Prior to tax year 2017, under Illinois tax law a unitary business group could not include members that apportion income using different statutory formulas (e.g., financial organizations, insurance, and transportation companies). Starting with the 2017 tax year, all unitary group members must be included in a single group return.
The Illinois Department of Revenue on September 13 published new Regulation 100.3600, which provides guidance for calculating combined apportionment for unitary group members using different apportionment formulas. Additionally, Regulation 100.3380(d) was amended to provide guidance for unitary business groups that include one or more partnerships and one or more partners.
Although the sourcing provisions in these regulations are in line with the instructions to Schedule UB and Subgroup Schedule (UB) that were first issued in 2017, the Department’s use of the general corporation sourcing provisions in the determination of the everywhere sales for each member of the unitary business group’s apportionment percentages for specific industries, such as insurance and transportation businesses, could produce a “distortive” result. Taxpayers should review the impact that these new sourcing rules have on the members of their unitary business group. Greater attention should be given to the make-up of the Illinois group and whether the members are engaged in a unitary business.