Illinois General Assembly - Full Text of HB2204
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Full Text of HB2204  103rd General Assembly




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1    AN ACT concerning State government.
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
4    Section 1. Short title. This Act may be cited as the
5Hydrogen Fuel Replacement Tax Credit Act.
6    Section 5. Legislative findings; purpose. The General
7Assembly finds that:
8        (1) the health, welfare, and prosperity of all
9    Illinois residents require that the State of Illinois act
10    to reduce carbon emissions and other air pollutants in the
11    State;
12        (2) the State currently invests in a variety of
13    strategies to reduce carbon emissions and other air
14    pollutants, including, but not limited to, strategies that
15    encourage the use of renewable energy, nuclear energy,
16    energy efficient processes, and low-emission vehicles;
17        (3) qualifying hydrogen can be produced through the
18    electrolysis of water using electricity generated by
19    emissions-free energy sources;
20        (4) replacing fossil fuels and hydrogen produced from
21    fossil fuels with qualifying hydrogen can reduce carbon
22    emissions and other air pollutants and benefit the
23    environment and public health of this State; and



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1        (5) qualifying hydrogen should be used only where it
2    will reduce carbon emissions and other air pollutants and
3    should primarily be used to replace hydrogen that is not
4    qualifying hydrogen or in sectors where direct
5    electrification is infeasible.
6    This Act is intended to encourage the replacement of
7fossil fuels and hydrogen produced from fossil fuels with
8qualifying hydrogen for the purposes of promoting
9decarbonization and improving the State's air quality.
10    Section 10. Definitions. As used in this Act:
11    "Attestation" means a statement that is made under penalty
12of perjury by a producer under Section 27.
13    "Department" means the Department of Commerce and Economic
15    "Eligible taxpayer" means a taxpayer that:
16        (1) is subject to subsections (a) and (b) of Section
17    201 of the Illinois Income Tax Act;
18        (2) has eligible qualifying hydrogen use for which the
19    producer has provided an attestation and verification
20    under Section 27;
21        (3) complies with subsections (e) and (f) of Section
22    15 if applicable; and
23        (4) is allocated credits by the Department under
24    Section 25.
25    If the taxpayer is an individual, partnership, trust,



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1estate, or Subchapter S corporation, then the taxpayer is an
2eligible taxpayer only to the extent that the taxpayer's
3Illinois income tax liability is due to an equity interest in a
4partnership that uses qualifying hydrogen, a Subchapter S
5corporation that uses qualifying hydrogen, or a similar
6pass-through entity that uses qualifying hydrogen.
7    "Eligible qualifying hydrogen use" means the use, in
8Illinois, of qualifying hydrogen, except for the use of
9qualifying hydrogen in the following sectors or for the
10following purposes:
11        (1) the use of qualifying hydrogen in all vehicles
12    powered by combustion engines or in vehicles in classes 1,
13    2, 3, 4, 5, and 6 in the 8-category Gross Vehicle Weight
14    Rating (GVWR) classification system, where Class 1
15    includes vehicles with a GVWR of less than 6,000 pounds
16    (lbs); Class 2 includes vehicles with a GVWR of 6,001 to
17    10,000 lbs; Class 3 includes vehicles with a GVWR of
18    10,001 to 14,000 lbs; Class 4 includes vehicles with a
19    GVWR of 14,001 to 16,000 lbs; Class 5 includes vehicles
20    with a GVWR of 16,001 to 19,500 lbs; Class 6 includes
21    vehicles with a GVWR of 19,501 to 26,000 lbs; Class 7
22    includes vehicles with a GVWR of 26,001 to 33,000 lbs; and
23    Class 8 includes vehicles with a GVWR of greater than
24    33,001 lbs;
25        (2) the use of qualifying hydrogen in heating or
26    cooking in residential and commercial buildings, including



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1    space heating, water heating, and clothes drying, or in
2    other cases where qualifying hydrogen is blended into the
3    gas distribution system of a residential or commercial
4    building; and
5        (3) the use of qualifying hydrogen for the production
6    of electricity generated using direct gas combustion,
7    except when that use is (A) for the purpose of emissions
8    reductions to achieve compliance with any rules or
9    regulations promulgated by the United States Environmental
10    Protection Agency, as interpreted and applied in State
11    Implementation Plans under those rules and regulations,
12    and (B) undertaken pursuant to an approved State
13    Implementation Plan for the State of Illinois.
14    "Environmental attribute credit" means a renewable energy
15credit, zero-emission credit, or carbon mitigation credit, as
16those terms are defined in Sections 1-10 and 1-75 of the
17Illinois Power Agency Act, or any other environmental
18attribute credit tracked by the Generation Attribute Tracking
19System administered by PJM Interconnection, LLC.
20    "Equity investment eligible community" has the meaning
21provided in Section 5-5 of the Energy Transition Act.
22    "MISO" means Midcontinent Independent System Operator,
24    "MISO maximum generation event" has the same meaning as in
25MISO's Reliability Operating Procedures.
26    "PJM" means PJM Interconnection, LLC, the regional



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1transmission organization (RTO) that coordinates the movement
2of wholesale electricity for portions of 13 states, including
4    "PJM performance assessment interval" has the same meaning
5as provided in the PJM Open Access Transmission Tariff.
6    "Producer" means a producer of qualifying hydrogen.
7    "Qualified renewable energy resource" means an electric
8generator that (1) is fueled by wind, solar thermal energy,
9photovoltaic cells and panels, geothermal energy, or
10hydropower that does not involve new construction or
11significant expansion of hydropower dams; and (2) produces
12renewable energy credits that are eligible to be counted
13toward the renewable energy requirements in subsection (c) of
14Section 1-75 of the Illinois Power Agency Act.
15    "Qualifying hydrogen" means hydrogen that (i) receives
16100% of the tax credit available under 26 U.S.C. 45V and (ii)
17meets the requirements of Section 27 of this Act. If any of the
18requirements of 26 U.S.C. 45v conflict with any of the
19requirements of Section 27, then the relevant requirement of
20Section 27 shall govern for purposes of determining
21eligibility for the allowable credit established under this
23    "Regional grid" means the territory served by a specific
24regional transmission organization.
25    "Regional transmission organization" means PJM
26Interconnection, LLC; Midcontinent Independent System



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1Operator; or any other entity charged with regional real-time
2balancing of electricity generation and load.
3    "Zero-emission facility" has the same meaning as provided
4in Section 1-10 of the Illinois Power Agency Act as that Act
5exists on the effective date of this Act.
6    Section 15. Allowable credit.
7    (a) For tax years ending on or after December 31, 2027 and
8beginning before January 1, 2029, a credit is allowed against
9the taxes imposed on an eligible taxpayer under subsections
10(a) and (b) of Section 201 of the Illinois Income Tax Act in an
11amount equal to $1 per kilogram of eligible qualifying
12hydrogen used by the eligible taxpayer during the immediately
13preceding calendar year. If the use of the qualifying hydrogen
14by a taxpayer occurs in or impacts one or more equity
15investment eligible communities, then, to be eligible for this
16credit, the taxpayer must submit to the Department and make
17publicly available documentation that demonstrates that the
18use has led to a net reduction of negative environmental
19impacts in each impacted equity investment eligible community
20and demonstrates that all application requirements detailed in
21this Act, including those in subsection (c), have been met for
22the year in which the credit is sought. Those impacts shall
23include direct, indirect, and cumulative impacts, including,
24but not limited to, impacts from using, transporting, and
25storing qualifying hydrogen, and impacts to air, water,



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1traffic, noise, and public health. This documentation must be
2specific, quantifiable, measurable, and verifiable. Continued
3receipt of tax credits is contingent upon the taxpayer making
4this demonstration each year. Failure to demonstrate a
5reduction of negative environmental impacts in each impacted
6equity investment eligible community shall result in the
7denial or forfeiture of tax credits.
8    (b) The allowable credit provided in subsection (a) of
9this Section shall be increased by $0.15 per kilogram of
10eligible qualifying hydrogen for eligible qualifying hydrogen
11use impacting one or more equity investment eligible
12communities if an eligible taxpayer specifically,
13quantifiably, and verifiably demonstrates that the eligible
14qualifying hydrogen use satisfies both of the following
15criteria for the preceding tax year:
16        (1) The eligible taxpayer's project workforce meets
17    the minimum equity standards for equity eligible persons
18    and equity eligible contractors determined by the Illinois
19    Power Agency pursuant to subsection (c-10) of Section 1-75
20    of the Illinois Power Agency Act. This requirement shall
21    apply to both construction employment and ongoing
22    employment in areas such as, but not limited to,
23    operations, production, and maintenance.
24        (2) At least 40% of the total benefits provided by the
25    use are received by the equity investment eligible
26    communities impacted by the eligible qualifying hydrogen



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1    use. Benefits to be considered shall include, but are not
2    limited to: a decrease in the percentage of household
3    income spent on energy costs; a decrease in environmental
4    exposures and burdens; an increase in access to low-cost
5    capital; an increase in employment and job training for
6    residents; an increase in clean energy enterprise creation
7    and contracting; increases in community energy ownership;
8    increased parity in clean energy technology and adoption;
9    and an increase in energy resilience. As used in this item
10    (2), "energy resilience" means the ability to operate
11    energy services in response to a major disruption.
12    Employment and contracting benefits provided pursuant to
13    paragraph (1) shall count toward this 40% requirement.
14    (c) The Department shall develop an application process
15for tax credits under this Section that provides meaningful,
16timely, and effective public notice of a tax credit
17application to members of impacted communities, accounting for
18linguistic needs and other relevant characteristics, and
19provides meaningful opportunity for public comment on any tax
20credit application. The public notice and tax credit
21application shall be translated into non-English languages in
22impacted communities where a language other than English is
23widely spoken. The notice must, at a minimum, include all of
24the following: the name of the applicant, the location of the
25use, a brief description of the use and its impacts, and a link
26to a website where the application and more detailed



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1information on the use and its impacts can be found. The notice
2shall be written at a third or fourth grade reading level to
3ensure ease of understanding for all members of the public.
4The opportunity for public comment must, at a minimum, include
5a public meeting held in a location within an impacted equity
6investment community and easily accessible to residents of
7other impacted equity investment eligible communities. Such
8public meeting shall be held not less than 30 days after public
9notice is provided and not less than 30 days before a decision
10is made on the application. The Department shall consider
11comments received when determining whether the requirements of
12this Section have been met. Applications, supporting
13materials, and comments submitted with respect to applications
14shall be maintained on the Department website in a publicly
15accessible manner.
16    (d) An eligible taxpayer may not earn tax credits for a tax
17year for eligible qualifying hydrogen use in an amount that
18exceeds the amount of tax credit allocated to it for the tax
19year under Section 25. If the amount of the credit exceeds the
20tax liability for the year, the excess may be carried forward
21and applied to the tax liability of the 5 taxable years
22following the excess credit year. The credit shall be applied
23to the earliest year for which there is a tax liability. If
24there are credits from more than one tax year that are
25available to offset a liability, the earlier credit shall be
26applied first. In no event shall a credit under this Section



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1reduce the taxpayer's liability to less than zero.
2    (e) Labor performed on or after the effective date of this
3Act to convert the eligible taxpayer's existing equipment or
4to install new equipment for the eligible taxpayer to enable
5eligible qualifying hydrogen use for which a credit is claimed
6under this Act shall be performed by general contractors that
7enter into a project labor agreement, as defined by the
8Illinois Power Agency Act, prior to construction. The project
9labor agreement shall be filed with the Department.
10    (f) Notwithstanding any provision of law to the contrary,
11any eligible taxpayer receiving tax credits under this Act
12shall be required to enter into a labor peace agreement with
13any bona fide labor organization that represents or is
14attempting to represent any of its employees.
15    Section 20. Credit availability; applications.
16    (a) The total amount of tax credits that may be allocated
17by the Department to taxpayers for eligible qualifying
18hydrogen use occurring in a calendar year shall not exceed
19$10,000,000 per year, plus the amount of tax credits that were
20available under this Section to be allocated for eligible
21qualifying hydrogen use in the immediately preceding calendar
22year but were not allocated.
23    (b) In order to qualify for a tax credit under this Act,
24the applicant must apply with the Department on a form
25prescribed by the Department by rule. The application shall



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1contain information necessary to calculate the tax credit and
2any additional information required by the Department.
3    (c) Upon satisfactory review of the application, the
4Department shall issue a tax credit certificate to the
5applicant stating the amount of the tax credit to which the
6applicant is entitled. The certificate shall be attached to
7the applicant's income tax return under the Illinois Income
8Tax Act.
9    Section 25. Credit allocation by the Department.
10    (a) As part of its application under Section 20, the
11taxpayer shall certify to the Department the amount of
12eligible qualifying hydrogen, in kilograms, used during the
13immediately preceding calendar year for which the application
14is filed.
15    (b) The Department shall notify each taxpayer of the
16dollar amount of credit allocated to that taxpayer under this
17Act. The taxpayer must notify the Department within 30 days
18after the notification by the Department under this subsection
19(b) if it wishes to surrender its allocation.
20    (c) In each State fiscal year for which tax credits are
21available pursuant to this Act, the Department shall not
22allocate more than 10% of the total amount of tax credits
23available under this Act to the use of qualifying hydrogen for
24electricity generation that uses direct gas combustion.
25    (d) Subject to the limitations of this Section and



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1Sections 20 and 30, the amount of the credit allocated to a
2taxpayer by the Department in subsection (b) of this Section
3shall be the maximum credit that the taxpayer is permitted to
4earn for the calendar year.
5    (e) Allocations may not be rolled forward to a subsequent
7    Section 27. Attestation and verification required.
8    (a) Each taxpayer seeking credits under this Act shall
9submit with its application for credits under this Act an
10attestation from the producer, made under penalty of perjury.
11The attestation shall also confirm that the hydrogen for which
12a tax credit is claimed has not been produced during an
13applicable PJM performance assessment interval or an
14applicable MISO maximum generation event. Each taxpayer
15seeking credits under this Act shall also be required to
16submit to the Department, at the time of the tax filing for the
17applicable year, documentation verifying the facts set forth
18in the attestation required by this Section.
19    (b) Each taxpayer seeking credits under this Act shall
20submit with its application for credits under this Act
21documentation verifiably demonstrating that the hydrogen use
22or uses for which the tax credit is sought was entirely used
23for an eligible qualifying hydrogen use, as defined in Section
2410 of this Act.
25    (c) Each taxpayer seeking credits under this Act shall



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1submit with its application for credits under this Act
2verifiable documentation of the following information, to be
3provided to the taxpayer by the producer:
4        (i) the type of power generation used to produce the
5    qualifying hydrogen during each hour that the qualifying
6    hydrogen was produced, if this information is available;
7        (ii) the year or years in which the power generation
8    source or sources identified in item (i) went into
9    operation;
10        (iii) if the power generation identified in item (i)
11    would have been curtailed or otherwise would not have
12    occurred but for the production of qualifying hydrogen, to
13    the extent determined by PJM, MISO, or another grid
14    operator; and
15        (iv) to the extent available, the marginal emissions
16    intensity of the regional grid in the same location where
17    the qualifying hydrogen was produced during each hour that
18    the qualifying hydrogen was produced, as determined by the
19    marginal fuel type reported by PJM, MISO, or another grid
20    operator, as appropriate, and an average emissions
21    intensity for that fuel.
22    Section 30. Prioritization of tax credit allocation. If
23the total amount of tax credits sought by taxpayers under
24Section 25 exceeds the total amount of tax credits that are
25allowed to be allocated under Section 20, the Department shall



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1prioritize allocation as follows:
2        (1) Up to 90% of the tax credits shall be allocated to
3    the following eligible taxpayers in proportion to their
4    requested allocation up to their requested allocation:
5            (A) taxpayers who participate in a United States
6        Department of Energy Hydrogen Hub for their associated
7        eligible qualifying hydrogen use;
8            (B) taxpayers who purchase hydrogen from a
9        participant in a United States Department of Energy
10        Hydrogen Hub for their associated qualifying hydrogen
11        use; or
12            (C) taxpayers who purchase electricity to produce
13        and use qualifying hydrogen from a participant in a
14        United States Department of Energy Hydrogen Hub for
15        their associated eligible qualifying hydrogen use.
16        (2) Next, any remaining credits shall be allocated to
17    eligible taxpayers who do not qualify under paragraph (1);
18    however, if there are insufficient remaining credits
19    available to make the allocations under this paragraph
20    (2), then the remaining credits shall be allocated in
21    proportion to the requested allocation up to the eligible
22    taxpayer's requested allocation.
23        (3) Next, any remaining credits shall be allocated to
24    taxpayers in proportion to their requested allocation, up
25    to their requested allocation, excluding any amount
26    already allocated to a taxpayer pursuant to subsections



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1    (1) and (2) of this Section.
2        (4) Finally, any remaining credits shall be allocated
3    to taxpayers receiving an allocation pursuant to
4    subsection (1) in proportion to their requested
5    allocation, such that the allocation provided under
6    subsection (1) and subsection (4) combined does not exceed
7    their requested allocation.
8    Section 35. Transfer of credits. A transfer of credits
9earned under this Act may be made, in accordance with rules
10adopted by the Department, by the taxpayer earning the credits
11within one year after the credits are awarded. The Department
12shall issue a certificate of transfer to each transferor and
13transferee, identifying the amount of the credit transferred.
14The transfer certificate shall be attached to the transferor's
15and transferee's income tax return under the Illinois Income
16Tax Act.
17    Section 36. Analysis of hydrogen production and
19    (a) No later than April 1, 2028, the Illinois
20Environmental Protection Agency, in consultation with the
21Department, the Illinois Power Agency, the Illinois Commerce
22Commission, and other State agencies, as needed, shall publish
23a report analyzing the greenhouse gas and copollutant
24emissions impacts of hydrogen production and utilization in



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1the State from January 1, 2026 through December 31, 2027. The
2report shall separately measure each of the following:
3        (1) life-cycle greenhouse gas and copollutant emission
4    impacts of producing qualifying hydrogen;
5        (2) life-cycle greenhouse gas and copollutant emission
6    impacts of eligible qualifying hydrogen use for which an
7    eligible taxpayer receives a credit under this Act;
8        (3) any greenhouse gas and copollutant emissions
9    avoided by eligible use of qualifying hydrogen, such as by
10    displacing diesel in long-haul, heavy-duty trucking and
11    displacing hydrogen created using fossil fuel feedstock or
12    through electrolysis powered by fossil-fuel generated
13    electricity, where avoidance can be determined with
14    reasonable certainty; and
15        (4) economic activity and jobs attributable to
16    investments in qualifying hydrogen production and eligible
17    qualifying hydrogen use in the State across sectors.
18    The report shall also include the following separate
20        (1) an analysis of opportunities to increase the
21    production of qualifying hydrogen from electrolysis that
22    is powered entirely by electricity generated from
23    qualified renewable energy resources in the State;
24        (2) a comparison of the cost of qualifying hydrogen to
25    the cost of hydrogen produced from fossil fuels;
26        (3) an analysis of whether energy sources other than



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1    hydrogen are available alternatives for qualified uses,
2    and if so, whether those alternatives would achieve
3    greater emissions reductions, economic savings, or both;
4        (4) an analysis of the efficacy of this tax credit at
5    incentivizing the transition of industries with eligible
6    uses to use clean hydrogen as a means of decarbonization;
7        (5) an analysis of Illinois' competitiveness in the
8    clean hydrogen economy relative to other states; this
9    analysis shall include, but not be limited to, a review of
10    the Department of Energy's Hydrogen Hub awards, other
11    states' incentives for clean hydrogen, the amount of
12    eligible use of clean hydrogen in Illinois relative to
13    other states, and the amount of production of clean
14    hydrogen in Illinois relative to other states; this
15    analysis should also recommend policy changes the State
16    can make to be more competitive with other states in the
17    clean hydrogen economy to the extent that such
18    competitiveness is consistent with the State's emissions
19    reductions goals and is economically beneficial;
20        (6) an analysis of areas where clean hydrogen use,
21    clean energy use, or both can increase emissions
22    reduction, and policy measures the State can take to
23    incentivize those uses, including, but not limited to, an
24    extension of this tax credit and changes to the total
25    annual amount of this tax credit; and
26        (7) an analysis of the expected arc of production,



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1    relative costs of different methods of hydrogen
2    production, relative costs and emissions reductions
3    benefits of clean energy produced by other methods,
4    including renewables, for eligible and other uses to help
5    right-size the total tax credit amount.
6    The Illinois Environmental Protection Agency may consider
7application and attestation information provided by eligible
8taxpayers pursuant to this Act and any other data it deems
10    Data relied upon for the report and methods of measurement
11shall be identified in the report and be made publicly
12available in easily accessible, machine-readable format.
13    The Illinois Environmental Protection Agency shall
14determine and state in its report the impact of the production
15of qualifying hydrogen and eligible qualifying hydrogen uses
16receiving a tax credit pursuant to this Act on greenhouse gas
17and copollutant emissions.
18    (b) A draft of the report shall be made available for
19public comment no less than 30 days prior to its final
20publication. The final report and comments received shall be
21made publicly available in both English and Spanish, and
22copies of the final report shall be filed with the General
23Assembly and the Governor.
24    Section 37. Rules. The Department may adopt rules to
25implement and administer this Act.



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1    Section 40. Severability. If any provision of this Act or
2its application to any person or circumstance is held invalid,
3the invalidity of that provision or application does not
4affect other provisions or applications of this Act that can
5be given effect without the invalid provision or application.
6    Section 900. The Illinois Income Tax Act is amended by
7adding Section 240 as follows:
8    (35 ILCS 5/240 new)
9    Sec. 240. Hydrogen fuel replacement tax credits.
10    (a) For tax years ending on or after December 31, 2027 and
11beginning before January 1, 2029, an eligible taxpayer who
12qualifies for a credit under the Hydrogen Fuel Replacement Tax
13Credit Act is entitled to a credit against the taxes imposed
14under subsections (a) and (b) of Section 201 of this Act as
15provided in that Act. If the eligible taxpayer is a
16partnership or Subchapter S corporation, the credit shall be
17allowed to the partners or shareholders in accordance with the
18determination of income and distributive share of income under
19Sections 702 and 704 and Subchapter S of the Internal Revenue
21    (b) If the amount of the credit exceeds the tax liability
22for the year, the excess may be carried forward and applied to
23the tax liability of the 5 taxable years following the excess



HB2204 Enrolled- 20 -LRB103 27545 KTG 53920 b

1credit year. The credit shall be applied to the earliest year
2for which there is a tax liability. If there are credits from
3more than one tax year that are available to offset a
4liability, the earlier credit shall be applied first. In no
5event shall a credit under this Section reduce the taxpayer's
6liability to less than zero.
7    (c) A sale, assignment, or transfer of the tax credit may
8be made by the taxpayer earning the credit within one year
9after the credit is awarded in accordance with rules adopted
10by the Department of Commerce and Economic Opportunity.
11    (d) A person claiming the credit allowed under this
12Section shall attach to its Illinois income tax return a copy
13of the tax credit certificate or the transfer certificate
14issued by the Department of Commerce and Economic Opportunity.
15    Section 999. Effective date. This Act takes effect upon
16becoming law.