Illinois has enacted legislation amending and adding provisions concerning enterprise zones, eliminating income tax credits and deductions, and amending the exemptions from sales and use taxes for building materials sales in an enterprise zone and in a high impact business location. The legislation also sets forth new reporting rules for businesses located in enterprise zones, high impact business locations, and businesses located in river edge redevelopment zones.
The expiration date for enterprise zones scheduled to expire before July 1, 2016, is extended to July 1, 2016. Applications for enterprise zones scheduled to expire in 2016, 2017 or 2018, including zones that are extended until July 1, 2016, must submit applications to the Department of Commerce and Economic Opportunity (DCEO) to retain designation as an enterprise zone after the expiration date.
Enterprise zones that are designated after August 7, 2012, are effective for 15 years, but are subject to review by the enterprise zone board after 13 years for an additional 10-year designation as an enterprise zone.
The legislation sets forth 10 new additional enterprise zone qualification criteria, three of which must be met for an area for qualify as an enterprise zone. Removed from the enterprise zone qualifications are the specific requirements that the area must be a depressed area and that the area must satisfy criteria set out in regulations.
The DCEO is required to develop an application process for enterprise zone applications.
An enterprise zone will be effective on January 1 of the first calendar year after DCEO certification as an enterprise zone.
The legislation includes the following new defined terms: enterprise zone terms board, local labor market area, full-time equivalent job and full-time retained job. The legislation also sets forth the criteria for creating a new enterprise zone board.
Income Tax Credits and Deductions Eliminated
The legislation eliminates the enterprise zone job tax credits that had been available against the Illinois corporate and personal income tax. The legislation also removes the enterprise zone dividend deduction that was available for corporate taxpayers and eliminates the enterprise zone interest income deduction that had been available for financial institutions.
Retailer’s Occupation Tax Exemption Certification
Beginning July 1, 2013, a “qualified” sale for purposes of the enterprise zone exemption is a sale of building materials that will be incorporated into real estate as part of a building project for which DCEO has issued an enterprise zone building materials exemption certificate. To document a purchase, a retailer must obtain a purchaser’s certificate, and it must contain the certificate number issued to the purchaser by the DCEO.
Similarly, a retailer must obtain from a purchaser the high impact business certificate number issued by the DCEO.
A construction contractor or other entity must not make tax-free purchases unless it has an active exemption certificate or high impact business location certificate at the time of purchase.
The enterprise zone administrator or the high impact business will request a certificate from the DCEO, and the certificate will be issued directly to the contractor. The DCEO may require that the request be submitted electronically. The legislation includes descriptions of the information required to obtain certificates for both contractors with contracts in place on July 1, 2013, and new contractors. It also describes the DCEO’s procedures for issuing certificates.
If the Department of Revenue (DOR) determines that a construction contractor or other entity made a tax-exempt purchase with its exemption certificate or high impact business location certificate that was not eligible for exemption, or allowed another person to make a tax exempt purchase that was not eligible for exemption, the contractor or other entity will be subject to penalties. In addition to any tax or other penalty imposed, the construction contractor or other entity is subject to a penalty equal to the tax that would have been paid by the retailer, as well as any applicable local sales tax on the ineligible purchase.
Any business receiving tax incentives must report annually to the DOR the total tax benefits received by the business if it is receiving tax incentives due to its location in an enterprise zone or in a river edge redevelopment zone or due to its designation as a high impact business location. Reports will be due no later than March 30 of each year and must cover the previous calendar year.
In addition, persons required to file a return under the Gas Revenue Tax Act, the Gas Use Tax Act, the Electricity Excise Tax Act, or the Telecommunications Excise Tax Act must file a report with the DOR on or before March 30 of each year. The report must be in the manner and form required by the DOR, itemizing the amount of the deductions taken under each Act, respectively, due to the location of a business in an enterprise zone or river edge redevelopment zone or its designation as a high impact business location.
Employers must report their job creation, retention, and capital investment numbers within an enterprise zone or river edge redevelopment zone annually to the zone administrator, which will compile the information and report it to the DOR no later than March 30 of each calendar year. High impact business locations make such reports directly to the DOR by March 30.
P.A. 97-905 (S.B. 3616 ), Laws 2012, effective August 7, 2012