HB5570 94TH GENERAL ASSEMBLY

LRB094 15719 BDD 54747 b

94TH GENERAL ASSEMBLY
State of Illinois
2005 and 2006
HB5570

Introduced 2/3/2006, by Rep. Kurt M. Granberg

SYNOPSIS AS INTRODUCED:

20 ILCS 715/25
35 ILCS 5/216 new
35 ILCS 10/5-5
35 ILCS 10/5-55
35 ILCS 10/5-60
35 ILCS 10/5-65
35 ILCS 10/5-95 new

Amends the Economic Development for a Growing Economy Tax Credit Act. Creates an alternate credit under the Act for taxpayers who agree to create new full-time employment positions by: (i) locating or expanding operations in a depressed area of the State; or (ii) relocating operations into the State from another state or country. Sets forth requirements for the application and award of the alternate credit. Provides that a taxpayer who has been awarded the alternate credit may sell the credit in the secondary financial markets with 100% of the proceeds of the sale by the applicant to be used to offset the costs of the project. Amends the Corporate Accountability for Tax Expenditures Act and the Illinois Income Tax Act to make corresponding changes. Effective immediately.

FISCAL NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning revenue.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. The Corporate Accountability for Tax Expenditures Act is amended by changing Section 25 as follows:

(20 ILCS 715/25)

Sec. 25. Recapture.

(a) All development assistance agreements shall contain, at a minimum, the following recapture provisions:

(1) The recipient must (i) make the level of capital investment in the economic development project specified in the development assistance agreement; (ii) create or retain, or both, the requisite number of jobs, paying not less than specified wages for the created and retained jobs, within and for the duration of the time period specified in the legislation authorizing, or the administrative rules implementing, the development assistance programs and the development assistance agreement.

(2) If the recipient fails to create or retain the requisite number of jobs within and for the time period specified, in the legislation authorizing, or the administrative rules implementing, the development assistance programs and the development assistance agreement, the recipient shall be deemed to no longer qualify for the State economic assistance and the applicable recapture provisions shall take effect.

(3) If the recipient receives State economic assistance in the form of a High Impact Business designation pursuant to Section 5.5 of the Illinois Enterprise Zone Act and the business receives the benefit of the exemption authorized under Section 5l of the Retailers' Occupation Tax Act (for the sale of building materials incorporated into a High Impact Business location) and the recipient fails to create or retain the requisite number of jobs, as determined by the legislation authorizing the development assistance programs or the administrative rules implementing such legislation, or both, within the requisite period of time, the recipient shall be required to pay to the State the full amount of the State tax exemption that it received as a result of the High Impact Business designation.

(4) If the recipient receives a grant or loan pursuant to the Large Business Development Program, the Business Development Public Infrastructure Program, or the Industrial Training Program and the recipient fails to create or retain the requisite number of jobs for the requisite time period, as provided in the legislation authorizing the development assistance programs or the administrative rules implementing such legislation, or both, or in the development assistance agreement, the recipient shall be required to repay to the State a pro rata amount of the grant; that amount shall reflect the percentage of the deficiency between the requisite number of jobs to be created or retained by the recipient and the actual number of such jobs in existence as of the date the Department determines the recipient is in breach of the job creation or retention covenants contained in the development assistance agreement. If the recipient of development assistance under the Large Business Development Program, the Business Development Public Infrastructure Program, or the Industrial Training Program ceases operations at the specific project site, during the 5-year period commencing on the date of assistance, the recipient shall be required to repay the entire amount of the grant or to accelerate repayment of the loan back to the State.

(5) If the recipient receives a tax credit under the Economic Development for a Growing Economy tax credit program, the development assistance agreement must provide that (i) if the number of new or retained employees falls below the requisite number set forth in the development assistance agreement, the allowance of the credit shall be automatically suspended until the number of new and retained employees equals or exceeds the requisite number in the development assistance agreement; (ii) if the recipient discontinues operations at the specific project site during the first 5 years of the 10-year term of the development assistance agreement, the recipient shall forfeit all credits taken by the recipient during such 5-year period; and (iii) in the event of a revocation or suspension of the credit, the Department shall contact the Director of Revenue to initiate proceedings against the recipient to recover wrongfully exempted Illinois State income taxes and the recipient shall promptly repay to the Department of Revenue any wrongfully exempted Illinois State income taxes. The forfeited amount of credits shall be deemed assessed on the date the Department contacts the Department of Revenue and the recipient shall promptly repay to the Department of Revenue any wrongfully exempted Illinois State income taxes.

(6) If the recipient receives an alternate tax credit under Section 5-95 of the Economic Development for a Growing Economy Tax Credit Act, then the development assistance agreement must provide, in addition to the requirements set forth under item (5), that if the recipient has sold the credit in the secondary financial markets and the recipient defaults on its obligations under the agreement, then the credit shall remain valid in the hands of the purchaser, but the Department shall contact the Director of Revenue to initiate proceedings against the recipient to recover the entire amount of the alternate credit, and the recipient must promptly pay to the Department of Revenue the entire amount of the alternate credit.

(b) The Director may elect to waive enforcement of any contractual provision arising out of the development assistance agreement required by this Act based on a finding that the waiver is necessary to avert an imminent and demonstrable hardship to the recipient that may result in such recipient's insolvency or discharge of workers. If a waiver is granted, the recipient must agree to a contractual modification, including recapture provisions, to the development assistance agreement. The existence of any waiver granted pursuant to this subsection (c), the date of the granting of such waiver, and a brief summary of the reasons supporting the granting of such waiver shall be disclosed consistent with the provisions of Section 25 of this Act.

(c) Beginning June 1, 2004, the Department shall annually compile a report on the outcomes and effectiveness of recapture provisions by program, including but not limited to: (i) the total number of companies that receive development assistance as defined in this Act; (ii) the total number of recipients in violation of development agreements with the Department; (iii) the total number of completed recapture efforts; (iv) the total number of recapture efforts initiated; and (v) the number of waivers granted. This report shall be disclosed consistent with the provisions of Section 20 of this Act.

(d) For the purposes of this Act, recapture provisions do not include the Illinois Department of Transportation Economic Development Program, any grants under the Industrial Training Program that are not given as an incentive to a recipient business organization, or any successor programs as described in the term "development assistance" in Section 5 of this Act.

(Source: P.A. 93-552, eff. 8-20-03.)

Section 10. The Illinois Income Tax Act is amended by adding Section 216 as follows:

(35 ILCS 5/216 new)

Sec. 216. Economic Development for a Growing Economy Alternate Tax Credit.

(a) For tax years ending on or after December 31, 2006, a taxpayer who has entered into an agreement under Section 5-95 the Economic Development for a Growing Economy Tax Credit Act is entitled to a credit against the taxes imposed under subsections (a) and (b) of Section 201 of this Act in an amount to be determined in the agreement.

(b) The credit is subject to the conditions set forth in the agreement and the following limitations:

(1) the tax credit may not exceed the Incremental Income Tax (as defined in Section 5-5 of the Economic Development for a Growing Economy Tax Credit Act) with respect to the project;

(2) the amount of the credit allowed during the tax year plus the sum of all amounts allowed in prior years may not exceed 100% of the aggregate amount expended by the taxpayer during all prior tax years on approved costs defined by agreement; and

(3) the amount of the credit must be determined on an annual basis. Except as applied in a carryover year under subsection (c), the credit may not be applied against any State income tax liability in more than 10 taxable years.

(c) The credit may not exceed the amount of taxes imposed pursuant to subsections (a) and (b) of Section 201 of this Act. Any credit that is unused in the year the credit is computed may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year. The credit shall be applied to the earliest year for which there is a tax liability. If there are credits from more than one tax year that are available to offset a liability, the earlier credit must be applied first.

(d) Unless the credit has been sold under subsection (g) of Section 5-95 of the Economic Development for a Growing Economy Tax Credit Act, no credit is allowed with respect to any agreement for any taxable year ending after the Noncompliance Date. Upon receiving notification by the Department of Commerce and Economic Opportunity of the noncompliance of a taxpayer with an agreement, the Department shall notify the taxpayer that no credit is allowed with respect to that agreement for any taxable year ending after the Noncompliance Date, as stated in the notification. If any credit has been allowed with respect to an agreement for a taxable year ending after the Noncompliance Date for that agreement, any refund paid to the taxpayer for that taxable year is, to the extent of that credit allowed, an erroneous refund within the meaning of Section 912 of this Act.

(e) If the taxpayer is a partnership or Subchapter S corporation, the credit shall be allowed to the partners or shareholders in accordance with the determination of income and distributive share of income under Sections 702 and 704 and subchapter S of the Internal Revenue Code.

(f) The Department, in cooperation with the Department of Commerce and Economic Opportunity, shall prescribe rules to enforce and administer the provisions of this Section. The rules must include, without limitation, procedures to allow a taxpayer who has been awarded the credit to sell the credit in the secondary financial markets with 100% of the proceeds of the sale by the applicant to be used to offset the costs of the project under the agreement.

(g) This Section is exempt from the provisions of Section 250 of this Act.

Section 15. The Economic Development for a Growing Economy Tax Credit Act is amended by changing Section 5-5, 5-55, 5-60, and 5-65 and by adding Section 5-95 as follows:

(35 ILCS 10/5-5)

Sec. 5-5. Definitions. As used in this Act:

"Agreement" means the Agreement between a Taxpayer and the Department under the provisions of Section 5-50 of this Act.

"Applicant" means a Taxpayer that is operating a business located or that the Taxpayer plans to locate within the State of Illinois and that is engaged in interstate or intrastate commerce for the purpose of manufacturing, processing, assembling, warehousing, or distributing products, conducting research and development, providing tourism services, or providing services in interstate commerce, office industries, or agricultural processing, but excluding retail, retail food, health, or professional services. "Applicant" does not include a Taxpayer who closes or substantially reduces an operation at one location in the State and relocates substantially the same operation to another location in the State. This does not prohibit a Taxpayer from expanding its operations at another location in the State, provided that existing operations of a similar nature located within the State are not closed or substantially reduced. This also does not prohibit a Taxpayer from moving its operations from one location in the State to another location in the State for the purpose of expanding the operation provided that the Department determines that expansion cannot reasonably be accommodated within the municipality in which the business is located, or in the case of a business located in an incorporated area of the county, within the county in which the business is located, after conferring with the chief elected official of the municipality or county and taking into consideration any evidence offered by the municipality or county regarding the ability to accommodate expansion within the municipality or county.

"Committee" means the Illinois Business Investment Committee created under Section 5-25 of this Act within the Illinois Economic Development Board.

"Credit" means the amount agreed to between the Department and Applicant under this Act, but not to exceed the Incremental Income Tax attributable to the Applicant's project. "Credit" does not include the alternate credit set forth under Section 5-95.

"Department" means the Department of Commerce and Economic Opportunity Community Affairs.

"Director" means the Director of Commerce and Economic Opportunity Community Affairs.

"Full-time Employee" means an individual who is employed for consideration for at least 35 hours each week or who renders any other standard of service generally accepted by industry custom or practice as full-time employment.

"Incremental Income Tax" means the total amount withheld during the taxable year from the compensation of New Employees under Article 7 of the Illinois Income Tax Act arising from employment at a project that is the subject of an Agreement.

"New Employee" means:

(a) A Full-time Employee first employed by a Taxpayer in the project that is the subject of an Agreement and who is hired after the Taxpayer enters into the tax credit Agreement.

(b) The term "New Employee" does not include:

(1) an employee of the Taxpayer who performs a job that was previously performed by another employee, if that job existed for at least 6 months before hiring the employee;

(2) an employee of the Taxpayer who was previously employed in Illinois by a Related Member of the Taxpayer and whose employment was shifted to the Taxpayer after the Taxpayer entered into the tax credit Agreement; or

(3) a child, grandchild, parent, or spouse, other than a spouse who is legally separated from the individual, of any individual who has a direct or an indirect ownership interest of at least 5% in the profits, capital, or value of the Taxpayer.

(c) Notwithstanding paragraph (1) of subsection (b), an employee may be considered a New Employee under the Agreement if the employee performs a job that was previously performed by an employee who was:

(1) treated under the Agreement as a New Employee; and

(2) promoted by the Taxpayer to another job.

(d) Notwithstanding subsection (a), the Department may award Credit to an Applicant with respect to an employee hired prior to the date of the Agreement if:

(1) the Applicant is in receipt of a letter from the Department stating an intent to enter into a credit Agreement;

(2) the letter described in paragraph (1) is issued by the Department not later than 15 days after the effective date of this Act; and

(3) the employee was hired after the date the letter described in paragraph (1) was issued.

"Noncompliance Date" means, in the case of a Taxpayer that is not complying with the requirements of the Agreement or the provisions of this Act, the day following the last date upon which the Taxpayer was in compliance with the requirements of the Agreement and the provisions of this Act, as determined by the Director, pursuant to Section 5-65.

"Pass Through Entity" means an entity that is exempt from the tax under subsection (b) or (c) of Section 205 of the Illinois Income Tax Act.

"Related Member" means a person that, with respect to the Taxpayer during any portion of the taxable year, is any one of the following:

(1) An individual stockholder, if the stockholder and the members of the stockholder's family (as defined in Section 318 of the Internal Revenue Code) own directly, indirectly, beneficially, or constructively, in the aggregate, at least 50% of the value of the Taxpayer's outstanding stock.

(2) A partnership, estate, or trust and any partner or beneficiary, if the partnership, estate, or trust, and its partners or beneficiaries own directly, indirectly, beneficially, or constructively, in the aggregate, at least 50% of the profits, capital, stock, or value of the Taxpayer.

(3) A corporation, and any party related to the corporation in a manner that would require an attribution of stock from the corporation to the party or from the party to the corporation under the attribution rules of Section 318 of the Internal Revenue Code, if the Taxpayer owns directly, indirectly, beneficially, or constructively at least 50% of the value of the corporation's outstanding stock.

(4) A corporation and any party related to that corporation in a manner that would require an attribution of stock from the corporation to the party or from the party to the corporation under the attribution rules of Section 318 of the Internal Revenue Code, if the corporation and all such related parties own in the aggregate at least 50% of the profits, capital, stock, or value of the Taxpayer.

(5) A person to or from whom there is attribution of stock ownership in accordance with Section 1563(e) of the Internal Revenue Code, except, for purposes of determining whether a person is a Related Member under this paragraph, 20% shall be substituted for 5% wherever 5% appears in Section 1563(e) of the Internal Revenue Code.

"Taxpayer" means an individual, corporation, partnership, or other entity that has any Illinois Income Tax liability.

(Source: P.A. 91-476, eff. 8-11-99; 92-651, eff. 7-11-02; revised 12-6-03.)

(35 ILCS 10/5-55)

Sec. 5-55. Certificate of verification; submission to the Department of Revenue. A Taxpayer claiming a Credit or alternate credit under this Act shall submit to the Department of Revenue a copy of the Director's certificate of verification under this Act for the taxable year. However, failure to submit a copy of the certificate with the Taxpayer's tax return shall not invalidate a claim for a Credit or alternate credit.

For a Taxpayer to be eligible for a certificate of verification, the Taxpayer shall provide proof as required by the Department prior to the end of each calendar year, including, but not limited to, attestation by the Taxpayer that:

(1) The project has substantially achieved the level of new full-time jobs specified in its Agreement.

(2) The project has substantially achieved the level of annual payroll in Illinois specified in its Agreement.

(3) The project has substantially achieved the level of capital investment in Illinois specified in its Agreement.

(Source: P.A. 91-476, eff. 8-11-99.)

(35 ILCS 10/5-60)

Sec. 5-60. Pass through entity.

(a) The shareholders or partners of a Taxpayer that is a Pass Through Entity shall be entitled to the Credit or alternate credit allowed under the Agreement.

(b) The Credit or alternate credit provided under subsection (a) is in addition to any Credit or alternate credit to which a shareholder or partner is otherwise entitled under a separate Agreement under this Act. A Pass Through Entity and a shareholder or partner of the Pass Through Entity may not claim more than one Credit or alternate credit under the same Agreement.

(Source: P.A. 91-476, eff. 8-11-99.)

(35 ILCS 10/5-65)

Sec. 5-65. Noncompliance; notice; assessment. If the Director determines that a Taxpayer who has received a Credit or alternate credit under this Act is not complying with the requirements of the Agreement or all of the provisions of this Act, the Director shall provide notice to the Taxpayer of the alleged noncompliance, and allow the Taxpayer a hearing under the provisions of the Illinois Administrative Procedure Act. If, after such notice and any hearing, the Director determines that a noncompliance exists, the Director shall issue to the Department of Revenue notice to that effect, stating the Noncompliance Date.

(Source: P.A. 91-476, eff. 8-11-99.)

(35 ILCS 10/5-95 new)

Sec. 5-95. Alternate credit.

(a) For taxable years ending on or after December 31, 2006, each taxpayer who has entered into an agreement with the Department under this Section is entitled to a credit against the tax imposed under subsections (a) and (b) of Section 201 of the Illinois Income Tax Act in the amount set forth under the terms of the agreement.

(b) To be eligible for a credit under this Section, a taxpayer must agree to create new full-time employment positions by: (i) locating or expanding operations in a depressed area of the State; or (ii) relocating operations into the State from another state or country.

To be eligible for a credit under this Section for locating or expanding operations in a depressed area of the State, the taxpayer must:

(1) relocate to or expand its operations in a geographic area within the State where the average unemployment rate over the last 5 years is 105% or more above the national average; and

(2) the project must involve an investment of at least $500,000 in capital improvements to be placed in service within the depressed area and result in the employment of at least 25 new full-time employees.

To be eligible for a credit under this Section for relocating operations into the State from another state or country, the project must involve an investment of at least $5,000,000 in capital improvements to be placed in service within the State and result in the employment of at least 100 new full-time employees.

(c) To receive the credit under this Section, the taxpayer must apply to the Department in the form and manner required by the Department. The Department must review the applications under this Section using substantially the same procedures set forth under Section 5-25.

(d) The credit under this Section is subject to the limitations set forth under Sections 5-30 and 5-35.

(e) The Department shall determine the amount and duration of the alternate credit awarded under this Section. In determining the amount of the alternate credit under this Section, the Department must consider the factors set forth under Section 5-40. The duration of the credit may not exceed 10 taxable years. The credit may be stated as a percentage of the Incremental Income Tax attributable to the applicant's project and may include a fixed dollar limitation.

(f) The Department shall enter into an agreement with an applicant that is awarded an alternate credit under this Section. The contents of the agreement must be substantially similar to the requirements set forth under Section 5-50.

(g) The Department, in cooperation with the Department of Revenue, must adopt rules to allow a taxpayer who has been awarded a credit under this Section to sell the credit in the secondary financial markets with 100% of the proceeds of the sale by the applicant to be used to offset the costs of the project. The rulemaking for any rule required under this subsection (g) must be initiated under Section 5-40 of the Illinois Administrative Procedures Act within 120 days after the effective date of this amendatory Act of the 94th General Assembly.

Section 99. Effective date. This Act takes effect upon becoming law.