State and Local Tax Alert - September 2017

September 2017

Illinois Enacts Legislation to Revive the Edge Act Program

 

Summary

Illinois Governor Bruce Rauner has signed Illinois House Bill 162, which revives the Economic Development for a Growing Economic (“EDGE”) income tax credit with a new expiration date of June 30, 2022.  The credit program has a number of changes including eligibility, credit calculation and recapture provisions.
 

Details

Eligibility for the Credit

For applicants with more than 100 Illinois employees:
  1. Make a minimum capital investment of at least $2.5M and
  2. Creates the lesser of 50 new, full-time jobs or 10 percent of the number of full-time employees employed on a world-wide basis.
For applicants with less than 100 Illinois employees:
  1. There is no capital investment requirement and
  2. Creates the lesser of 50 new, full-time jobs or five percent of the number of full-time employees employed on a world-wide basis.
 
The overall eligibility for this incentive has not changed, in that a company must provide evidence of satisfying the State’s “but for” provision.  That is, providing evidence that if not for the EDGE credit, the expansion project would not have occurred in Illinois.  To satisfy the “but for” provision, the Illinois Department of Commerce and Economic Opportunity (“DCEO”) will accept cost differential details showing Illinois as the higher-cost option when comparing project and operating costs of an alternative state.  Further, for projects involving retained jobs, the applicant must provide evidence that at least one other state is being considered for the site of the project and the Applicant has created the minimum number of new jobs under the EDGE program.
 

Amount of the Credit

The annual EDGE credit can generally be earned and utilized each year for a 10-year period.  The calculation of the credit is limited to the lesser of:
  • 50 percent of the personal income taxes of the new employees and
  • 10 percent of qualified training costs for the new employees or
  • 100 percent of the personal income taxes of the new employees
For projects located in “underserved areas,” the credit will be calculated as the lesser of:
  • 75 percent of the personal income taxes of the new employees and
  • 10 percent of qualified training costs for the new employees or
  • 100 percent of the personal income taxes of the new employees
 
 “Underserved areas” are defined as geographic areas that meet one or more of the following conditions:
  1. The area has a poverty rate of at least 20 percent (according to the latest federal decennial census);
  2. 75 percent or more of the children in the area participate in the federal free lunch program;
  3. At least 20 percent of the households in the area receive assistance under the Supplemental Nutrition Assistance Program (“SNAP”); or
  4. The area has an average unemployment rate (as determined by the IL Department of Employment Security) that is more than 120 percent of the national unemployment average (as determined by the U.S. Department of Labor for a period of at least two consecutive calendar years preceding the date of application).
 
In addition, projects involving qualified job retention that also meet the required number of new employees under the program may be eligible for an additional credit equal to 25 percent of the personal income taxes for the retained employees.
 

Public Disclosure and Recapture

All approved EDGE applications will be required to have public disclosure of application details such as the name of applicant, location of the project, estimated value of the credit, and the number of new/retained jobs pledged.

If a company receives approval for an EDGE credit and ceases operations at the project site, the entire credit amount received shall be paid back to the State of Illinois. 
 

BDO Insights

  • With the reintroduction of the EDGE credit, the State of Illinois is now better equipped to compete for competitive expansion projects across the Midwest.
  • Companies applying for EDGE credits will need to be prepared to meet the annual compliance reporting requirements in order to fully utilize the credit.
  • BDO’s Credit and Incentives team has years of experience working with DCEO and the EDGE credit program from the first day it was introduced.  We have successfully supported a number of client’s application efforts in securing EDGE credits, and we have also assisted with the implementation of the EDGE credits.  Please call BDO’s national Credits and Incentives practice leader, Tim Schram (312-730-1276), with any program questions.
 

For more information, please contact one of the following practice leaders: 
 
Mariano Sori-Marin
Partner
  Janet Bernier
Principal

 
Tanya Erbe
Managing Director
  Taryn Goldstein
Managing Director

 
Tim Schram
Managing Director