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Tax Incentives in Southwestern Illinois

The Illinois EDGE Program

The Illinois Edge Program is a targeted tax incentive program that provides tax credits for businesses that create and/or retain jobs and make capital investments in Illinois. Businesses creating and/or retaining jobs may claim a state income tax credit equal to a portion of the total incremental state income tax generated from jobs created and/or retained in Illinois. This new incentive is designed to help the state of Illinois compete with other states for large job creation or retention projects.

Type of Credits: Illinois EDGE credits are:

calculated from the personal income tax collected on salaries paid for the created and/or retained jobs; and
taken as a non-refundable tax credit against corporate income taxes assessed over a period not to exceed 10 taxable years. (These tax credits can be carried forward for five years).

Project Determination: Responsibility for determining project assistance is as follows:

A new Business Investment Committee of the Illinois Economic Development Board (IEDB) will determine types of projects to be assisted through the Illinois EDGE program; and
the Illinois Department of Commerce and Economic Opportunity (DCEO) will review prospective projects based on a written application submitted by the interested business.

Business Eligibility: EDGE is available to businesses newly locating or expanding in any county in Illinois. (In-state relocation may be eligible under special circumstances as determined by the IEDB and DCEO). Manufacturing, tourism or interstate services (excluding retail and professional services) may apply. To be eligible, firms must add an overall positive impact to the Illinois economy.

Project Eligibility: Businesses must invest at least $5 million in capital improvements and create a minimum of 25 jobs or they must invest in capital expenditures at a level specified by DCEO, create a specified number of jobs and provide a substantial economic benefit to the State as determined by DCEO. Businesses must also certify that the award of the credit is subject to their compliance with all legal and other requirements including the taxpayer's execution of a Tax Credit Agreement acceptable to DCEO.

Proof of Competitive Need: Interested applicants must demonstrate that:

the project is economically sound and increases employment opportunities in Illinois; and
that "but for" the inducement, the project would not occur in Illinois.

Proof of Cost Differential: Interested applicants must demonstrate that:

a cost differential or incentive differential exists in relation to a competing state location; and
the project provides an overall positive fiscal impact to Illinois.

Limits on the Tax Credits: Credits can not:

exceed the corporate income tax of the business (credits can be carried forward for 5 years);
exceed the personal income tax collected on salaries paid for the newly hired and/or retained jobs; and
exceed costs incurred by the applicant for its project.

Business Guarantees: To keep the tax benefits, businesses must:

maintain their operations in place in Illinois during the entire term of the Tax Credit Agreement; and
maintain the investment and the jobs outlined in the Tax Credit Agreement.

For more information, contact the Department of Commerce and Economic Opportunity

at (312) 814-7179, or visit www.commerce.state.il.us/dceo.

Southwestern Illinois Enterprise Zones

Southwestern Illinois has a number of areas that have been designated as enterprise zones. This designation, by the State of Illinois and participating municipalities, provides special tax incentives to encourage businesses to locate, expand and retain their operations within the enterprise zones.

Madison County

The Gateway Commerce Center Enterprise Zone, which was designated through the assistance of the Southwestern Illinois Development Authority (SWIDA), is comprised of portions of the city of Edwardsville, village of Pontoon Beach and unincorporated Madison County.
The Riverbend Enterprise Zone is comprised of portions of the cities of Alton, Bethalto, East Alton, Hartford, Wood River, Roxana, South Roxana, and parts of unincorporated Madison County.
The Southwestern Madison County Enterprise Zone is comprised of portions of Granite City, Madison, Venice, and parts of unincorporated Madison County.

St. Clair County

The American Bottoms Enterprise Zone includes portions of Sauget, Cahokia, Dupo and unincorporated St. Clair County.
The Greater East St. Louis Enterprise Zone is comprised of portions of East St. Louis, Washington Park, Alorton and Centreville.
The Belleville Enterprise Zone includes a portion of Belleville.
The St. Clair County MidAmerica Enterprise Zone is comprised of portions of Mascoutah, Lebanon, O’Fallon, Shiloh and unincorporated St. Clair County.

Incentives within these enterprise zones may include the following:

Property Tax Abatement: Property owners that improve or renovate industrial, commercial, or manufacturing property within the zones (and not within Tax Increment Financing Districts) are eligible to receive property tax abatement on the assessed value of the improvements. To receive this abatement, property owners must obtain a building permit and complete a Project Information Form describing the project.

Sales Tax Exemption: A 6.5 percent State sales tax exemption for building materials used to improve or renovate real property within the Enterprise Zones is available to individuals or businesses that purchase their building materials from retailers or suppliers located within the participating local governments comprising a Zone. To receive this sales tax exemption, the individual or business must provide the participating local supplier with a form called a "Purchaser Statement" that identifies their renovation or improvement project as being within the Enterprise Zone.

Enterprise Zone Machinery and Equipment Exemption: A 6.25 percent state sales tax exemption is available for purchases of tangible personal property to be used or consumed in the manufacturing or assembly process or in the operation of a pollution control facility within an enterprise zone. Eligibility for this exemption is contingent upon a business making a $5 million investment which causes the creation of 200 full-time equivalent jobs in Illinois, an investment of $40 million for the retention of 2,000 full-time jobs in Illinois, or an investment of $40 million and retaining 90 percent of the present jobs. The majority of the jobs created or retained must be located in the enterprise zone in which the investment occurs. A business must complete an application and be certified by the Illinois Department of Commerce and Economic Opportunity (DCEO) to be eligible for this incentive. This sales tax exemption is applicable to the following:

Hand tools used to maintain, repair, or operate machinery and equipment;
Abrasives, acids, polishing compounds, or lubricants used or consumed in the manufacturing or assembly process;
Coolants, adhesives, solvents, or cleaning compounds used to maintain, repair, or operate machinery and equipment;
Manufacturing fuels;
Protective clothing and safety equipment; and
Fuels, chemicals, and catalysts used in the operation of pollution control facilities.

Utility Tax Exemption: A state utility tax exemption on gas, electricity, and the Illinois Commerce Commission's administrative charge is available to businesses located in enterprise zones. Eligibility for this exemption is contingent upon a business making a $5 million investment which causes the creation of 200 full-time equivalent jobs in Illinois or an investment of $20 million for the retention of 1,000 full-time jobs in Illinois. The majority of the jobs created or retained must be located in the enterprise zone in which the investment occurs.

A business must complete an application to and be certified by DCEO to be eligible for the state utility tax exemption.

Investment Tax Credit: A state investment tax credit of .5 percent is allowed to a taxpayer that invests in qualified property in an enterprise zone. Qualified property includes machinery, equipment, and buildings. The credit may be carried forward for up to five years. This credit is in addition to the regular .5 percent investment tax credit that is available throughout the state as well as a .5 percent credit for taxpayers who increase their employment in Illinois by one percent over the preceding year.

Divided Subtraction: Individuals, corporations, trusts, and estates can deduct from their taxable earnings an amount equal to the dividends paid by a corporation that conducts substantially all of its operations in an enterprise zone.

Job Tax Credit: Employers that operate businesses within the enterprise zone and expand their operations to hire at least five additional "economically disadvantaged or dislocated workers" are eligible to receive a $500 State tax credit for each eligible employee that they hire to work within the enterprise zone.

Interest Deductions on Loans: Financial institutions may deduct from their State income tax an amount equal to the interest received from a loan for development in an enterprise zone. The loan must be secured by "qualified property" in an enterprise zone, and the business must be receiving an investment tax credit.

Enterprise Zone Financing Program: Businesses located within enterprise zones may apply for Illinois Department of Commerce and Economic Opportunity (DCEO) participation loans to fund their new projects. Participation loans for 25% of a business's project costs up to $750,000 are available at either fixed or variable rates that are priced 200 basis points below the Wall Street Journal Prime rate. DCEO will allow the participating financial institution to retain 50 basis points to cover the costs of servicing the loan or it may elect to pass along the 50 basis points to the borrower. DCEO's term shall match that of the participating bank, but in no event shall DCEO funds be amortized longer than 10 years unless there is a balloon payment provision. Ineligible uses of funds are debt refinancing and contingency funding. Eligible businesses include any for profit entity with less than 500 employees (or not dominant in its field) locating or expanding in an Enterprise Zone. There are no industry restrictions or job creation/retention requirements under this program. Participating financial institutions must enter into a Master Participation Agreement, which outlines all terms, and conditions of any loan participation between the financial institution and DCEO.

For more information on a specific enterprise zone, contact:

Terry Beach, Director John Herzog St. Clair County Economic Development Dept. Madison County Community Development

St. Clair County Building 130 Hillsboro Ave.

10 Public Square, Room A-300 -OR- Edwardsville, IL 62025

Belleville, IL 62220 618-692-7040, ext. 4386

618-277-6600, ext. 2672 618-692-7022, fax

618-825-2745, fax jjherzog@co.madison.il.us tbeach@co.st-clair.il.us

Illinois Tax Increment Financing Program (TIF)

Tax increment financing (TIF) is a planning and financing technique used by Illinois municipalities, including a number of Southwestern Illinois municipalities, to carry out development activities on a local basis. This program allows a municipality to acquire and prepare property for development and make needed public improvements. TIF districts allow a municipality to capture the increase or growth in local property taxes resulting from a redevelopment project. This property tax increase or growth (the "tax increment") is captured and used by the municipality to help pay for the public costs associated with the redevelopment project.

Through TIF districts, the assessed valuation of real estate within a "blighted", "conservation" or "industrial park" project area is frozen. This base amount (taxes that are normally levied on real estate) continues to be disbursed to the taxing bodies serving the TIF area (e.g. county government, school district, and township). However, the growth in property tax revenues generated in the TIF, over and above the base amount, is diverted to a special tax allocation fund established by the municipality. The municipality can utilize the TIF funds for: demolition or rehabilitation of existing buildings; clearing and grading of land; construction costs of public infrastructure improvements and capital costs; bond financing costs incurred by the municipality; interest costs incurred by a redeveloper; planning, architectural, engineering, legal and other services; training costs of a business' employees within the redevelopment area; property assembly costs and occupant relocation costs; and staffing costs to implement and administer the redevelopment plan.

The municipality can continue to divert the tax increment until all costs related to the redevelopment project are paid, or for 23 years, whichever comes first. The municipality can use the tax increment revenue to pay for eligible project costs on a pay-as-received basis or to provide a basis for issuing tax-exempt bonds to pay for the costs.

Tax increment financing is locally initiated and administered. No Federal approval is required. Local units of government must: determine that the proposed TIF area is either "blighted", a "conservation area," or an "industrial park conservation area;" develop a redevelopment plan for the area; structure a related financing plan for the redevelopment activities; conduct a public hearing on the proposed TIF designation of the area; establish a joint review board comprised of the various taxing bodies; formally enact an ordinance designating the redevelopment project area; approve a redevelopment plan and project; and adopt tax increment financing.

Foreign Trade Zone #31

The Tri-City Regional Port District located at Granite City, Illinois is the grantee and license holder for General Purpose Foreign Trade Zone (FTZ) #31. Foreign Trade Zones are sites within the United States where foreign and domestic merchandise is generally considered to be in international commerce. Foreign or domestic merchandise may enter this enclave without a formal customs entry or the payment of custom duties or government excise taxes. Merchandise entering a zone may be: stored; tested; sampled; labeled; repackaged; displayed; repaired; manipulated; mixed; cleaned; assembled; manufactured; salvaged; destroyed or processed.

If the final product is exported from the USA, no U.S. Customs duty or excise tax is levied. If, however, the final product is imported into the U.S., Custom duty and excise taxes are due only at the time of transfer from the FTZ and formal entry into the U.S. The duty paid is the lower of that applicable to the product itself or its component parts. Thus, foreign trade zones provide opportunities to realize customs duty savings. In addition, foreign trade zone procedures provide one of the most flexible methods of handling domestic and imported merchandise.

Manufacturing businesses use foreign trade zones to maintain the cost competitiveness of their U.S. based operations, as compared with their foreign based competitors. For a business, FTZ status provides an opportunity to reduce certain operating costs associated with a U.S. operation that are avoided when operating from a foreign site. Should a business determine that FTZ designation would assist its location and operation in Southwestern Illinois, the Tri-City Regional Port District will work with the company to facilitate its use of the Foreign Trade Zone.

Illinois Replacement Tax Investment Credit Program

Firms in Illinois can receive an investment tax credit against Illinois Personal Property Replacement Income Tax for the purchase of qualified property, (including buildings and equipment) used in manufacturing, mining or retail businesses. The tax credit is equal to one-half of one percent (0.5 percent) of the adjusted basis of tangible new or used property with a useful life of four years or more.

An additional 0.5 percent tax credit is available for any year in which the firm's base employment increases by one percent or more over the preceding year. If the increased employment is less than one percent, the additional credit will be reduced proportionately.

Illinois Property Tax Abatement Program

Any industrial or commercial firm may receive up to $3 million per project through an abatement of all or part of property taxes to any Illinois taxing district for up to ten years if it meets one of the following conditions and the local taxing district determines that it wants to provide the abatement:

The firm located within the taxing district during the preceding calendar year from out of state or from another country;
The firm was newly created in Illinois during the past year and proposes to, or has located an industrial or commercial operation in the taxing district; or
The firm expands a previously existing facility in the taxing district.

Illinois High Impact Business Program

The "Illinois Enterprise Zone Act" authorizes the Department of Commerce and Economic Development to designate qualified businesses located outside of Enterprise Zones as "High Impact Businesses." The "Illinois Income Tax Act," "Retailers' Occupation Tax Act," and the "Public Utilities Act" make the High Impact Business eligible for an investment tax credit, an exemption from state utility taxes and a state sales tax exemption on the purchases of tangible personal property to be used or consumed in the manufacturing or assembly process or in the operation of a pollution control facility.

A designated High Impact Business located in a foreign trade zone or sub-zone is eligible for additional incentives including sales tax exemptions on building materials, an income tax credit for the creation of a minimum of five eligible jobs, an exemption from municipal tax on utilities, and an income tax deduction for financial institutions receiving interest from loans secured by property eligible for the High Impact Business Investment Tax Credit.

The designation as a High Impact Business is contingent on the business undertaking a "large- scale investment and development project." The project must be the result of a minimum of a $12 million investment causing the creation of 500 full-time-equivalent jobs or an investment of $30 million causing the retention of 1,500 full-time jobs. The investment must take place at a designated location in Illinois in which the High Impact Business is located.

Sales/Use Tax Exemptions

Illinois provides the following major exemptions from sales/use taxes:

manufacturing machinery, as well as replacement parts and computers used to control manufacturing machinery;
farm machinery; and
pollution control facilities any system, devices or appliance sold to prevent or reduce air and water pollution or pre-treat a potential pollutant.

Manufacturers' Purchase Credits

In addition to being exempt from the sales tax in Illinois, purchasers of manufacturing machinery receive a credit equal to 25 percent of what the taxes would have been if the manufacturing machinery was taxable. Manufacturers may use this credit to offset any other sales tax liability they would otherwise have to pay in the ordinary course of business.

Training Expense and Research and Development Tax Credits

Illinois allows a credit of 1.6 percent for training expenses. These expenses include educational or vocational training in semi-technical, technical, semi-skilled and skilled fields if those amounts were deducted from gross income in the computation of taxable income. Taxpayers must incur these expenses while training employees working in the state, or Illinois residents working outside the state.

Corporate taxpayers may also take a 6.5 percent credit against corporate income taxes for qualified expenditures that are used for increasing research activities in Illinois.