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Focus on State & Local Taxation: New Illinois Law Eliminates Composite Return Filings and Changes Nonresident Withholdings and Corporate Income Tax Apportionment

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On August 16, 2013, Gov. Pat Quinn signed into law legislation (H.B. 3157) containing important changes to Illinois treatment of nonresident taxpayers and how to apportion income by corporate income taxpayers to the state.
August 21, 2013

On August 16, 2013, Gov. Pat Quinn signed into law legislation (H.B. 3157) containing important changes to Illinois treatment of nonresident taxpayers and how to apportion income by corporate income taxpayers to the state.

Nonresident S corporation shareholders, members of pass-through entities classified as partnerships for federal income tax purposes, trust beneficiaries, and certain insurance underwriters will only be permitted to file composite income and replacement tax returns for taxable years ending prior to December 31, 2014.

Thereafter, Illinois will no longer be accepting composite returns from pass-through entities. Pass-through entities computing the amount of income tax to withhold on behalf of nonresident owners are also required to include all nonbusiness income and distributable credits effective for taxable years ending on or after December 31, 2014.

The new law also clarifies the availability of an alternative apportionment method if the rules for determining a corporate income taxpayer’s single sales apportionment formula do not fairly represent the taxpayer’s market for goods, services, or other sources of business income attributable to Illinois.

This "alternative apportionment method" will be available to both the taxpayer, with permission of the Illinois Department of Revenue, and the Illinois Department of Revenue. This clarification is available for taxable years ending on or after December 31, 2008.

The link to H.B. 3157 can be found by clicking here.

Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.

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