The Illinois Enterprise Zone Act, 20 ILCS 655/1 et seq., provides for special designated enterprise zones wherein developers and other businesses can take advantage of state and local tax incentives such as tax credits, property tax abatements and sales tax exemptions on construction materials. On August 7, 2012, Illinois enacted new legislation amending the Illinois Enterprise Zone Act and portions of the Illinois Income Tax Act, 35 ILCS 5/1 et seq., related to certain enterprise zone incentives.
Illinois’ 97 existing enterprise zones were set to expire beginning in 2013. The amendment extends the life of existing enterprise zones by up to 25 years. Additionally, five new zones will be created during the next two decades as the current “River Edge Redevelopment Zones” (which provides similar tax incentives pursuant to the River Edge Redevelopment Zone Act, 65 ILCS 115/10-1 et seq., within designated areas in Aurora, East St. Louis, Elgin and Rockford) expire and those areas (or other areas) become enterprise zones.
The amendment also relaxes the criteria for local government participation in the enterprise zone program. Previously, participation was limited to blighted areas, defined by considerations such as income, unemployment and poverty rates. Per the amendment, communities not currently designated as an enterprise zone can now be considered for designation by demonstrating they meet at least three of ten revised qualification criteria. Under this new ranking system, blighted areas will still be given preference and the unemployment rate and poverty rate criteria will be weighted heavier than the other seven criteria.
Who will determine which communities make the grade? A new Enterprise Zone Board within the Department of Commerce and Economic Opportunity. The Board will consist of a five member panel including the Director of the Department, the Director of Revenue and three Governor appointees.
The amendment also curtails several enterprise zone incentives:
- A business receiving enterprise zone incentives must now report annually the total tax benefits it received, broken down by incentive category and enterprise zone. Failure to do so can result in an inability to receive incentives. First time offenders will be given 60 days to comply.
- The amendment modifies Section 201 of the Illinois Income Tax Act by eliminating the job tax credit formerly available to businesses that hire new employees and operate within enterprise zones. Businesses operating in River Edge Redevelopment Zones can still take advantage of the $500 per new employee credit.
- The amendment modifies Section 203 of Illinois Income Tax Act by eliminating the dividends deduction for corporations conducting business operations in an enterprise zone. Corporations operating in a River Edge Redevelopment Zone can still take advantage of the deduction.
- The amendment modifies Section 203 of Illinois Income Tax Act by eliminating the investment credit, which previously allowed financial institutions a credit in the amount of any interest income attributable to a loan secured by property within an enterprise zone. The credit is still available for interest income attributable to loans secured by property within a River Edge Redevelopment Zone.
With the passage of this new legislation, Illinois enterprise zones will continue to provide significant savings to developers and other businesses located (or looking to relocate) within an enterprise zone. We would be happy to provide your company guidance to navigate the available incentives and requirements therefor pursuant to the newly amended Illinois Enterprise Zone Act.