On August 13, 2017, the Illinois General Assembly approved HB 162 (the bill), to restore the Economic Development for a Growing Economy (EDGE) tax credit. If enacted, the bill would allow the Illinois Department of Commerce and Economic Opportunity (DCEO) to enter into EDGE agreements through June 30, 2022 (from the prior expiration date of April 30, 2017). The bill also would modify the manner in which the maximum amount of credit allowed is determined, change the requirements that must be met in order to qualify for the credit, prohibit EDGE credits from being credited against the taxpayer's withholding tax liability, and establish clawback provisions. The bill will next go to Governor Rauner, who will have 60 days to act on it. The Governor is expected to sign the bill.

Credit amount

Under current law, the amount of the EDGE credit cannot exceed the Incremental Income Tax attributable to the applicant's project. The bill would amend this cap by providing that the credit cannot exceed the lesser of: (1) the sum of 50% of the Incremental Income Tax attributable to new employees at the applicant's project and 10% of new employee training costs; or (2) 100% of the Incremental Income Tax attributable to new employees at the applicant's project. If the project is located in an underserved area,¹ the 50% Incremental Income Tax threshold would be increased to 75%. The bill would allow for an additional increase to the maximum credit (not to exceed 25% of the Incremental Income Tax attributable to retained employees at the applicant's project), for applicants that agree to hire the required number of new employees.²

Credit requirements

The bill also would change the requirements that must be met in order to qualify for the EDGE credit. Under the revised provisions, if the applicant has more than 100 employees, the applicant's project must involve an investment of $2.5 million in capital improvements to be placed in service in the state as a direct result of the project. A capital investment requirement would not have to be met if the applicant has less than 100 employees. In addition, if the applicant has more than 100 employees, the applicant's project would have to employ new employees in the state equal to the lesser of: (1) 10% of the number of full-time employees employed by the applicant world-wide on the date the application is filed with the DCEO or (2) 50 new employees. If the applicant has 100 or fewer employees, the same formula would apply but the 10% threshold would be reduced to 5%.

Further, the bill would prohibit taxpayers from crediting EDGE credits awarded for agreements entered into on or after January 1, 2015, against payments for their withholding tax liability payments. (For EDGE agreements entered before January 1, 2015, taxpayers may still elect to take the credit against their withholding tax liability for tax years on or after December 31, 2009.).

Lastly, the bill would require clawback provisions to be included in the EDGE agreement. Specifically, the agreement would have to state that, if the taxpayer ceases principal operations with the intent to permanently shut down the project in Illinois during the term of the agreement, then the taxpayer would have to return the entire amount of credit it was awarded prior to the date the taxpayer ceases such operation.

Implications

If the bill becomes law, taxpayers will be able to once again enter into EDGE agreements with the DCEO. Further, the DCEO may need to modify its rules and procedures to accommodate these changes, which may change the length of time required to enter into new EDGE agreements.

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ENDNOTES

¹ The bill would define "underserved area" as an area meeting any of the following: (1) has a poverty rate of at least 20%, (2) 75% or more of the children in the area participate in the federal free lunch program, (3) at least 20% of the households in the area receive SNAP benefits, or (4) the area's average unemployment rate is more than 120% of the national average for at least two consecutive years preceding the application.

² In addition, such applicants would have to provide evidence that it "could reasonably and efficiently locate outside of the State" or demonstrate that it was considering at least one other state for the project.