A parent company was not allowed to amend its Illinois corporate income tax return to treat insurance premium financing subsidiaries as general business corporations. Insurance premium financing companies are considered a “sales finance company,” a type of financial organization under Illinois income tax law.
The taxpayer’s parent company filed three separate Illinois combined unitary business group returns for the tax years in question. One return reported the unitary business group income for general business corporations. One return reported the unitary business group income for insurance companies. And one return reported the unitary business group income for financial organizations. The taxpayer’s subsidiaries provided short term loans to businesses to finance their commercial property and casualty insurance premiums. Those subsidiaries were included in the combined return for the financial organizations. Then, taxpayer filed an amended return recharacterizing those subsidiaries as general business corporations. As a result, the taxpayer had a significant refund claim.
The definition of a “sales finance company” includes the business of making loans for funding purchases of tangible personal property or services by the borrower. The taxpayer claimed that the subsidiaries did not fall under the definition, because insurance contracts are intangible, not tangible property or services.
The definition of a “sales finance company” does not focus on a contract or written agreement that spells out the specific terms of a transaction. Instead, the statute looks to the item being purchased in the underlying sales transaction that is being financed. Accordingly, whether the purchase of insurance is the purchase of intangible property, tangible personal property, or a service controls the definition, not the contract for the purchase of insurance. If the contract for a purchase controlled the definition, then any purchase of tangible personal property or a service under an intangible contract would be excluded from the definition. This reading would render the statutory definition void.
While the definition of “sales finance company” excludes companies which finance the purchase of intangible personal property, it expressly includes companies which finance the purchases of services, which by definition, includes the purchase of services that can be categorized as being intangible. Illinois courts have also recognized the sale of insurance to be a sale of a service.
In this case, clients of the subsidiaries entered agreements with underlying insurance companies who agreed to assume risk and perform in case of insurable loss covered under commercial property and casualty insurance policies. By providing insurance, those insurers provided a service to their clients of assuming risk and, upon loss, indemnifying those clients. It is that service for which the subsidiaries provided financing to the insured clients so they could purchase that service from insurance companies.
Premier Auto Finance, Inc. v. Illinois Department of Revenue, Illinois Independent Tax Tribunal,
No. 15 TT 175, September 7, 2017, ¶403-266