United States: Illinois Resumes Operation Of EDGE And Film Production Incentive Programs, But Tax Credit Payouts Remain Suspended

On November 10, 2015, Illinois Governor Bruce Rauner announced that the Illinois Department of Commerce and Economic Opportunity will immediately resume approvals of the Economic Development for a Growing Economy (EDGE) Tax Credit and the Film Production Tax Credit. In addition, the Department of Commerce will commence certification of 49 enterprise zones that will become effective January 1, 2016.1 Although these three specific programs are now available, the grant programs under the control of the Department of Commerce will remain suspended until the state's FY16 budget is enacted.

EDGE Tax Credit Overview

The EDGE Tax Credit is Illinois' main incentive program to attract and keep businesses in the state.2 The EDGE Tax Credit is a non-refundable corporate income tax credit based on capital investment and job creation. The annual income tax credit is equal to a percentage of the new income tax withholdings generated by the new jobs for a 10-year period.3 The program typically requires a minimum investment of $5 million in capital improvements and the creation of at least 25 new, full-time jobs.4 Companies relocating within Illinois may be eligible for the program if there is a documented and substantiated business reason why their current location is inadequate.5

As communicated in the Governor's announcement, the Governor's administration has taken steps through policy changes to the EDGE Tax Credit in an effort to "ensure a more fiscally-responsible approach to EDGE agreements." The state will no longer provide tax credits for job retention projects. All projects to be prospectively considered for the Illinois EDGE tax credit must result in the net creation of new jobs and capital investment. There is also a new baseline test for earning the tax credit. Historically, tax credits were earned using the baseline of employees located at the project site. Tax credits will now be earned on the jobs created over the baseline of employees located within the state. Finally, each project site will no longer be able to earn more than one tax credit at a time. Given these policy changes, the Governor's announcement allows the Department of Commerce to offer EDGE credits to companies following outreach and negotiations, confirm eligibility and enter into tax credit agreements. However, following an executed tax credit agreement, even if a company were to meet its obligations, the Department of Commerce will not certify any EDGE Tax Credits for those new projects until the Illinois FY16 budget is enacted.

Film Production Tax Credit Overview

The Film Production Tax Credit is Illinois' incentive to attract the film industry to promote growth and job opportunities.6 The tax credit is a non-refundable corporate income tax credit equal to 30 percent of the film production spending and film production labor in Illinois, plus 15 percent of Illinois labor expenditures generated by employing residents located in high-poverty or high-unemployment areas.7 The tax credit is currently due to sunset in May 2021.8 Like the EDGE credits, the Governor's announcement provides that the suspension on certifications for new projects and claims of credits relating to film production will continue until the Illinois FY16 budget is enacted.

Enterprise Zone Overview

The Illinois Enterprise Zone Program is designed to stimulate economic growth and neighborhood revitalization in economically depressed areas of the state.9 Businesses located or expanding in an Illinois enterprise zone may be eligible for an exemption on the retailers' occupation tax paid on building materials,10 and an investment tax credit of 0.5 percent of qualified property.11 Additional exemptions, such as an expanded state sales tax exemption on purchases of personal property used or consumed in the manufacturing process12 or in the operation of a pollution control facility,13 and an exemption on the state utility tax for electricity, natural gas and the Illinois Commerce Commission's administrative charge and telecommunication excise tax14 are available for companies that make the minimum statutory investment that either creates or retains the necessary number of jobs. As mentioned above, the Department of Commerce is expected to recertify the 49 enterprise zones that have submitted an application for recertification.

Businesses within these enterprise zones will be able to continue to realize the benefits mentioned in this section. Among the most prominent enterprise zones to be re-certified include the five enterprise zones in Chicago, two in Rockford and one in Peoria.15

Commentary

While the Governor's announcement means that companies may now apply for these Illinois incentives, the state will not disburse any tax credits until the state's FY16 budget is enacted. Companies that have earned Illinois EDGE Tax Credits must continue to meet their annual compliance reporting requirements as outlined per their Illinois EDGE Tax Credit agreements. Companies considering Illinois for expansion/relocation may initiate negotiations with the Department and submit applications for consideration. Currently, the Governor's Office and the General Assembly are engaged in protracted negotiations for the FY16 budget, with no timeline for when the budget might be completed.

Footnotes

1 "Administration Takes Step Forward on Job Creation Tax Credits," Office of Illinois Governor Bruce Rauner, Nov. 10, 2015.

2 35 ILL. COMP. STAT. 10.

3 35 ILL. COMP. STAT. 10/5-45(a).

4 35 ILL. COMP. STAT. 10/5-20(b)(1).

5 35 ILL. COMP. STAT. 10/5-5 (definition of "applicant").

6 35 ILL. COMP. STAT. 16.

7 35 ILL. COMP. STAT. 16/10 (definition of "credit," (3)).

8 35 ILL. COMP. STAT. 16/42.

9 20 ILL. COMP. STAT. 655.

10 35 ILL. COMP. STAT. 120/5k.

11 35 ILL. COMP. STAT. 5/201(f).

12 35 ILL. COMP. STAT. 120/1d.

13 35 ILL. COMP. STAT. 120/1e.

14 220 ILL. COMP. STAT. 5/9-222.1.

15 The full listing of the Illinois enterprise zones is: Alexander/Pulaski; Bedford Park; Belleville; Bensenville; Boone County; Cal Sag; Canton Fulton County; Champaign City/County; Chicago I; Chicago II; Chicago III; Chicago IV; Chicago V; Cicero; Clinton County; Danville; Decatur/Macon County; DeKalb County; Des Plaines River Valley; Diamond; Edgar County/Paris; Fairmont City/Caseyville; Fairview Heights; Franklin Park; Galesburg; Harvard/Woodstock; Hodgkins/McCook; Kankakee County; Kankakee River Valley; Loves Park/Machesney Park; Macomb/Bushnell; Madison County Discovery; Monmouth Warren County; Mt. Carmel/Wabash County; Mt. Vernon/Waltonville; Nashville/Washington County; Northern Tazewell County; Ottawa Area; Peoria Urban; Quincy/Adams; Riverbend; Rockford EZ 1; Rockford I-90; Southern Tazewell; SW Madison County; Springfield/Sangamon County; Streator Area; Urbana/Champaign County; and Will-Cook County.

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