 1974.
The Director, however, denied the deductions claimed for
the foreign income taxes, the deemed dividend income and
the subpart F income.

The plaintiffs appealed to the circuit court of Peoria
County (Ill. Rev. Stat. 1977, ch. 120, par. 12—1201) on
the ground that unitary apportionment should not have
been applied to their 1969 taxable income and on the ground
that the Director erred in denying the various deductions
claimed. The circuit court allowed the petitions of 16
corporations, including the Coca Cola Company, to inter-
vene, but limited intervention to the issue of whether uni-
tary apportionment is authorized under the Illinois Income
Tax Act (Ill. Rev. Stat. 1977, ch. 120, par. 1—101 et seq.).

The circuit court subsequently held that combined re-
porting was authorized in Illinois and affirmed the Direc-
tor’s decision to combine the worldwide income of Cater-
pillar Tractor and its 25 subsidiaries for purposes of
apportioning each plaintiff’s Illinois taxable income for
1970 through 1974. With respect to 1969, it held that the
unitary method of apportionment was, in general, inap-
plicable. The court held also that the plaintiffs could claim
as deductions dividend income, subpart F income, and also
foreign income taxes paid by foreign subsidiaries.

The appellate court, on appeals by the plaintiffs, the
Director, and the intervenors, affirmed the judgment as to
the application of the unitary method for 1970-74 but
held that the unitary method of apportionment was appli-
cable for 1969. (77 Ill. App. 3d 90, 101.) The Court affirmed
also the allowance of the petitions to intervene. It, how-
ever, also reversed the circuit court’s allowance of the

C4

deductions claimed by the plaintitfs. We granted and con-
solidated petitions for leave to appeal filed by the plaintiffs,
the Director and the intervenors and allowed the filing of
a number of amicus curiae briefs. The plaintiffs did not
seek an appeal from the holding that the unitary method
was to be applied to 1969. They did not seek an appeal
either from the appellate courts adverse holding as to
deducting dividend income and subpart F income.

We first address the issue of whether the trial court
erred, as the Director contends, in permitting the petitions
to intervene. The question of when a third party may
intervene is governed by section 26.1 of the Civil Practice
Act (Ill. Rev. Stat. 1979, ch. 110, par, 26.1). This section
provides that a party may intervene as a matter of right:
“(a) when a statute confers an unconditional right to
intervene; or (b) when the representation of the applicant’s
interest by existing parties is or may be inadequate and the
applicant will or may be bound by an order or judgment in
the action; or (c) when the applicant is so situated as to be
adversely affected by a distribution or other disposition of
property °**.” (Til. Rev. Stat. 1979, ch. 110, par.
26.1(1).) In the alternative, the court in its discretion may
permit intervention: “(a) when a statute confers a condi-
tional right to intervene; or (b) when an applicant’s claim
or defense and the main action have a question of law or
fact in common.” Ill. Rev. Stat. 1977, ch. 110, par. 26.1(2).

The circuit court, in permitting intervention, stated it
was being allowed as a matter of right and as a matter of
discretion. It refused, however, to address the question of
whether the intervenors were to he deemed to be con-
ducting unitary business operations.

The overall design of section 26.1 of the Civil Practice
Act was to liberalize the practice of intervention so as to
avoid, upon timely application, the relitigation of issues

C-7

in a second suit which were being litigated in a pending
action. (See Dowsett v. City of East Moline (1956), 8 Tl.
2d 560; Ill. Ann. Stat., ch. 110, par. 26.1, Joint Com-
mittee Comments, at 317-18 (Smith-Hurd (1968).) A party
need not have a direct interest in the pending suit but it
must have an interest greater than that of the general public
(see Mensik v. Smith (1960), 18 Ill. 2d 572-590; Cooper v.
Hinrichs (1957), 10 Tl. 2d 269, 270), so that the party may
stand to gain or lose by the direct legal operation and effect
of a judgment in the suit. In re Appointment of Special
State’s Attorneys (1976), 42 Ill. App. 3d 176, 181.

In their petitions for intervention (Ill. Rev. Stat. 1977,
eh. 110, par. 26.1(1)) before the circuit court, Coca Cola
and the 15 other corporate intervenors maintained that
the plaintiffs’ representation on the issue of whether the
Director may require the unitary method of apportionment
as a means to determine business income allocable to Illinois
as stated above would be inadequate, since the plaintiff only
challenged it use for the tax year 1969 and not for the years
1970 through 1974. The intervenors argue that the plaintiffs
have not raised on appeal any issue as to 1969, thus making
the necessity of intervention more urgent. The intervenors
currently are engaged in a similar dispute with the Director
as to whether the Director may determine their liability for
income tax using the combined income of their corporate
branches and subsidiaries or whether it must calculate the
tax, as the intervenors claim, based on separate corporate
returns. They also say that this appeal and the intervenors’
dispute before the Director involve a common question of
law, i.e., whether combined reporting is even authorized
under the Illinois Income Tax Act.

The Director contends that the intervenors’ position may
be fully protected by their appearance as amici curiae and
that intervention in this instance was improper. The Di-

C-8

rector argues that the intervenors, in actuality, are seeking
a declaratory judgment as to their rights under the [linois
Income Tax Act, which may not be granted unless they can
establish a right to injunctive relief. This relief, the Director
contends, citing Illinois Bell Telephone Co. v. Allphin
(1975), 60 Ill. 2d 350, 358-59, overruling Owens-Illinois Glass
Co. v. McKibbin (1943), 385 Ill. 245, which had provided an
exception in equity to the exhaustion rules, is not permitted
in a tax case unless a party has exhausted its administrative
remedies or has shown special circumstances to avoid this
requirement. The Director also maintains that the protest
act (Ill. Rev. Stat. 1979, ch. 127, par. 172) provides a means
to contest the Director’s position regarding the application
of the unitary apportionment method under the Illinois Tax
Act without the necessity of exhausting administrative
remedies. The Director says, too, that the Illinois Admin-
istrative Procedure Act (Ill. Rev. Stat. 1977, ch. 127, par.
1001 et seq.) dues not allow intervention at the administra-
tive level since to do so would permit a taxpayer to circum-
vent the protest act.

We do not consider the intervenors to be seeking a
declaratory judgment. The declared purpose of the inter-
vention is to raise the questions whether a unitary method
of apportionment is authorized and whether it may be re-
quired. The resolution of these issues will not necessarily
decide the intervenors’ disputes with the Director regard-
ing claimed tax deficiences. Furthermore, were this court
to hold that unitary apportionment is authorized under
the Illinois Income Tax Act, that holding would not decide
whether each of the 16 corporations may properly be
regarded as a unitary business group so that this method
of apportionment might be applied. The contention of the
Director that to permit intervention here would open an
avenue for taxpayers to “evade” the protest tax act does

C-9

not persuade. Intervention under section 26.1 of the Civil
Practice Act is not granted as a matter of course. Where
one has satisfied the burden to intervene as a matter of
right or where a court has not abused discretion in allow-
ing intervention there should be no arbitrary denial of it.
(See L.S. Health & Sons, Inc. v. Marathon Oil Co. (1977),
56 Ill. App. 2d 440.) The circuit court did not abuse dis-
cretion when it granted the petition for intervention. We
need not decide if intervention was to be allowed as a
matter of right. See Mensik v. Smith (1960), 18 Ill. 2d
572; Standard Bank & Trust Co. v. Village of Oak Lawn
(1978), 61 Ill. App. 3d 174.

We consider now the question the intervenors raise as
to whether the provisions of the Dlinois Income Tax Act
(Ill. Rev. Stat. 1979, ch. 120, par. 1-101 et seq.) authorize
the Director to use the unitary apportionment or combined
method of reporting business income for Illinois income
tax purposes. The [Illinois Income Tax Act became effec-
tive on August 1, 1969, and was held constitutional by this
court in Thorpe v. Mahim (1969), 43 Ill. 2d 36. The plain-
tiffs filed income tax returns for the years 1969 through
1974 and, as stated above, they later filed separate claims
for refunds for almost $11,000,000 covering this six-year
period. It was the Director’s agreeing with the plaintiffs
that Caterpillar Tractor and all of its subsidiaries should
be considered a unitary business group and further that
the combined method of apportionment should be applied
in order to determine the percentage of income attributable
to Illinois activities for each corporate plaintiff that led
the intervenors to seek to enter the case. They sought to
present their contention that the Illinois Income Tax Act
does not provide for reporting as a member of a unitary
business group and authorizes only the reporting of the
separate taxable income of a corporation through returns

C-10

filed under section 203(d)(2)(E) of the Illinois Income Tax
Act (Ill. Rev. Stat. 1977, ch. 120, pur. 2—203(d)(2)(E)).
This section provides that where “a member of an affiliated
group of corporations [files] a consolidated income tax
return for the taxable year for federal income tax pur-
poses * * *,” the Director shall determine taxable income
“as if such corporation had filed a separate return for
federal income tax purposes for the taxable year and each
preceding taxable year for which it was a member of an
affiliated group.” They erroneously claim that this section
shows a legislative intent to bar the unitary or combined
reporting method.

There are two basic methods of accounting used by State
tax officials to determine net taxable income in such a way
as to avoid the constitutional problems which arise when a
State attempts to tax that portion of a corporation’s busi-
ness income which clearly has been earned in other States
or countries. The first method, called separate accounting,
attempts to segregate and identify the sources or trans-
actions which account for the generation of business in-
come. This attempt to isolate the income-»roducing sources
becomes extremely complex in the case of business trans-
actions where members of a unitary business group located
in different States, and even countries, contributed to the
completion of the business transaction. Even where a uni-
tary operation has attempted to identify and separate the
contributions of each member to the completed transaction
and the generation of income by using a separate account-
ing method, there have been difficulties. The Supreme Court
has pointed out that “while it purports to isolate portions
of income received in various States, [separate accounting]
may fail to account for contributions to income resulting
from functional integration, centralization of management,
and economies of scale.” (Mobil Oil Corp. v. Commissioner
of Tawes (1980), 445 U.S. 425, 438, 63 L .Ed. 2d 510, 521,

C-11

100 S. Ct. 1223, 1232.) The court went on to say that “it
becomes misleading to characterize the income of the busi-
ness as having a single identifiable ‘source.’ Although sep-
arate geographical accounting may be useful for internal
auditing, for purposes of state taxation it is not constitu-
tionally required.” (445 U.S. 425, 438, 63 L. Ed. 2d 510, 521,
100 S. Ct. 1223, 1232.) (See also Hellerstein, State and
Local Taxation, 400 (3d ed. 1969); Dexter, “The Unitary
Concept in State Income Taxation, 10 Urb. Law. 243
(1978).) Recently the Supreme Court in Exon Corp. v.
Wisconsin Department of Revenue (1980), U.S. .
65 L. Ed. 2d 66, 100 S. Ct. 2109, held that where a State
has enacted an apportionment statute, the existence and
use by a company of an internal auditing or accounting
method did not bind the State to employ the same tech-
nique for computing taxable income.

The other method of accounting, which was applied
by the Director here, and which has been described, is
the combined or unitary apportionment method of re-
porting. In order to apply this method to the tax returns
of a corporate taxpayer, it must first be determined that
it is a member of a unitary business group. As was briefly
discussed, the term “unitary business group,” when ap-
plied to a corporation which has subsidiaries or other
associated corporations in other States or countries, is
used to describe a group of functionally integrated cor-
porate units which are so interrelated and interdependent
that it becomes relatively impossible for one State to
determine the net income generated by a particular cor-
poration’s activities within the State and therefore allo-
cable to that State for purposes of taxation. A classical
example of a unitary business is the Caterpillar Tractor
Company. This corporation, with its national and inter-
national subsidiaries, forms a network of companies whose
combined operations make Caterpillar Tractor the world’s

C-12

largest construction ar.d earthmoving manufacturer. Cater-
pillar Tractor and its 25 subsidiaries employ over 82,000
individuals at locations around the world. Its net world-
wide income for the taxable years 1969 through 1974
was calculated by the Director to be $1.8 billion. Despite
the magnitude and diversity of these multistate and multi-
national operations, there is an overriding corporate de-
sign to maintain strict uniformity in areas such as product
design, control maintenance, accounting procedures, re-
search and development and even a uniform standard or
code of the conduct for its personnel throughout the world.
Any suggested changes or departures from these uniform
procedures are subject to final approval from the corpo-
ration’s principal headquarters in Peoria.

In determining whether the Illinois Income Tax Act
authorizes and, indeed requires, as the Director contended
and as the appellate court held, combined reporting for
unitary business groups, we must analyze the legislative
history of this and other related income tax acts both
before and after the Illinois Income Tax Act became effec-
tive in August of 1969. In the “Official Commentary on
the Illinois Income Tax Act” which was issued by the
Department of Revenue shortly after the Act’s effective
date, it is stated under the discussion of article 3: “Article
3 of the Act provides rules for the allocation and appor-
tionment of business and non-business income between
Illinois and other states. For the most part this is accom-
plished by embodying * * * the principles of the Multi-
state Tax Compact which was adopted by Illinos effec-
tive July 1, 1967. At present 16 States (including Illinois)
have adopted this Compact and 11 other States are associ-
ate members. Adoption of the provisions of the Compact
was believed desirable in the interests of interstate uni-
formity and consistency with existing Illinois law.” Ill.

C-13

Tax Rptr. (CCH), par. 18—000, at 1901; par. 18—006, at
1903; par. 18—023, at 1911.

The first major attempt in promoting uniformity among
the States with respect to taxing interstate business was
the drafting and adoption of the Uniform Division of
Income for Tax Purposes Act (UDITPA). UDITPA was
incorporated into article IV of the Multistate Tax Com-
pact (MTC) (IIL Rev. Stat. 1973, ch. 120, par. 871 et seq.)
and as stated in the Official Commentary cited above, the
MTC became effective in Illinois on July 1, 1967. The ques-
tions before us now are: (1) whether UDITPA authorizes
the use of the unitary method of apportionment; and (2)
if it does, whether this method has been incorporated into
the Illinois Income Tax Act.

Considering whether UDITPA authorizes the use of
unitary apportionment, we first observe the UDITPA does
not make any reference to unitary apportionment or com-
bined reporting. The absence of specific reference to the
unitary method is not, however, critical, for in a number
of jurisdictions that adopted UDITPA and in some of
them, the MTC as well, courts have held that unitary appor-
tionment or combined reporting was authorized through
the particular income tax statute made no reference to this
method of reporting. In Coca Cola v. Department of Reve-
mue (1975), 271 Or. 517, 533 P.2d 788, the Oregon Depart-
ment of Revenue applied a unitary or combined apportion-
ment method of accounting to the income tax returns of
the plaintiff -orporation and its wholly owned subsidiaries,
which had filed separate returns using Oregon’s three factor
apportionment formula, which is similar to that set out in
the IZinois statute. The Department argued that the com-
bined method, though not specifically provided for in the
tax statutes into which UDITPA had been incorporated,
would more accurately reflect the income of what it con-

C-14

tended was a unitary business operation. Concluding that
the company’s syrup and bottling operations were so in-
extricably connected as to constitute a unitary business, the
court stated: “The combined method of apportionment
reporting is wholly consistent with, and a natural extension
of, the apportionment method.” (271 Or. 517, 528, 533 P.2d
788, 793.) The court held that the plaintiff and its sub-
sidiaries “are all part of the same unitary operation and
were required to use the combined method of reporting
for the tax years in question.” 271 Or. 517, 529, 533 P.2d
788, 794. See also American Smelting & Refining Co. v.
Idaho State Tax Com. (1979), 99 Idaho 924, 592 P.2d 39;
Montana Department of Revenue v. American Smelting ¢
Refining Co. (1977), 173 Mont. 316, 567 P.2d 901.

The Supreme Court has also held that the absence of
any statutory reference to the unitary method of reporting
does not forbid its use. In Butler Brothers v. McColgan
(1942), 315 U.S. 501, 86 L. Ed. 991, 62 S. Ct. 701, the
plaintiff, an [llinois corporation conducting a wholesale
goods and general merchandise business, was licensed to
conduct business in California. The company had whole-
sale distributing divisions located in seven states, including
California, each serving a district area and each controlling
its own sales force, accounting procedures, sales operations
and credit and financing procedures as well. Though the
California tax statute did not specifically authorize the
combined method of reporting or make any references to
unitary operations, the court upheld the State’s decision to
apply the unitary method to the combined income derived
from the operations of the seven divisions. In its holding
the court stated that “this Court has recognized that unity
of the use and management of a business which is scattered
through several states may be considered when a State
attempts to impose a tax on an appointment basis. As
stated in Hans Rees’ Sons, Inc. v. North Carolina, [ (1931),

C-15

283 U.S. 123, 133, 75 L. Ed. 879, 905, 51 S. Ct. 385,
389], ‘the enterprise of a corporation which manufactures
and sells its manufactured product is ordinarily a unitary
business, and all the factors in that enterprise are essential
to the realization of profits.’” 315 U.S. 501, 508, 86 L.
Ed. 991, 996, 62 S. Ct. 701, 704-05.

In a later case, Northwestern States Portland Cement
Co. v. Minnesota (1959), 358 U.S. 450, 3 L. Ed. 2d 421,
79 S. Ct. 357, the court addressed a similar challenge to
the use of a unitary apportionment method, and in citing
Hans Rees’ and other apportionment decisions (e¢.g., Bass,
Radcliff @ Gretton, Lid. v. State Tax Com. (1924), 266
U.S. 271, 69 L. Ed. 282, 45 S. Ct. 82; Underwood Type-
writer Co. v. Chamberlain (1920), 254 U.S. 113, 65 L.
Ed. 165, 41 S. Ct. 45) the court upheld the use declaring:
“These cases stand for the doctrine that the entire net
income of a corporation, generated by interstate as well as
intrastate activities, may be fairly apportioned among the
States for tax purposes by formulas utilizing in-state
aspects of interstate affairs.” 358 U.S. 450, 460, 3 L. Ed.
2d 421, 428, 79 S. Ct. 357, 363. See also Exxon Corp. v.
Wisconsin Department of Revenue (1980), US.

, 65 L. Ed. 2d 66, 100 S. Ct. 2109; Mobil Ow Corp.
v. Commissioner of Taxes (1980), 445 U.S. 425, 63 L.
Ed. 2d 510, 100 S. Ct. 1223.

The intervenors contend that even though the legis-
lature adopted UDITPA, and thus may have authorized
combined reporting, when it enacted article IV of the
MTC, UDITPA was not made a part of the Illinois Income
Tax Act. To support this argument, the intervenors main-
tain that when Illinois withdrew from participation on the
Multistate Tax Commission and repealed the Multistate
Tax Compact in 1975, it repealed UDITPA as well and,
as a result, there no longer is authority in Dlinois for the

C-16

combined or unitary apportionment method. That Illi-
nois withdrew from the Multistate Tax Commission in
1975, however, did not mean that the authority to use
the unitary method was also terminated. An examination
of various relevant provisions of UDITPA, the MTC,
and the Illinois Income Tax Act shows that the language
in each pertaining to the allocation and apportionment
of business income is very similar and in some instances
virtually identical. For example, the term “business in-
come” is defined in section 1501(a)(1) of the Illinois
Income Tax Act (Ill. Rev. Stat. 1979, ch. 120, par.
15—1501(a)(1)) im language, except for one additional
sentence not concerned in this case, identical to the
language used in section 1(e) of UDITPA and article IV,
section 1(a), of the MTC to define the same term. An
example of even greater significance and persuasiveness
is that the three-factor apportionment formula of sales,
property and payroll in the Illinois Income Tax Act,
apart from some minor change not relevant here, is iden-
tical to the formula set out in UDITPA which, as we
apart from some minor change not relevant here, is iden-
tical to the formula set out in UDITPA which, as we
have alreday determined, authorizes the use of the unitary
method. Considering that these provisions taken from
UDITPA are part of the Illinois Income Tax Act and that
the official commentary on the Act states that the rules
for allocation and apportionment under sections 301
_ through 307 of the Act (Til. Rev. Stat. 1979, ch. 120, pars.
3—301 through 3—307) have embodied the principles
underlying article IV of the MTC, which is UDITPA, it is
clear that the use of the combined or unitary apportion-
ment method is authorized under the Act and could be
required by the Department in the case of unitary business
groups. The purpose of this method as has been said, is to
permit the fair determination of the portion of business

C-17

income that is attributable to business activity in Illinois
by the reporting member of the unitary group. The con-
cern, it is emphasized, is in making a fair determination
of tax liability. This is why the legislature provided that if
the calculation of liability made by using the combined or
unitary reporting method does not accurately and fairly
represent the taxable business activity in Illinois, under
section 304(e) of the Illinois Income Tax Act the taxpayer
may petition that another method of determination be
used. Ill. Rev. Stat. 1979, ch. 120, par. 3—304(e).

The intervenors say that if the combined method of
reporting is required under the [Illinois Income Tax Act, its
imposition will be contrary to the decision in Japan Line,
Ltd. v. County of Los Angeles (1979), 441 U.S. 434, 60 L.
Ed. 2d 336, 99 S. Ct. 1813, which, they argue, held that
the combining of worldwide income for purposes of State
taxer‘on was unconstitutional. There, a Japanese shipping
company challenged an ad valorem property tax imposed
upon certain types of containers which were within the
State on March 1, the tax lien date in California. The
containers also were subject to a property tax in Japan
under the law of that country. The Supreme Court said
that the issue was “whether instrumentalities of commerce
that are owned, based, and registered abroad and that are
exclusively in international commerce, may be subjected
to apportioned ad valorem property taxation by a State.”
(441 U.S. 434, 444, 60 L. Ed. 2d 336, 345, 99 S. Ct.
1813, 1819.) The court was concerned with whether the
California tax scheme resulted in multiple taxation of
foreign commerce and therefore constituted an impermis-
sible instrusion into an area which the court described as
one that was “preeminently a matter of national concern.”
(441 U.S. 434, 448, 60 L. Ed. 2d 336, 347, 99 S. Ct.
1813, 1821.) The court, in holding that the tax was

C-18

invalid, judged that, first, the tax scheme “produce[d]
multiple taxation in fact” and, second, it prevented “this
Nation from ‘speaking with one voice’ in regulating foreign
trade.” (441 U.S. 434, 452, 60 L. Ed. 2d 336, 350, 99 &.
Ct. 1813, 1823.) This was especially true since Japan and
the United States had entered into an agreement entitled
“Customs Convention on Containers,” which was designed
to prevent the imposition of all duties and taxes upon con-
tainers deemed “instruments of international traffic”
(19 U.S.C. sec. 1322(a) (1976)) which were imported into
the United States on a temporary basis.

Japan Line is obviously distinguishable from the case
here. The purpose of the apportionment formula is to con-
fine the taxation of business income to that portion which
is attributable to activities in Illinois. This appeal dves not
involve the multiple texation of items or instrumentalities
of foreign commerce nor does unitary reporting affect
Federal authority in governing foreign commerce. The
concern here is only with the taxation of business income
fairly attributable to activities within the taxing State. See
Mobil Oil Corp. v. Commissioner of Taxes (1980), 445
U.S. 425, 63 L. Ed. 2d 510, 100 S. Ct. 1223; Complete
Auto Transit, Inc. v. Brady (1977), 430 U.S. 274, 51 L.
Ed. 2d 326, 97 S. Ct. 1076; Northwestern States Portland
Cement Co. v. Minnesota (1959), 358 U.S. 450, 3 L. Ed.
2d 421, 79 S. Ct. 317.

The intervenors’ argument that the unitary reporting
method violates due process also fails to persuade. In
Ezaon Corp. v. Wisconsin Department of Revenue (1980),

US. , 65 L. Ed. 2d 66, 100 S. Ct. 2109, the
Supreme Court considered the issue of whether a State, in
applying its method of formulary apportionment to a
corporate taxpayer’s total corporate income, violates the
due process clause where the corporation employs a func-

C-19

tional separate accounting method to separate the sources
of income so as to reflect its claimed division of opera-
tions. In upholding Wisconsin’s apportionment statute and
the decision of the Department of Revenue that the corpo-
ration’s Wisconsin marketing division was an integral unit
of its unitary operation, the court stated: “The Due Proc-
ess Clause of the Fourteenth Amendment imposes two
requirements for such state taxation: a ‘minimal connec-
tion’ or ‘nexus’ between the interstate activities and the
taxing State, and ‘a rational relationship between the
income attributed to the State and the intrastate values
of the enterprise’” ( US. , , 65 L. Ed. 2d 66,
79, 100 S. Ct. 2109, 2118). The nexus requirement is
satisfied if the State tax is imposed upon a company which
has availed itself of the privilege of conducting business
within the State. (Wisconsin v. J.C. Penney Co. (1940), 311
U.S. 435, 85 L. Ed. 267, 61 S. Ct. 246; Bass, Ratcliff &
Cretton, Ltd. v. State Taz Com. (1924), 266 U.S. 271, 69
L. Ed. 282, 45 S. Ct. 82; Underwood Typewriter Co. v.
Chamberlain (1920), 254 U.S. 113, 65 L. Ed. 165, 41 S. Ct.
45.) Illinois has a statute to this effect. Ill. Rev. Stat. 1979,
ch. 120, par. 2—201.

In next examining whether a rational relationship exists
between the business income claimed by the State for activ-
ities within the State and the actual value of the taxpayer’s
intrastate activities, the courts have looked to the reason-
ableness of the method used in attempting to determine
fairly the level of income generated by business operations
within the State. (See Butler Brothers v. McColgan (1942),
315 U.S. 501, 506-07, 86 L. Ed. 991, 995-96, 62 S. Ct. 701, 704.
See also Exxon Corp. v. Wisconsin Department of Revenue
(1980), US. , 65 L. Ed. 2d 66, 100 S. Ct. 2109;
Mobil Oil Corp v. Commissioner of Taxes (1980), 445 U.S.
425, 63 L. Ed. 2d 510, 100 S. Ct. 1223). We consider that

C-20

the overall design of section 304 is calculated to determine
that amount of business income fairly attributable to LIli-
nois. (Hans Rees’ Sons v. North Carolina ex rel. Maxwell
(1931), 283 U.S. 123, 75 L. Ed. 879, 51 S. Ct. 385.) That such
a formula may include income dervied from international
activities is not of consequence in determining whether the
statute satisfies the requirements of due process. See Mobil
Oi Corp. v. Commissioner of Taxes (1980), 445 U.S. 425,
63 L. Ed. 2d 510, 100 S. Ct. 1223; Bass, Ratcliff é Gretton,
Ltd. v. State Tax Com. (1924), 266 U.S. 271, 69 L. Ed. 282,
45 S. Ct. 82. See also United States Steel Corp. v. Multistate
Taa Com. (1978), 434 U.S. 452, 54 L. Ed. 2d 682, 98 S. Ct.
799.

The other arguments presented by the intervenors
against recognition of the combined apportionment method
of filing are not convincing. The intervenors contend that
the prohibition in Illinois against the filing of a consolidated
return (Ill. Rev. Stat. 1977, ch. 120, par. 2—203(d)(2)(E))
demonstrates a legislative intention to prohibit the use of
this method of reporting. We consider that the appellate
court correctly stated that the ban on filing consolidated
returns in Illinois was “irrelevant to a determination of
whether the unitary method of apportionment is to be used
in [inois.” (77 Ill. App. 3d 90, 99.) That Illinois does not
permit the filing of consolidated returns does not mean that
it therefore prohibits the use of the unitary apportionment
method. In permitting the filing of a consolidated tax return,
Federal law only requires that an affiliated group of cor-
porations meet certain stock ownership requirements which
show interrelationship among the corporations. (26 U.S.C.
sec. 1504(a) (1976).) Whether this group may also qualify
as a unitary business group is irrelevant to the determina-
tion of whether it may file a consolidated Federal income
tax return. The purpose of the combined method is solely

C-21

to permit an accurate determination of income attributable
to and taxable by Illinois in the case of a member of a
unitary business group.

Finally, the intervenors’ citation of a 1975 Illinois Tax
Bulletin (ITIB 1975—1) as support for its argument that
unitary reporting was proscribed upon repeal of the MTC
is misleading. The 1975 bulletin is entitled: Withdrawal of
Bulletin [TIB 1974—1 Relating to Combined Reporting for
Unitary Business. The quotation from this 1975 bulletin,
upon which the intervenors rely, is that “combination, as a
method of reporting unitary business income, is not author-
ized.” This 1975 bulletin was prematurely issued after the
MTC was repealed and at a time when it was not known
what changes in the Illinios Income Tax might follow. There
were amendments passed in 1975 but they did not affect
section 304 or any of the rules relating to allocation and
apportionment, which, as we have observed above, allow
the combined or unitary method of reporting. This was
made clear in a second bulletin issued in 1975, ITIB 1975—2,
which declare: “Repeal of the Compact provisions has no
substantive effect on current allocation and apportionment
provisions of the Illinois Income Tax Act.”

We turn now to a question raised by the plaintiffs. It
is whether domestic corporations, which elected to claim a
tax credit on their Federal returns for income taxes paid
to foreign governments, could have deducted the amount
of these foreign taxes from the taxable incomes reported
on their Illinois returns. Under the Internal Revenue Code,
a domestic corporation which has paid foreign income taxes
has the option of claiming a tax credit under sections 901
and 960 of the Code (26 U.S.C. secs. 901, 960 (1976)), or
taking a deduction under sections 164(a) and 275(a). (26
U.S.C. sees. 164(a), 275(a) (1976).) The plaintiffs argue
that they were entitled to claim a deduction on their State

C-22

returns for these taxes peid to foreign governments regard-
less of whether they claimed a tax credit or a deduction
on their Federal income tax returns.

The Director disagrees, saying that if a domestic corpo-
ration elected to take a tax credit on its Federal return for
foreign income taxes paid, as oppoced to claiming a deduc-
tion from taxable income, it is bound by this election for
State tax purposes and may not deduct these foreign tax
payments from the amount of Federal taxable income re-
ported on the State tax return.

We consider that the Director’s statement is correct. The
taxpayer had the election of taking a tax credit or a deduc-
tion on its Federal return. The election was binding. It
would not be permitted to take a tax credit to reduce the
Federal tax liability and also take a deduction from the
Federal taxable income reported on the State return so as
to reduce State taxable income. (Albany International Corp.
v. Halperin (Mrine 1978), 388 A.2d 902; Commonwealth v.
Westinghouse Eiectric Corp. (1978), 478 Pa. 164, 386 A.2d
491.) Moreover, #s we will next discuss, Illinois did not
permit corporations to claim a deduction for the payment
of foreign taxes until 1975 and the plaintiffs had a right
only to deductions specifically authorized under the Illinois
Income Tax Act. See Ill. Rev. Stat. 1977, ch. 120, par.
2-203(g).

The plaintiffs make another contention regarding the
payment of foreign taxes. They argue that foreign taxes
paid by a foreign subsidiary of a domestic corporation in a
unitary group are deductible by the domestic corporation
on its Illinois tax return when computing the combined
income of the unitary group. Section 203(b) of the Ilinois
Income Tax Act provides:

“(1) In general. In case of a corporation, base in-
come means an amount equal to the taxpayer’s taxable

C-23

income for the taxable year as modified by para-
graph (2).

(2) Modifications. The taxable income referred to in
paragraph (1) shall be modified by adding thereto the
sum of the following amounts:

. * o
(D) * * * and by deduction from the total so
obtained the sum of the following amounts:
eee
(F) An amount equal to any amount included
in such total under Section 78 of the Internal
Revenue Code * * *.” (Ill. Rev. Stat. 1977, ch. 120,
par. 2-203(b).)
It is of course true that the effect of section 203(b) as
applied through section 78 of the Internal Revenue Code is
to allow a domestic corporation to claim under the Illinois
Income Tax Act a deduction for foreign taxes paid by its
foreign subsidiary. This provision, however, did not be-
come effective unti! January 1, 1975. A corporation could
qualify for this deduction only in 1975 and thereafter. The
tax returns involved in this case are for years prior to
1975, and therefore the plaintiffs did not qualify for the
deduction.
For the reasons given, the judgment of the appellate
court on the questions raised on this appeal is affirmed.

Judgment affirmed.

MR. JUSTICE SIMON took no part in the considera-
tion or decision of this case.

APPENDIX D

D-1

ILLINOIS SUPREME COURT
CLELL L. WOODS, CLERK

Supreme Court Building

Springfield, Ill. 62706
(217) 782-2035

March 27, 1981

Mr. William P. Sutter
Attorney at Law
One First Natl. Plaza, 52nd Fir.

Chicago, IL 60603

Nos. 52818 — Caterpillar Tractor Co., et al., appellees, vs.
52828 Daniel J. Lenckos as Acting Director of the
52903 [Illinois Department of Revenue, et al., ap-
Cons. _pellees (The Coca-Cola Company, et al., ap-

.
(C) and (D) which are exempt from taxation by this
State either by reason of its Constitution or hy reason

of the Constitution, treaties or statutes of the United
States.

(3) Special rule. For purposes of paragraph (2)(A),
“gross income” in the case of a life insurance company shal!
mean the company’s share of the gross investment income
for the taxable year.

(c) Trusts and estates.

(1) In general. In the case of a trust or estate, base in-
come means an amount equal to the taxpayer’s taxable
income for the taxable year as modified by paragraph (2).

E-6

(2) Modifications. Subject to the provisions of para-
graph (3), the taxable income referred to in paragraph (1)
sha)! be modified by adding thereto the sum of the following
amo ats:

(A) An amount equal to all amounts paid or accrued
to the taxpayer as interest or dividends during the tax-
able year to the extent excluded from gross income in
the computation of taxable income;

(B) An amount equal to 50% of the excess of the
net long-term capital gain for the taxable year over the
net short-term capital loss for such year, to the extent
deducted from gross income in the computation of tax-
able income ;

(C) In the case of (i) an estate, $600; (ii) a trust
which, under its governing instrument, is required to
distribute all of its income currently, $300; and (iii)
any other trust, $100, but in each such case, only to the
extent such amount was deducted in the computation of
taxable income ; and

(D) An amount equal to the amount of tax imposed
by this Act to the extent deducted from gross income
in the computation of taxable income for the taxable
year,

and by deducting from the total so obtained the sum of the
following amounts:

(E) An amount equal to all amounts included in such
total pursuant to the provisions of Sections 402(a),
402(c), 402(d), 403(a), 403(b), 405(d), 406(a) and
407(a) of the Internal Revenue Code or included in
such total as distributions under the provisions of any
retirement or disability plan for employees of any
governmental agency or unit;

(F) The valuation limitation amount;

(G) An amount equal to the amount of any tax im-
posed by this Act which was refunded to the taxpayer
and included in such total for the taxable year; and

E-7

(H) An amount equal to all amounts included in
taxable income as modified by subparagraphs (A), (B),
(C) and (D) which are exempt from taxation by this
State either by reason of its Constitution or by reason
of the Constitution, treaties or statutes of the United
States.

(3) Limitation. The amount of any modification other-
wise required under this subsection shall, under regulations
prescribed by the Department, be adjusted by any amounts
included therein which were properly paid, credited, or re-
quired to be distributed for the taxable year.

(d) Gross income; adjusted gross income; taxable in-
come.

(1) In general. Subject to the provisions of paragraph
(2) and subsection (b) (3), for purposes of this Section and
Section 802(b), a taxpayer’s gross income, adjusted gross
income, or taxable income for the taxable year shall mean
the amount of gross income, adjusted gross income or tax-
able income properly reportable for federal income tax
purposes for the taxable year under the provisions of the
Internal Revenue Code.

(2) Special rule. For purposes of paragraph (1) of this
subsection, the taxable income properly reportable for fed-
eral income tax purposes shall mean:

(A) Certain life insurance companies. In the case
of a life insurance company subject to the tax imposed
by Section 802 of the Internal Revenue Code, life in-
surance company taxable income ;

(B) Certain mutual insurance companies. In the
case of a mutual insurance company subject to the tax
imposed by Section 821(a) or (c) of the Internal Rev-
enue Code, mutual insurance company taxable income
or taxable investment income, as the case may be;

(C) Regulated investment companies. In the case
of a regulated investment company subject to the tax

E8

imposed by Section 852 of the Internal Revenue Code,
investment company taxable income;

(D) Real estate investment trusts. In the case of a
real estate investment trust subject to the tax imposed
by Section 857 of the Internal Revenue Code, real
estate investment trust taxable income;

(E) Consolidated corporations. In the case of a
corporation which is a member of an affiliated group
of corporations filing a consolidated income tax
return for the taxable year for federal income tax pur-
poses, taxable income determined as if such corporation
had filed a separate return for federal income tax pur-
poses for the taxable year and each preceding taxable
year for which it was a member of an affiliated group.
For purposes of this subparagraph, the taxpayer’s
separate taxable income shall be determined as if the
election provided by Section 243(b)(2) of the Internal
Revenue “ode had been in effect for all such years;
and

(F) Cooperatives. In the case of a cooperative
corporation or association, the taxable income of such
organization determined in accordance with the pro-
visions of Section 1381 through 1388 of the Internal
Revenue Code.

(e) Valuation limitation amount.

(1) In general. The valuation limitation amount re-
ferred to in subsections (a)(2)(F) and (c)(2)(F) is an
amount equal to:

(A) The sum of the pre-August 1, 1969 appreciation
amounts (to the extent consisting of gain reportable
under the provisions of Section 1245 or 1250 of the
Internal Revenue Code) for all property in respect of
which such gain was reported for the taxable year;
plus

(B) The lesser of (i) the sum of the pre-August 1,
1969 appreciation amounts (to the extent consisting of
capital gain) for all property in respect of which such

E-9

gain was reported for federal income tax purposes for
the taxable year, or (ii) the net capital gain for the
taxable year, reduced in either case by any amount of
such gain included in the amount determined under
subsection (a)(2)(E) or (c)(2)(B).

(2) Pre-August 1, 1969 appreciation amount.

(A) If the fair market value of property referred to
in paragraph (1) was readily ascertainable on August
1, 1969, the pre-August 1, 1969 appreciation amount for
such property is the lesser of (i) the excess of such
fair market value over the taxpayer’s basis (for deter-
mining gain) for such property on that date (deter-
mined under the Internal Revenue Code as in effect
on that date), or (ii) the total gain realized and re-
portable for federal income tax purposes in respect of
the sale, exchange or other disposition of such property.

(B) If the fair market value of property referred
to in paragraph (1) was not readily ascertainable on
August 1, 1969, the pre-August 1, 1969 appreciation
amount for such property is that amount which bears
the same ratio to the total gain reported in respect of
the property for federal income tax purposes for the
taxable year, as the number of full calendar months
in that part of the taxpayer’s holding period for the
property ending July 31, 1969 bears to the number of
full calendar months in the taxpayer’s entire-holding
period for the property.

(C) The Department shall prescribe such regulations
as may be necessary to carry out the purposes of this
paragraph.

(f) Double deductions. Nothing in this Section shall
permit the same item to be deducted more than once.

(g) Legislative intention. Except as expressly provided
by this Section, there shall be no modifications or limita-
tions on the amounts of income, gain, loss or deduction taken
into account in determining gross income, adjusted gross

E-10

income or taxable income for federal income tax purposes
for the taxable year, or in the amount of such items entering
into the computation of base income and net income under
this Act for such taxable year, whether in respect of prop-
erty values as of August 1, 1969 or otherwise.

2-204. § 204. Standard Exemption. (a) Allowance of
exemption. In computing net income under this Act, there
shall be allowed as an exemption the sum of the amounts
determined under subsections (b) and (c), multiplied by a
fraction the numerator of which is the amount of the tax-
payer’s base income allocable to this State for the taxable
year and the denominator of which is the taxpayer’s total
base income for the taxable year.

(b) Basic amount. For the purpose of subsection (a),
except as provided by section 205(a), each taxpayer shall be
allowed a basic amount of $1,000.

(c) Additional amount for individuals. In the case of
an individual, there shall be allowed for the purpose of
subsection (a), in addition to the basic amount provided by
subsection (b), an additional amount of $1,000 for each
exemption in excess of one allowable to such individual for
the taxable year under section 151 of the Internal Revenue
Code.

(d) Cross reference. See Article 3 for the manner of
determining base income allocable to this State.

2-205. § 205. Exempt Organizations. (a) Charitable, etc.
organizations. The base income of an organization which
is exempt from the federal income tax by reason of Section
501(a) of the Internal Revenue Code shall not be deter-
mined under section 203 of this Act, but shall be its un-
related business taxable income as determined under section
512 of the Internal Revenue Code, without any deduction
for the tax imposed by this Act. The standard exemption

E-11

provided by section 204 of this Act shall not be allowed in
determining the net income of an organization to which
this subsection applies.

(b) Partnerships. A partnership as such shall not be
subject to the tax imposed by this Act, but shall compute
base income as if it were an individual, and shall file such
returns and other information at such time and in such
manner as may be required under Article 5 of this Act.
Persons carrying on business as partners shall be liable
for the tax imposed by this Act only in their separate or
individual capacities.

(c) Subchapter 8 corporations. A corporation for which
there is in effect for the taxable year an election under
section 1372 of the Internal Revenue Code shall not be
subject to the tax imposed by this Act, but shall file such
returns and other information at such time and in such
manner as may be required under Article 5 of this Act.

(d) Combat zone death. An individual relieved from the
federal income tax for any taxable year by reason of section
692 of the Internal Revenue Code shall not be subject to the
tax imposed by this Act for such taxable year.

(e) Certain Trusts. A common trust fund described in
Section 584 of the Internal Revenue Code, and any other
trust to the extent that the grantor is treated as the owner
thereof under sections 671 through 678 of the Internal Rev-
enue Code shall not be subject to the tax imposed by this
Act.

E-12

ARTICLE 3. ALLOCATION AND APPORTIONMENT .
OF BASE INCOME

3-301. 4301. 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 deduc-
tion 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 computa-
tion 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 inte 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 un-
employment benefit trust which is referred to in Section
501(¢c)(17) of the Internal Revenue Code) :

E-13

(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, 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.

3-302. § 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 indi-
vidual 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 compensa-
tion paid to this State to residents of such state shall not be
allocated to this State.

(c) Cross references. (1) For allocation of amounts re-

ceived by nonresidents from certain employee trusts, see
Section 301(b) (2).

(2) For allocation of compensation by residents, see
Section 301(a).

3-303. § 303. Nonbusiness income of persons other than
residents. (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.

E-14

(b) Capital gains and losses. (1) Real property. Capital
gains and losses from sales or exchanges of rea! 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 organ-
ized 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

E-15

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 every-
where 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 cowyright 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, manufactur-
ing 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 allo-
cation 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 reyalties
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-16

(e) Illinois lottery prizes. Prizes awarded under the
“Tilinois Lottery Law”, approved December 14, 1973, are
allocable to this State.

(f) Taxahility 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 tax-
payer 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).

3-304. § 304. Business income of persons other than resi-
dents. (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, except
as otherwise provided by this Section, such person’s busi-
ness income shall be apportioned to this State by multiply-
ing the income by a fraction, the numerator of which is the
sum of the property factor (if any), the payroll factor (if
any) and the sales factor (if any), and the denominator
of which is 3 reduced by the number of factors which have
a denominator of zero.

(1) Property factor.

(A) The property factor is a fraction, the numerator of
which is the average value or the person’s real and tangible

E-17

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 per-
son’s real and tangible persunal property owned or rented
and used in the trade or business during the taxable year.

(B) Property owned by th 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 per-
son’s property.

(2) Payroll factor.

(A) The payroll factor is a fraction, the numerator of
which is the total amount paid if this State during the
taxable year by the person for compensation, and the
denominator of which is the total compensation paid every-
where 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 with-
in 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

E-18

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.

(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 pur-

chaser, 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.

(C) Sales, other than sales of tangible personal property,
are in this State if:

(i) The income-producing activity is performed in
this State; or

(ii) The income-producing activity is performed
both within and without this State and a greater pro-
portion of the income-producing activity is performed
within this State than without this State, based on costs
of performance.

(b) Insurance companies. (1) In general. Except ax
otherwise provided by paragraph (2), business income of
an insurance company for a taxable year shall be appor-
tioned to this State by multiplying such income by a frac-
tion, the numerator of which is the direct premiums written
for insurance upon property or risk in this State and the

E-19

denominator of which is the direct premiums written for
insurance upon property or risk everywhere. For purposes
of this subsection, the term “direct premiums written”
means the total amount of direct premiums written, assess-
ments and annuity considerations as reported for the tax-
able 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 or
such other form as may be prescribed in lieu thereof.

(2) 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 if which is the
sum of (i) direct premiums written for insurance upon
property or risk in this State, plus (ii) premiums written
for reinsurance accepted in respect of property or risk in
this State, and the denominator of which is the sum of (iii)
direct premiums written for insurance upon property or
risk everywhere, plus (iv) premiums written for reinsur-
ance accepted in respect of property or risk everywhere.
For purposes of this paragraph, premiums written for
reinsurance accepted in respect of property or risk in this
State, whether or not otherwise determinable, may, at the
election of the company, be determined on the basis of the
proportion which premiums written for reinsurance ac-
cepted from companies commercially domiciled in Illinois
bears to premiums written for reinsurance accepted from
all sources, or, alternatively, in 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 sam of the total
direct premiums written by each such ceding company for
the taxable year.

E-20

(c) Financial organizations. Business income of a finan-
cial organization shall be apportioned to this State by
multiplying such income by a fraction, the numerator of
which is its business income from sources within this State,
and the denominator of which is its business income from
all sources. For the purposes of this subsection, the business
income of a financial organization from sources within this
State is the sum of :

(1) Fees, commissions or other compensation for
financial services rendered within this State;

(2) Gross profits from trading in stocks, bonds or
other securities managed within this State ;

(3) Interest and dividends received within this
State;

(4) Interest charged to customers at places of busi-
ness maintained within this State for carrying debit
balances of margin accounts, without deduction of any
costs incurred in carrying such accounts ; and

(5) Any other gross income resulting from the
operation as a financial organization within this State.
In computing the amounts referred to in paragraphs
(1) through (5) of this subsection, any amount received
by a member of an affiliated group (determined under
Section 1504(a) of the Internal Revenue Code but
without reference to whether any such corporation is
an “includible corporation” under Section 1504(b) of
the Internal Revenue Code) from another member of
such group shall be included only to the extent such
amount exceeds expenses of the recipient directly re-
lated thereto.

(d) Transportation services. Business income derived
from furnishing transportation services shall be appor-
tioned to this State in accordance with paragraphs (1)
and (°):

(1) Such business income (other than that derived
from transportation by pipeline) shall be apportioned

E-21

to this State by multiplying such income by a fraction,
the numerator of which is the revenue miles of the per-
son in this State, and the denominator of which is the
revenue miles of the person everywhere. For pur-
poses of this paragraph, a revenue mile is the trans-
portation of 1 passenger or 1 net ton of freight the
distance of 1 mile for a consideration. Where a per-
son is engaged in the transportation of both pas-
sengers and freight, the fraction above referred to shall
be determined by means of an average of the passenger
revenue mile fraction and the freight revenue mile
fraction, weighted to reflect the person’s

(A) relative railway operating income from total
passenger and total freight service, as reported to
the Interstate Commerce Commission, in the case
of transportation by railroad, and

(B) relative gross receipts from passenger and
freight transportation, in case of transportation
other than by railroad.

(2) Such business income derived from transportation
by pipeline shall be apportioned to this State by multi-
plying such income by a fraction, the numerator of
which is the revenue miles of the person in this State,
and the denominator of which is the revenue miles of
the person everywhere. For the purposes of this para-
graph, a revenue mile is the transportation by pipeline
of 1 barrel of oil, 1,000 cubic feet of gas, or of any
specified quantity of any other substance, the distance
of 1 mile for a consideration.

(e) Alternative allocation. If the allocation and appor-

tionment provisions of subsections (a) through (d) do not
fairly represent the extent of a person’s business activity
in this State, the person may petition for, or the Director
may require, in respect of all or any part of the person’s
business activity, if reasonable :

(1) Separate accounting;

(2) The exclusion of any one or more factors ;

E-22

(3) The inclusion of one or more additional factors
which will fairly represent the person’s business activi-
ties in this State; or

(4) The employment of any other method to effec-
tuate an equitable allocation and apportionment of the
person’s business income.

(f) Cross reference. For allocation of business income by
residents, see Section 301(a).

3-305. § 305. Allocation of Partnership Income by Part-
nerships and Partners Other Than Residents.

(a) Allocation of partnership business income by part-
ners other than residents. The respective shares of partners
other than residents in so much of the business income of
the partnership as is allocated or apportioned to this State
in the hands of the partnership shall be taken into account
by such partners pro rata in accordance with their respec-
tive distributive shares of such partnership income for the
partnership’s taxable year and allocated to this State.

(b) Allocation of partnership nonbusiness income by
partners other than residents. The respective shares of
partners other than residents in the items of partnership
income and deduction not taken into account in computing
the business income of a partnership shall be taken into
account by such partners pro rata in accordance with their
respective distributive shares of such partnership income
for the partnership’s taxable year, and allocated as if such
items had been paid, incurred or accrued directly to such
partners in their separate capacities.

(c) Allocation or apportionment of business income by
partnership. Business income of a partnership shall be
allocated or apportioned to this State pursuant to Section
204.

(d) Cross reference. For allocation of partnership in-
come or deductions by residents, see Section 301(a).

E-23

3-306. 4 306. Allocation or Apportionment of Income by
Estates and Trusts. The items of income and deduction
taken into account by an estate or trust in computing its
base income for a taxable year shall be allocated or ap-
portioned to this State to the extent provided by Sections
301 through 304 and, to the extent properly paid, credited
or required to be distributed to beneficiaries for such tax-
able year, shall be deemed to have been so paid, credited
or distributed pro rata.

3-307. § 307. Allocation of Income by Estate or Trust
Beneficiaries Other Than Residents.

(a) Allocation of business income by beneficiaries other
than residents. To the extent the business income of an
estate or trust allocated or apportioned to this State in the
hands of the estate or trust is deemed to have been paid,
credited or distributed by the estate or trust under Section
306, the respective shares of beneficiaries of the estate or
trust, other than residents, in such business income shall
be taken into account by such beneficiaries in proportion to
their respective shares of the distributable net income of
the estate or trust for its taxable year and allocated to
this State.

(b) Allocation of nonbusiness income by beneficiaries
other than residents. To the extent items of estate or trust
income and deduction not taken into account in computing
the business income of an estate or trust are deemed to
have been paid, credited or distributed by the estate or
trust under Section 306, the respective shares of bene-
ficiaries of the estate or trust, other than residents, in such
items shall be taken into account by such beneficiaries in
proportion to their respective shares of the distributable
net income of the estate or trust for its taxable year, and
allocated as if such items had been paid, incurred or ac-
crued directly to such beneficiaries in their separate capaci-
ties.

E-24

(c) Accumulation and capital gain distributions. In the
event that, in any taxable year of a trust, the trust makes
an accumulation distribution or a capital gain distribution
(both as defined in Section 665 of the Internal Revenue
Code), the total of the amounts which are included in the
income of each beneficiary of such trust, other than a resi-
dent, under Section 668 and 669 of the Internal Revenue
Code shall be allocated to this State to the extent that the
items of income included in such distribution were allocated
or apportioned to this State in the hands of the trust.

(d) Cross references. (1) For allocation of amounts re-
ceived by nonresidents from certain employee trusts, see
Section 301(b)(2).

(2) For allocation of estate or trust income or deduc-
tions by residents, see Section 301(a).

ARTICLE 4. ACCOUNTING

4.401. § 401. Taxable Year. (a) In general. For pur-
poses of the tax imposed by this Act, the taxable year of a
person shall be the same as the taxable year of such person
for federal income tax purposes. The taxable year of any
person required to file a return under this Act but not under
the Internal Revenue Code shall be his annual accounting
period if it is a fiscal or calendar year, and in all other cases
shall be the calendar year.

(b) Change in taxabie year. If the taxable year of a
person is changed for federal income tax purposes, the
taxable year of such person for purposes of the tax imposed
by this Act shall be similarly changed. In the case of a
taxable year for a period of less than 12 months, the
standard exemption allowed under section 204 shall be
prorated on the basis of the number of days in such year
to 365.

B-25

(c) Termination of taxable year for jeopardy. Notwith-
standing the provisions of subsections (a) and (b), if the
Department terminates the taxable year of a taxpayer under
section 1102 (relating to tax in jeopardy), the tax shall be
computed for the period determined by such action.

4-402. § 402. Methods of Accounting. (a) Same as fed-
eral. For purposes of the tax imposed by this Act, a per-
son’s method of accounting shall be the same as such per-
son’s method of accounting for federal income tax purposes.
If no method of accounting has been regularly used by
such persons, base and net income for purposes of this Act
shall be computed under such method as in the opinion of
the Department fairly reflects income.

(b) Change of accounting method. If a person’s method
of accounting is changed for federal income tax purposes,
for purposes of this Act it shall be similarly changed.

4-403. § 403. Effect of Determination for Federal Pur-
poses. (a) Reporting. To the extent not inconsistent with
the provisions of this Act or forms or regulations pre-
scribed by the Department, each person making a return
under this Act shall take into account the items of income,
deduction and exclusion on such return in the same man-
ner and amounts as reflected in such person’s federal in-
come tax return for the same taxable year.

(b) Adjustment. A final determination pursuant to the
Internal Revenue Code adjusting any item or items of in-
come, deduction or exclusion for any taxable year shall be
prima favie correct for purposes of this Act to the extent
such item or items enter into the determination of base in-
come.

(c) Identification of differences. To the extent required
by forms or regulations prescribed by the Department,
any person making a return under this Act may be required
to indicate the item or items of income, deduction and

E-26

exclusion which would enter into the determination of base
income if this Act were amended to incorporate the Inter-
nal Revenue Code as amended and in effect for such tax-
able year.

4404. § 404. Reallocation of items. If it appears to the
Director that any agreement, understanding or arrange-
ment exists between any persons which causes any person’s
base income allocable to this State to be improperly or
inaccurately reflected, the Director may adjust such items
of income and deduction, and any factor taken into ac-
count in allocating income to this State, to such extent as
may reasonably be required to determine the base income
of such person properly allocable to this State.

ARTICLE 5. RECORDS, RETURNS AND NOTICES

5-501. §501. Notice or Regulations Requiring Records,
Statements and Special Returns. Every person liable for
any tax imposed by this Act shall keep such records, render
such statements, make such returns and notices, and comply
with such rules and regulations as the Department may
from time to time prescribe. Whenever in the judgment of
the Director it is necessary, he may require any person, by
notice served upon such person or by regulations, to make
such returns and notices, render such statements, or keep
such records, as the Director deems sufficient to show
whether or not such person is liable for tax under this Act.

5-502. § 502. Returns and Notices. (a) In general. A
return with respect to the tax imposed by this Act shall be
made by every person for any taxable year:

(1) For which such person is liable for the tax im-
posed by this Act, or
(2) In the case of a resident or in the case of a cor-
poration which is qualified to do business in this State,
~ for which such person is required to make a federal

E-27

income tax return, regardless of whether such person
is liable for the tax imposed bv this Act.

(b) Fiduciaries and receivers. (1) Decedents. If an
individual is deceased, any return or notice required of
such individual under this Act shall be made by his execu-
tor, administrator, or other person charged with the prop-
erty of such decedent.

(2) Individuals under a disebility. If an individual is
unable to make a return or notce required under this Act,
the return or notice required of such individual shall be
made by his duly authorized agent, guardian, conservator,
fiduciary or other person charged with the care of the per-
son or property of such individual.

(3) Estates and trusts. Returns or notices required of an
estate or a trust shall be made by the fiduciary thereof.

(4) Receivers, trustees and assignees for corporations.
In a case where a receiver, trustee in bankruptcy, or as-
signee, by order of a court of competent jurisdiction, by
operation of law, or otherwise, has possession of or holds
title to all or substantially all the property or business of
a corporation, whether or not such property or business is
being operated, such receiver, trustee, or assignee shall
make the returns and notices required of such corporation
in the same manner and form as corporations are required
to make such returns and notices.

(c) Joint returns by husband and wife. (1) Except as
provided in paragraph (3), if a husband and wife file a
joint federal income tax return for a taxable year they
shall file a joint return under this Act for such taxable year
and their liabilities shall be joint and several, but if the
federal income tax liability of either spouse is determined
on a separate federal income tax return, they shall file
separate returns under this Act.

E-28

(2) If neither spouse is required to file a federal income
tax return and either or both are required to file a return
under this Act, they may elect to file separate or joint re-
turns and pursuant to such election their liabilities shall
be separate or joint and several.

(3) If either husband or wife is a resident and the other
is a nonresident, they shall file separate returns in this
State on such forms as may be required by the Department
in which event their tax liabilities shall be separate; but
they may elect to determine their joint net income and file
a joint return as if both were residents and in such case,
their liabilities shall be joint and several.

(a) Partnerships. Every partnership having any base
income allocable to this State in accordance with section
305(c) shall make an information return setting forth all
items of income, gain, loss and deduction; the names and
addresses of all of the partners or other persons who
would be entitled to share in the base income of the part-
nership if distributed ; the amount of the distributive share
of each; and such other pertinent information as the De-
partment may by forms or regulations prescribe.

5-503. § 503. Signing of Returns and Notices. (a) Sig-
nature presumed authentic. The fact that an individual’s
name is signed to a return or notice shall be prima facie
evidence for all purposes that such document was actually
signed by such individual.

(b) Corporations. A return or notice required of a
corporation shall be signed by the president, vice-president,
treasurer or any other officer duly authorized so to act. In
the case of a return or notice made for a corporation by a
fiduciary pursuant to the provisions of section 502(b) (4),
such fiduciary shall sign such document. The fact that an
individual’s name is signed to a return or notice shall be

E-29

prima facie evidence that such individual is authorized to
sign such document on behalf of the corporation.

(c) Partnerships. A return or notice of a partnership
shall be signed by any one of the partners. The fact that a
partner’s name is signed to a return or notice shall be
prima facie evidence that such pa-tner is authorized to
sign such document on behalf of the partnership.

(d) Joint fiduciaries. A return or notice signed by one
of two or more joint fiduciaries will comply with the re-
quirements of this Act. The fact that a fiduciary’s name
is signed to such document shall be prima facie evidence
that such fiduciary is authorized to sign such document on
behalf of the person from whom it is required.

5-504. § 504. Verification. Each return or notice re-
quired to be filed under this Act shall contain or be verified
by a written declaration that it is made under the penalties
of perjury.

5-505. 4505. Time and Place for Filing Returns. (a)
In general. Returns required by this Act shall be filed at
such place as the Department may by regulations prescribe.
Such returns shall be filed on or before the 15th day of the
fourth month following the close of the taxable year, un-
less, subject to the provisions of section 602, the Director
grants an extension or extensions of time (not to exceed 6
months in the aggregate) for such filing, except that a final
return of a decedent shall be filed at the time (including any
extensions thereof) it would have been due if the decedent
had not died.

(b) Extension of time for filing federal return. When
the taxpayer has been granted an extension or extensions
of time within which to file his federal income tax return
for any taxable year, the filing of a copy of such extension
or extensions with the Department shall automatically ex-
tend the due date of the return with respect to the tax

E-30

imposed by this Act for an equivalent period if the re-
quirements of section 602 are met.

5-506. § 506. Federal Returns. (a) In general. Any per-
son required to make a return for a taxable year under
this Act may, at any time that a deficiency could be as-
sessed or a refund claimed under this Act in respect of any
item reported or properly reportabie on such return or
any amendment thereof, be required to furnish to the De-
partment a true and correct copy of any return which may
pertain to such item and which was filed by such person
under the provisions of the Internal Revenue Code.

(b) Changes affecting federal income tax. In the event
the taxable income, any item of income or deduction, or
the income tax liability reported in a federal income tax
return of any person for any year is altered by amendment
of such return or as a result of any other recomputation or
redetermination of federal taxable income or loss, and suca
alteration reflects a change or settlement with respect to
any item or items entering into the computation of such
person’s base income for any year under this Act, or in
the number of personal exemptions allowable to such per-
son under Section 151 of the Internal Revenue Code, such
person shall notify the Department of such alteration. Such
notification shall be in the form of an amended return or
such other form as the Department may by regulations
prescribe, shall contain the person’s name and address and
such other information as the Department may by regula-
tions prescribe, shall be signed by such person or his duly
authorized representative, and shall be filed not later than
20 days after such alteration has been agreed to or finally
determined for federal income tax purposes or any federal
income tax deficiency or refund, tentative carryback ad-
justment, abatement or credit resulting therefrom has been
assessed or paid, whichever shall first occur.

E-31

ARTICLE 6. PAYMENTS

6-601. §601. Payment on Due Date of Return. (a) In
general. Every taxpayer required to file a return under this
Act shall, without assessment, notice or demand, pay any
tax due thereon to the Department, at the place fixed for
filing, on or before the date fixed for filing such return
(determined without regard to any extension of time for
filing the return) pursuant to regulations prescribed by the
Department.

(b) Amount payable. In making payment as provided in
this Section there shall remain payable only the balance
of such tax remaining due after giving effect to the follow-

ing:

(1) Withheld tax. Any amount withheld during any
calendar year pursuant to Article 7 from compensa-
tion paid to a taxpayer shall be deemed to have been
paid on account of any tax imposed by this Act on
such taxpayer for his taxable year beginning in sucli
calendar year. If more than one taxable year begins in
a calendar year, such amount shall be deemed to have
been paid on account of such tax for the last taxable
year so beginning.

(2) Estimated tax. Any amount of estimated tax
paid by a taxpayer pursuant to Article 8 for a taxable
year shall be deemed to have been paid on account of
the tax imposed by this Act for such taxable year.

(3) Foreign tax. The aggregate amount of tax which
is imposed upon or measured by income and which
is paid by a resident for a taxable year to another state
or states on income which is also subject to tax under
this Act shall be credited against the tax otherwise
due under this Act for such taxable year. The aggre-
gate credit provided under this paragraph shall not
exceed that amount which bears the same ratio to the
tax otherwise due under this Act as the amount of the
taxpayer’s base income subject to tax both by such
other state or states and by this State bears to his
total base income subject to tax by this.State for the

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taxable year. The credit provided by this paragraph
shall not be allowed if any creditable tax was deducted
in determining base income for the taxable year. Any
person claiming such credit shall attach a statement
in support thereof and shall notify the Director of any
refund or reductions in the amount of tax claimed as
a credit hereunder all in such manner and at such time
as the Department shall by regulations prescribe.

(4) Accumulation and capital gain distribations. If
the net income of a taxpayer includes amounts included
in his base income by reason of Section 668 or 669 of
the Internal Revenue Code (relating to accumulation
and capital gain distributions by a trust, respectively),
the tax imposed on such taxpayer by this Act shall be
credited with his pro rata portion of the taxes imposed
by this Act on such trust for preceding taxable years
which would not have been payable for such preceding
years if the trust had in fact made distributions to its
beneficiaries at the times and in the amounts specified
in sections 666 and 669 of the Internal Revenue Code.
The credit provided by this paragraph shall] not reduce
the tax otherwise due from the taxpayer to an amount
less than that which would be due if the amounts in-
cluded by reason of sections 668 and 669 of the Internal
Revenue Code were excluded from his base income.

(c) Cross reference. For application against tax due of

overpayments of tax for a prior year, see section 909.

6-602. 4 602. Tentative Payments. (a) In general. In

connection with any extension provided under section 505
of the time for filing a return, the taxpayer shall file a
tentative tax return and pay, on or before the date pre-
scribed by law for the filing of such return (determined
without regard to any extensions of time for such filing),
the amount properly estimated as his tax for the taxable
year.

(b) Interest. Interest on any amount of tax due and un-

paid for the period of any extension shall be payable as
provided in section 1003.

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ARTICLE 7. WITHHOLDING TAX

7-701. § 701. Requirement and amount of withholding.
(a) In general. Every employer maintaining an office or
transacting business within this State and required under
the provisions of the Internal Revenue Code to withhold
a tax on:

(1) compensation paid in this State (as determined
under section 304(a)(2)(B) to an individual; or

(2) payments described in subsection (b) shall de-
duct and withhold from such compensation for each
payroll period (as defined in section 3401 of the In-

ternal Revenue Code) an amount equal to 242% of
the amount by which such individual’s compensation
exceeds the proportionate part of his withholding ex-
emption (computed as provided in section 702) attrib-
utable to the payroll period for which such compensa-
tion is payable.

(b) Payment to residents. Any payment (including
compensation) to a resident by a payor maintaining an
office of transacting business within this State and on which
withholding of tax is required under the provisions of the
Internal Revenue Code shall be deemed to be compensation
paid in this State by an employer to an employee for the
purposes of Article 7 and section 601(b)(1) to the extent
such payment is included in the recipient’s base income
and not subject to withhciding by another state.

(c) Special definitions. Withholding shall be considered
required under the provisions of the Internal Revenue
Code to the extent the Internal Revenue Code either re-
quires withholding or allows for voluntary withholding and
the payor and recipient have entered into such a voluntary
withholding agreement. For the purposes of Article 7
and section 1002(c) the term “employer” includes any payor
who is required to withhold tax pursuant to this section.

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(d) 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 suck: state to residents of this State
shall be exempt from withholding of such tax; in such case,
any compensation paid in this State to residents of such
state shall be exempt from withholding.

7-702. § 702. Amount Exempt From Withholding. For
purposes of this section an employee shail be entitled to a
withholding exemption iz. an amount equal to $1,000 multi-
plied by the number of withholding exemptions to which he
is entitled for federal income tax withholding purposes (de-
termined without regard to Section 3402(m) of the Internal
Revenue Code, relating to withholding allowances based on
itemized deductions) or in any lesser amount claimed by
him. Every employee shall furnish to his employer such in-
formation as is required for the employer to make an ac-
curate withholding under this Act. The employer may rely
on this information for withholding purposes. If any em-
ployee fails or refuses to furnish such information, the em.
ployer shall withhold the full rate of tax from the em-
ployee’s total compensation.

7-708. § 703. Information Statement. Every employer
required to deduct and withhold tax under this Act from
compensation of an employee, or who would have been re-
quired so to deduct and withhold tax if the employee’s with-
holding exemption were not in excess of $1,000, shall furnish
in duplicate to each such employee in respect of the compen-
sation paid by such employer to such employee during the
calendar year on or before January 31 of the succeeding
year, or, if his employment is terminated before the close
of such calendar year, on the date on which the last pay-
ment of compensation is made, a written statement in such
form as the Department may by regulation prescribe show-
ing the amount of compensation paid by the employer to the

E-35

employee, the amount deducted and withheld as tax, and
such other information as the Department shall prescribe.
A copy of such statement shall be filed by the employee with
his return for his taxable year to which it relates (as deter-
mined under section 601(b) (1)).

7-704. § 704. Employer’s Return and Payment of Tax
Withheld. Every employer required to deduct and with-
hold tax under this Act shall, on or before the 15th day of the
second and third months of each calendar quarter, and on
or before the last day of the month following the last month
of each such quarter, pay to the Department or to a
depositary designated by the Department, pursuant to
regulations prescribed by the Department, the taxes so
required to be deducted and withheld, whenever the aggre-
gate amount withheld by such employer (together with
amounts previously withheld and not paid to the Depart-
ment) exceeds $100. Every such employer shall for each
calendar quarter, on or before the last day of the first
month following the close of such quarter, and for the cal-
endar year, on or before January 31 of the succeeding
calendar year, make a return with respect to such taxes
in such form and manner as the Department may by regula-
tions prescribe, and pay to the Department or to a de-
positary designated by the Department all withheld taxes
not previously paid to the Department. Where the amount
of compensation paid by an employer is not sufficient to re-
quire the withholding of tax from the compensation of any
of its employees (or where the aggregate amount withheld
is less than $100), the Department may by regulation per-
mit such employer to file only an annual return and to pay
the taxes required to be deducted and withheld at the time
of filing such annual return.

7-705. § 705. Employer’s Liability for Withheld Taxes.
Every employer required to deduct and withhold tax under

E-36

this Act is liable for such tax. For purposes of assessment
and collection, any amount required to be withheld and paid
over to the Department, and any penalties and interest
with respect thereto, shall be considered the tax of the em-
ployer. Any amount of tax actually deducted and withheld
under this Act shall be held to be a special fund in trust for
the Department. No employee shall have any right of action
against his employer in respect of any money deducted and
withheld from his wages and paid over to the Department
in compliance or in intended compliance with this Act.
7-706. § 706. Employer’s Failure to Withhold. If an
employer fails to deduct and withhold any amount of tax
as required under this Act, and thereafter the tax on ac-
count of which such amount was required to be deducted and
withheld is paid, such amount of tax shall not be collected
from the employer, but the employer shall not be relieved
from the liability for penalties or interest otherwise ap-
plicable in respect of such failure to deduct and withhold.

7-707. § 707. Governmental Employers. If the employer
is the United States, or a state, Territory, or political sub-
division thereof, or the District of Columbia, or any agency
or instrumentality of any one or more of the foregoing, the
return of the amount deducted and withheld upon any com-
pensation may be made by any officer or employee of the
United States, or of such state, Territory, or political sub-
division, or of the District of Columbia, or of such agency or
instrumentality, as the case may be, having control of the
payment of such compensation, or appropriately designated
for that purpose.

ARTICLE 8. DECLARATION AND PAYMENT OF
ESTIMATED TAX

8-801. § 801. Declaration of Estimated Tax. (a) In
general. Every taxpayer other than an estate or trust shall

E-37

make a declaration of estimated tax for the taxable year,
in such form as the Department shall prescribe, if the
amount payable as estimated tax can reasonably be ex-
pected to be more than $50.

(b) Estimated tax defined. The term ‘‘estimated tax’’
means the excess of:

(1) The amount which the taxpayer estimates to be
his tax under this Act for the taxable year, over

(2) The amount which he estimates to be the sum
of any amounts to be withheld on account of or credited
against such tax.

(c) Joint declarations. If they are eligible to do so for
federal tax purposes, a husband and wife may make a joint
declaration of estimated tax as if they were one taxpayer,
in which case the liability with respect to the estimated tax
shall be joint and several. If a joint declaration is made but
the husband and wife elect to determine their taxes under
this Act separately, the estimated tax for such year may
be treated as the estimated tax of either husband or wife,
or may be divided between them, as they may elect.

(d) Amended declaration. A taxpayer may amend a
declaration under regulations prescribed by the Department.

(e) Short taxable year. A taxpayer having a taxable
year of less than 12 months shall make a declaration under
regulations prescribed by the Department.

(f) Return as declaration or amendment. If on or before
January 31 (or before March 1, in the case of an individual
referred to in section 802(b), relating to income from farm-
ing) of the succeeding taxable year an individual files a
return for the taxable year for which the declaration is
required, and pays in full the amount computed on the
return as payable, then, under regulations prescribed by
the Department:

E-38

(1) If the declaration is not required to be filed dur-
ing the taxable year, but is required to be filed on or
before January 15, such return shall be considered as
such declaration; and

(2) If the tax shown on the return (reduced by the
sum of any amounts withheld on account of or credited
against the tax) is greater than the estimated tax
shown in a declaration previously made, or in the last
amendment thereof, such return shall be considered as
the amendment of the declaration permitted by sub-
section (d) to be filed on or before January 15.

In the application of this subsection in the case of a taxable
year beginning on any date other than January 1, there
shall be substituted, for the first, 15th or last day of the
months specified in this subsection, the first, 15th or last
day of the months which correspond thereto.

8-802. 4 802. Time for Filing Declaration. (a) In gen-
eral. Except as provided by subsection (b), a declaration
of estimated tax required by section 801 of a taxpayer who
files his return under this Act on the basis of the calendar
year shall be filed on or before April 15 of such year, except
that if the requirements of section 801 are first met:

(1) After April 1 and before June 2 of the taxable
year, the declaration shall be filed on or before June 15;

(2) After June 1 and before September 2 of the
taxable year, the declaration shall be filed on or before
September 15; or

(3) After September 1 of the taxable year, the
declaration shall be filed :

(A) In the case of a corporation, on or before
December 15 of the taxable year; and

(B) In the case of an individual, on or before

January 15 of the succeeding year.
(b) Farmers. A declaration of estimated tax required
from an individual having an estimated gross income from

E-39

farming for the taxable year which is at least % of his total
estimated gross income for such year, may be filed at any
time on or before January 15 of the succeeding taxable
year, in lieu of the time otherwise prescribed.

(c) Short taxable years. The application of this section
to a taxable year of less than 12 months shall be in accord-
ance with regulations prescribed by the Department.

(d) Fiscal years. In the application of this section to a
taxable year beginning on any date other than January 1,
there shall be substituted, for the months specified in sub-
sections (a) and (b), the months which correspond thereto.

8-803. § 803. Payment of Estimated Tax. (a) In general.
A taxpayer required to file a declaration of estimated tax
pursuant to section 801 of this section shall pay such esti-
mated tax as follows:

(1) If the declaration is filed on or before April 15
of the taxable year, the estimated tax shall be paid in
4 equal installments. The first installment shall be paid
at the time of the filing of the declaration, the second and
third on June 15 and September 15, respectively, of the
taxable year, and the fourth:

(A) In the case of a corporation, on December 15
of the taxable year ; and

(B) In the case of an individual, on January 15 of
the succeeding taxable year.

(2) If the declaration is filed after April 15 and not after
June 15 of the taxable year, and is not required to be filed
on or before April 15 of the taxable year, the estimated tax
shall be paid in 3 equal installments. The first installment
shall be paid at the time of the filing of the declaration, the
second on September 15 of the taxable year, and the third:

(A) In the case of a corporation, on December 15
of the taxable year; and

E-40

(B) In the case of an individual, on January 15 of
the succeeding taxable year.

(3) If the declaration is filed after June 15 and not after
September 15 of the taxable year, and is not required to be
filed on or before June 15 of the taxable year, the esti-
mated tax shall be paid in 2 equal installments. The first
installment shall be paid at the time of the filing of the
declaration, and the second:

(A) In the case of a corporation, on December 15 of
the taxable year; and

(B) In the case of an individual, on January 15 of
the succeeding taxable year.

(4) If the declaration is filed after September 15 of the
taxable year and is not required to be filed on or before
September 15 of the taxable year, the estimated tax shall
be paid in full at the time of the filing of the declaration.

(5) If the declaration is filed after the time prescribed
in section 802 (including cases in which an extension of
time for filing the declaration has been granted), para-
graphs (1), (2), and (3) of this section shall not apply, and
there shall be paid at the time of such filing all installments
of estimated tax which would have been payable on or be-
fore such time if the declaration had been filed within the
time prescribed in section 802, and the remaining install-
ments shall be paid at the time at which, and in the amounts
in which they would have been payable if the declaration
had been so filed.

(b) Farmers. If an individual referred to in section
802(b) (relating to farmers) makes a declaration of esti-
mated tax after { otember 15 of the taxable year and on or
before January lu of the succeeding taxable year, the
estimated tax shall be paid in full at the time of the filing
of the declaration.

E41

(c) Payments pursuant to amended deciarations. If an
amendment of a declaration is filed, the remaining install-
ments, if any, shall be ratably increased or decreased, as
the case may be, to reflect the increase or decrease in the
estimated tax by reason of such amendment.

(d) Application to short taxable years. The application
of this section to taxable years of less than 12 months shall
be in accordance with regulations prescribed by the De-
partment.

(e) Fiscal years. In the application of this section to
the case of a taxable year beginning on any date other than
January 1, there shall be substituted, for the months
specified in subsections (a) and (b), the months which cor-
respond thereto.

(f) Installments paid in advance. Any installment of
estimated tax may be paid before the date prescribed for
its payment.

8-804. § 804. Failure to pay estimated tax. (a) In gen-
eral. In case of any underpayment of estimated tax by a
taxpayer, except as provided in subsection (d), the tax-
payer shall be liable to a penalty in an amount determined
at the rate of 10% per annum upon the amount of the
underpayment (determined under subsection (b)) for the
period of the underpayment (determined under subsection
(c)).

(b) Amount of underpayment. For purposes of subsection
(a), the amount of the underpayment shall be the excess of :

(1) The amount of the installment which would be
required to be paid if the estimated tax were equal to
80% of the tax shown on the return for the taxable
year or, if no return was filed, 80% of the tax for such
year, over,

(2) The amount, if any, of the installment paid on or
before the last date prescribed for payment.

E-42

(c) Period of underpayment. The period of the under-
payment shall run from the date the installment was re-
quired to be paid to whichever of the following dates is
the earlier:

(1) The 15th day of the fourth month following the
close of the taxable year; or .

(2) With respect to any portion of the underpay-
ment, the date on which such portion is paid. For
purposes of this paragraph, a payment of estimated
tax on any installment date shall be considered a
payment of any previcus underpayment only to the
extent such payment exceeds the amount of the in-
stallment determined under subsection (b)(1) for such
installment date.

(d) Exception. Notwithstanding the provisions of the
preceding subsections, the penalty for underpayment of
any installment shall not be imposed if the total amount of
all payments of estimated tax made on or before the last
date prescribed for the payment of such installment equals
or exceeds the amount which would have been required to
be paid on or before such date if the estimated tax were
whichever of the following is the lesser :

(1) The tax shown on the return of the taxpayer
for the preceding taxable year, if a return showing a
liability for tax was filed by the taxpayer for the pre-
ceding taxable year and such preceding year was a
taxable year of 12 months.

(2) In the case of a corporation, an amount equal to
the tax computed at the rates applicable to the tax-
able year but otherwise on the basis of the facts
shown on the return of the corporation for, and the
law applicable to, the preceding taxable year.

(3)(A) In the case of a corporation, an amount equal
to 80% of the tax for the taxable year computed by
placing on an annualized basis the net income:

(i) For the first 3 months of the taxable year,
in the case of an installment required to be paid
in the first 4 months;

E-43

(ii) For the first 3 months or for the first 5
months of the taxable year, in the case of an in-
stallment required to be paid in the sixth month;

(iii) For the first 6 months or for the first 8
months of the taxable year, in the case of an in-
stallment required to be paid in the ninth month;
and

(iv) For the first 9 months or for the first 11
months of the taxable year, in the case of an in-
stallment required to be paid in the twelfth month
of the taxable year.

(B) For purposes of this paragraph, the net in-
come shall be placed on an annualized basis by:

(i) Multiplying by 12 the net income referred
to in subparagraph (A) ; and

(ii) Dividing the resulting amount by the num-
ber of months in the taxable year (3, 5, 6, 8, 9, or
11, as the case may be) referred to in subpara-
graph (A).

(4) In the case of an individual, an amount equal to
80% (6634% in the case of individuals referred to in
section 802(b), relating to farming) of the tax for the
taxable year computed by placing on an annualized
basis the net income for the months in the taxable year
ending before the month in which the installment is
required to be paid. For purposes of this paragraph the
net income shall be placed on an annualized basis by:

(A) Multiplying by 12 (or, in the case of a tax-
able year of less than 12 months, the number of
months in the taxable year) the net income (com-
puted without regard to the standard exemption)
for the months in the taxable year ending before
the month in which the installment is required to
be paid ;

(B) Dividing the resulting amount by the num-
ber of months in the taxable year ending before
the month in which such installment date falls; and

E-44

(C) Deducting from such amount the standard
exemption allowable for the taxable year (such
standard exemption being determined as of the
last date prescribed for payment of the install-
ment).

(5) In the case of an individual, an amount equal
to 90% of the tax computed, at the rates applicable
to the taxable year, on the basis of the actual net in-
come for the months in the taxable year ending before
the month in which the installment is required to be
paid as if such months constituted the taxable year.

(6) In the case of an individual, an amount equal
to the tax computed, at the rates applicable to the tax-
able year, on the basis of the taxpayer’s status with
respect to the standard exemption for the taxable year,
but otherwise on the basis of the facts shown on his
return for, and the law applicable to, the preceding
taxable year.

(e) Definition of tax. For purposes of subsections (b)
and (d), the term “tax” means the excess of the tax imposed
by this Act, over the amounts credited against such tax
under sections 601(b)(3) and (4).

(f) Application of section in case of tax withheld on
compensation. For purposes of applying this section in the
ease of an individual, tax withheld under Article 7 for the
taxable year shall be deemed a payment of estimated tax,
and an equal part of such amount shall be deemed paid
on each installment date for such taxable year, unless the
taxpayer establishes the dates on which all amounts were
actually withheld, in which case the amounts so withheld
shall be deemed payments of estimated tax on the dates
on which such amounts were actually withheld.

(g) Short taxable year. The application of this section
to taxable years of less than 12 months shall be in accord-
ance with regulations prescribed by the Department.

E-45

(h) Taxable years beginning before August 1, 1970. For
purposes of applying the provisions of this section with
respect to the penalty for underpayment of estimated tax,
paragraphs (1), (2) and (6) of subsection (d) shall not
apply with respect to any taxable year beginning before
August 1, 1970.

8-805. § 805. Declaration as Return. The provisions of
’ sections 502(b) (2) and (4), 503, 504, 505 and 917 (relating
to returns and notices) shall be applicable (except where
manifestly inconsistent herewith) with respect to declara-
tions of estimated tax required to be filed under this Article.

ARTICLE 9. PROCEDURE AND ADMINISTRATION

901. § 901. Collection Authority. (a) In general. The
Department shall collect the taxes imposed by this Act, and
shail pay all moneys received by it under this Act into the
General Revenue Fund in the State treasury.

(b) Local Governmental Distributive Fund. Effective
August 1, 1969, the Treasurer shall transfer each month
from the General Revenue Fund to a special fund in the
State treasury, to be known as the “Local Government
Distributive Fund”, an amount equal to 1/12 of the net
revenue realized from this Act during the preceding month.
Net revenue realized for a month shall be defined as the
revenue from the “Illinois Income Tax Act”, deposited in
the General Revenue Fund during the month minus the
amount paid out in State warrants during that same month
as refunds to taxpayers for overpayment of liability under
the “Illinois Income Tax Act”.

9-902. § 902. Notice and Demand. (a) In general. Ex-
cept as provided in subsection (b) the Director shall, as
soon as practicable after an amount payable under this Act
is deemed assessed (as provided in section 903), give notice
to each person liable for any unpaid portion of such assess-
ment, stating the amount unpaid and demanding payment

E-46

thereof. Upon receipt of such notice there shall be paid at
the place and time stated in such notice the amount stated
in such notice. Such notice shall be left at the dwelling or
usual place of business of such person or shall be sent by
mail to the person’s last known address.

(b) Judicial review. In the case of a deficiency deemed
assessed under section 903(a) (2) after the filing of a pro-
test, notice and demand shall not be made with respect to
such assessment until all proceedings in court for the review
of such assessment have terminated or the time for the
taking thereof has expired without such proceedings being
instituted.

(c) Action for recovery of taxes. At any time that the
Department might commence proceedings for a levy under
Section 1109, it may bring an action in any court of com-
petent jurisdiction within or without this State in the name
of the people of this State to recover the amount of any
taxes, penalties and interest due and unpaid under this
Act. In such action, the certificate of the Department show-
ing the amount of the delinquency shall be prima facie
evidence of the correctness of such amount, its assessment
and of the compliance by the Department with all the pro-
visions of this Act. Amended by P.A. 78—796, § 1.

9-903. § 903. Assessment. (a) In general. (1) Returns.
The amount of tax which is shown to be due on the return
shall be deemed assessed on the date of filing of the return
(including any amended returns showing an increase of
tax). In the event that the amount of tax is understated on
the taxpayer’s return due to a mathematical error, the
Department shall notify the taxpayer that the amount of
tax in excess of that shown on the return is due and has
been assessed. Such notice of additional tax due shall not
* be considered a notice of deficiency nor shall the taxpayer
have any right of protest. In the case of a return properly

E47

filed without the computation of the tax, the tax computed
by the Department shall be deemed to be assessed on the
date when payment is due

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385008_0195%3A0. Public record. Not legal advice.