Illinois Appellate Court Holds Trucking Company Must Include Pass-Through Miles In Apportionment Factor Numerator

On September 30, the Illinois Appellate Court held that a trucking company's apportionment factor numerator must include miles driven through Illinois without picking up or delivering goods (pass-through miles).1 For the tax years in dispute, the Illinois apportionment statute for transportation services provided the numerator of the apportionment factor must be the "revenue miles of the person in this State." The Court concluded the pass-through miles were "in this State" because the taxpayer's trucks and employees maintained a physical and economic presence while driving through Illinois.

Background

In 2009, the Illinois Department of Revenue audited the taxpayer, an interstate trucking company, for the 2005 through 2007 tax years. Following the audit, the Department issued a notice of proposed deficiency claiming the taxpayer failed to include passthrough miles in the numerator of the apportionment factor as required by Illinois law. The Department's Informal Conference Board decided that no amendments would be made to the Department's proposed tax adjustment. After timely paying the assessment under protest, the taxpayer filed a complaint with the circuit court seeking a preliminary injunction, abatement of penalty fees and interest, and a determination that the income tax was erroneously assessed. The circuit court granted the taxpayer's preliminary injunction restraining the Department for transferring the taxpayer's payment out of the protest fund until there was a final disposition in the case.

The taxpayer subsequently filed a motion for summary determination that sought a ruling on whether the Department used the proper method to apportion income to Illinois. The circuit court granted the taxpayer's motion and held that the Department could not tax pass-through miles under the apportionment statute for transportation services that was in effect for taxable years ending before December 31, 2008. The Department timely appealed the circuit court's decision.

Illinois Apportionment Statute

For taxable years ending before December 31, 2008, Illinois law provided that business income derived from furnishing transportation services was apportioned to the state "by multiplying 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."2 For taxable years ending on or after December 31, 2008, the legislature added a new statutory subsection providing that business income derived from transportation services...