On November 17, the Illinois Joint Committee on Administration Rules approved a proposed regulation promulgated by the Illinois Department of Revenue (Department) implementing statutory changes to the apportionment formula for business income derived from providing transportation services. The changes are effective for tax years ending on or after December 31, 2008. See Prop. 86 Ill. Admin. Code § 100.3450 (Regulation).
The Regulation reflects recent statutory changes made to the apportionment formulas for both non-airline and airline transportation services. See 35 ILCS 5/304(d). It provides definitions of key terms, including “revenue mile” and “In this State.”
As finalized, the Regulation incorporates certain industry comments to the Department’s initial draft of the Regulation (See TFI comments) by adding a definition of “freight” and deleting language that created inconsistency in the definition of “revenue mile.” The Regulation does not reflect taxpayer criticisms of the language regarding the “transaction-by-transaction” approach in subpart (b)(4). This subpart states that in a “transaction” where a taxpayer transports a passenger or freight both by air and otherwise, gross receipts from airline services is equal to the portion of the total gross receipts from the “transaction” that is representative of airline miles or “any other reasonable method supported by … books and records.” In many cases in the transportation industry, tracking revenue on a transactional basis and per mode of transportation is not practical and is not an industry norm. Nor is it required by statute. Although the regulatory provision’s allowance of “any other reasonable method” could be helpful, its ambiguity provides little certainty to taxpayers regarding what alternative methodology would be acceptable to the Department.