SB 2148 — INC TX-PATENT DEDUCTIONS

*LRB09517798BDD45375b* SB2148 95THEngrossed GENERALLRB095 ASSEMBLY17798 StateBDD of45375 Illinoisb andAN 2008ACT SB2148concerning Introducedrevenue. 2/14/2008, by Sen.

Frank C.

Watson SYNOPSIS AS INTRODUCED:

ILCS 5/203 from Ch.

120, par.

2-203 Amends the Illinois Income Tax Act.

Creates an income tax deduction for taxpayers who are individuals, corporations, or not-for-profit organizations for income, royalties, or receipts from patents for an invention resulting from a development process conducted in Illinois.

Effective immediately.

LRB095 17798 BDD 45375 b FISCAL NOTE ACT MAY APPLY A BILL FOR SB2148 LRB095 17798 BDD 45375 b AN ACT concerning revenue.

(B) An amount equal to the amount of tax imposed by SB2148 Engrossed - 2 - LRB095 17798 BDD 45375 b this Act to the extent deducted from gross income in the computation of adjusted gross income for the taxable year;

(D-5) An amount, to the extent not included in adjusted gross income, equal to the amount of money withdrawn by the taxpayer in the taxable year from a medical care savings account and the interest earned on the account in the taxable year of a withdrawal pursuant to subsection (b) of Section 20 of the Medical Care Savings Account Act or subsection (b) of Section SB2148 Engrossed - 3 - LRB095 17798 BDD 45375 b 20 of the Medical Care Savings Account Act of 2000;

The taxpayer is required to make the addition SB2148 Engrossed - 4 - LRB095 17798 BDD 45375 b modification under this subparagraph only once with respect to any one piece of property;

The addition modification required by this subparagraph shall be reduced to the extent that dividends were included in base income of the unitary group for the same taxable year and received by the taxpayer or by a member of the taxpayer’s unitary business group (including amounts included in gross income under Sections 951 through 964 of the Internal Revenue Code and amounts included in gross income under Section 78 of the Internal Revenue SB2148 Engrossed - 5 - LRB095 17798 BDD 45375 b Code) with respect to the stock of the same person to whom the interest was paid, accrued, or incurred.

or (iii) the taxpayer can establish, based on clear and convincing evidence, that the interest SB2148 Engrossed - 6 - LRB095 17798 BDD 45375 b paid, accrued, or incurred relates to a contract or agreement entered into at arm’s-length rates and terms and the principal purpose for the payment is not federal or Illinois tax avoidance;

(D-18) An amount equal to the amount of intangible expenses and costs otherwise allowed as a deduction in computing base income, and that were paid, accrued, or incurred, directly or indirectly, (i) for taxable years ending on or after December 31, 2004, to a foreign person who would be a member of the same SB2148 Engrossed - 7 - LRB095 17798 BDD 45375 b unitary business group but for the fact that the foreign person’s business activity outside the United States is 80% or more of that person’s total business activity and (ii) for taxable years ending on or after December 31, 2008, to a person who would be a member of the same unitary business group but for the fact that the person is prohibited under Section 1501(a)(27) from being included in the unitary business group because he or she is ordinarily required to apportion business income under different subsections of Section 304.

As used in this subparagraph, the term "intangible expenses and costs" SB2148 Engrossed - 8 - LRB095 17798 BDD 45375 b includes (1) expenses, losses, and costs for, or related to, the direct or indirect acquisition, use, maintenance or management, ownership, sale, exchange, or any other disposition of intangible property;

SB2148 Engrossed - 9 - LRB095 17798 BDD 45375 b (a) the person during the same taxable year paid, accrued, or incurred, the intangible expense or cost to a person that is not a related member, and (b) the transaction giving rise to the intangible expense or cost between the taxpayer and the person did not have as a principal purpose the avoidance of Illinois income tax, and is paid pursuant to a contract or agreement that reflects arm’s-length terms;

Nothing in this subsection shall preclude the Director from making any other adjustment otherwise allowed under Section 404 of this Act for any tax year beginning after the effective date of this amendment provided such adjustment is made pursuant to regulation adopted by the Department and such regulations provide methods and standards SB2148 Engrossed - 10 - LRB095 17798 BDD 45375 b by which the Department will utilize its authority under Section 404 of this Act;

The preceding sentence does not apply to the extent that the same dividends caused a reduction to the addition SB2148 Engrossed - 11 - LRB095 17798 BDD 45375 b modification required under Section 203(a)(2)(D-17) or Section 203(a)(2)(D-18) of this Act.

For taxable years beginning on or after January 1, 2007, in the case of a distribution from a qualified tuition program under Section 529 of the Internal Revenue Code, other than (i) a distribution from a College Savings Pool created under Section 16.5 of the State Treasurer Act, (ii) a distribution from the Illinois Prepaid Tuition Trust Fund, or (iii) a distribution from a qualified tuition program under Section 529 of the Internal Revenue Code that (I) adopts and determines that its offering materials comply with the College Savings Plans Network’s disclosure principles and (II) has made reasonable efforts to inform in-state residents of the existence of in-state qualified tuition programs by informing Illinois residents directly and, where applicable, to SB2148 Engrossed - 12 - LRB095 17798 BDD 45375 b inform financial intermediaries distributing the program to inform in-state residents of the existence of in-state qualified tuition programs at least annually, an amount equal to the amount excluded from gross income under Section 529(c)(3)(B).

SB2148 Engrossed - 13 - LRB095 17798 BDD 45375 b (E) For taxable years ending before December 31, 2001, any amount included in such total in respect of any compensation (including but not limited to any compensation paid or accrued to a serviceman while a prisoner of war or missing in action) paid to a resident by reason of being on active duty in the Armed Forces of the United States and in respect of any compensation paid or accrued to a resident who as a governmental employee was a prisoner of war or missing in action, and in respect of any compensation paid to a resident in 1971 or thereafter for annual training performed pursuant to Sections 502 and 503, Title 32, United States Code as a member of the Illinois National Guard or, beginning with taxable years ending on or after December 31, 2007, the National Guard of any other state.

For taxable years ending on or after December 31, 2001, any amount included in such total in respect of any compensation (including but not limited to any compensation paid or accrued to a serviceman while a prisoner of war or missing in action) paid to a resident by reason of being a member of any component of the Armed Forces of the United States and in respect of any compensation paid or accrued to a resident who as a governmental employee was a prisoner of war or missing in action, and in respect of any compensation paid to a resident in 2001 or thereafter by reason of SB2148 Engrossed - 14 - LRB095 17798 BDD 45375 b being a member of the Illinois National Guard or, beginning with taxable years ending on or after December 31, 2007, the National Guard of any other state.

SB2148 Engrossed - 15 - LRB095 17798 BDD 45375 b (J) An amount equal to those dividends included in such total which were paid by a corporation which conducts business operations in an Enterprise Zone or zones created under the Illinois Enterprise Zone Act or a River Edge Redevelopment Zone or zones created under the River Edge Redevelopment Zone Act, and conducts substantially all of its operations in an Enterprise Zone or zones or a River Edge Redevelopment Zone or zones.

(M) With the exception of any amounts subtracted under subparagraph (N), an amount equal to the sum of SB2148 Engrossed - 16 - LRB095 17798 BDD 45375 b all amounts disallowed as deductions by (i) Sections 171(a) (2), and 265(2) of the Internal Revenue Code of 1954, as now or hereafter amended, and all amounts of expenses allocable to interest and disallowed as deductions by Section 265(1) of the Internal Revenue Code of 1954, as now or hereafter amended;

(P) An amount equal to the amount of the deduction used to compute the federal income tax credit for restoration of substantial amounts held under claim of SB2148 Engrossed - 17 - LRB095 17798 BDD 45375 b right for the taxable year pursuant to Section 1341 of the Internal Revenue Code of 1986;

(U) For one taxable year beginning on or after January 1, 1994, an amount equal to the total amount of SB2148 Engrossed - 18 - LRB095 17798 BDD 45375 b tax imposed and paid under subsections (a) and (b) of Section 201 of this Act on grant amounts received by the taxpayer under the Nursing Home Grant Assistance Act during the taxpayer’s taxable years 1992 and 1993;

The amount of the health insurance and long-term care insurance subtracted under this item (V) shall be determined by multiplying total health insurance and SB2148 Engrossed - 19 - LRB095 17798 BDD 45375 b long-term care insurance premiums paid by the taxpayer times a number that represents the fractional percentage of eligible medical expenses under Section 213 of the Internal Revenue Code of 1986 not actually deducted on the taxpayer’s federal income tax return;

(X) For taxable year 1999 and thereafter, an amount equal to the amount of any (i) distributions, to the extent includible in gross income for federal income tax purposes, made to the taxpayer because of his or her status as a victim of persecution for racial or religious reasons by Nazi Germany or any other Axis regime or as an heir of the victim and (ii) items of income, to the extent includible in gross income for federal income tax purposes, attributable to, derived from or in any way related to assets stolen from, hidden from, or otherwise lost to a victim of persecution for racial or religious reasons by Nazi Germany or any other Axis regime immediately prior to, during, and immediately after World War II, including, but not limited to, interest on the proceeds receivable as insurance under policies issued to a victim of SB2148 Engrossed - 20 - LRB095 17798 BDD 45375 b persecution for racial or religious reasons by Nazi Germany or any other Axis regime by European insurance companies immediately prior to and during World War II;

For taxable years beginning on or after January 1, 2005, a maximum SB2148 Engrossed - 21 - LRB095 17798 BDD 45375 b of $10,000 contributed in the taxable year to (i) a College Savings Pool account under Section 16.5 of the State Treasurer Act or (ii) the Illinois Prepaid Tuition Trust Fund, except that amounts excluded from gross income under Section 529(c)(3)(C)(i) of the Internal Revenue Code shall not be considered moneys contributed under this subparagraph (Y).

and SB2148 Engrossed - 22 - LRB095 17798 BDD 45375 b (3) for taxable years ending after December 31, 2005:

If the taxpayer continues to own property through the last day of the last tax year for which the SB2148 Engrossed - 23 - LRB095 17798 BDD 45375 b taxpayer may claim a depreciation deduction for federal income tax purposes and for which the taxpayer was required in any taxable year to make an addition modification under subparagraph (D-15), then an amount equal to that addition modification.

(CC) The amount of (i) any interest income (net of the deductions allocable thereto) taken into account for the taxable year with respect to a transaction with a taxpayer that is required to make an addition modification with respect to such transaction under Section 203(a)(2)(D-17), 203(b)(2)(E-12), 203(c)(2)(G-12), or 203(d)(2)(D-7), but not to exceed the amount of that addition modification, and (ii) any income from intangible property (net of the deductions allocable thereto) taken into account for the taxable year with respect to a transaction with a taxpayer that is required to make an addition modification with respect to such transaction under Section SB2148 Engrossed - 24 - LRB095 17798 BDD 45375 b 203(a)(2)(D-18), 203(b)(2)(E-13), 203(c)(2)(G-13), or 203(d)(2)(D-8), but not to exceed the amount of that addition modification.

and (EE) An amount equal to the income from intangible property taken into account for the taxable year (net SB2148 Engrossed - 25 - LRB095 17798 BDD 45375 b of the deductions allocable thereto) with respect to transactions with (i) a foreign person who would be a member of the taxpayer’s unitary business group but for the fact that the foreign person’s business activity outside the United States is 80% or more of that person’s total business activity and (ii) for taxable years ending on or after December 31, 2008, to a person who would be a member of the same unitary business group but for the fact that the person is prohibited under Section 1501(a)(27) from being included in the unitary business group because he or she is ordinarily required to apportion business income under different subsections of Section 304, but not to exceed the addition modification required to be made for the same taxable year under Section 203(a)(2)(D-18) for intangible expenses and costs paid, accrued, or incurred, directly or indirectly, to the same foreign person.

SB2148 Engrossed - 26 - LRB095 17798 BDD 45375 b (3) receipts from the sale of a qualified patent;

(2) for the 6th taxable year in which the deduction is claimed, 40% of the income, SB2148 Engrossed - 27 - LRB095 17798 BDD 45375 b royalties, or receipts from the qualified patent;

SB2148 Engrossed - 28 - LRB095 17798 BDD 45375 b (1) In general.

(D) The amount of any net operating loss deduction taken in arriving at taxable income, other than a net SB2148 Engrossed - 29 - LRB095 17798 BDD 45375 b operating loss carried forward from a taxable year ending prior to December 31, 1986;

For taxable years in which there is a net operating SB2148 Engrossed - 30 - LRB095 17798 BDD 45375 b loss carryback or carryforward from more than one other taxable year ending prior to December 31, 1986, the addition modification provided in this subparagraph (E) shall be the sum of the amounts computed independently under the preceding provisions of this subparagraph (E) for each such taxable year;

If the taxpayer continues to own property through the last day of the last tax year for which the taxpayer may claim a depreciation deduction for SB2148 Engrossed - 31 - LRB095 17798 BDD 45375 b federal income tax purposes and for which the taxpayer was allowed in any taxable year to make a subtraction modification under subparagraph (T), then an amount equal to that subtraction modification.

The addition modification required by this subparagraph shall be reduced to the extent that dividends were included in base income of the unitary group for the same taxable year and SB2148 Engrossed - 32 - LRB095 17798 BDD 45375 b received by the taxpayer or by a member of the taxpayer’s unitary business group (including amounts included in gross income pursuant to Sections 951 through 964 of the Internal Revenue Code and amounts included in gross income under Section 78 of the Internal Revenue Code) with respect to the stock of the same person to whom the interest was paid, accrued, or incurred.