Incentives

FAQs Sections

General Questions
What is the Building Materials Sales Tax Exemption?
What is the Local Property Tax Abatement on Improvements?
What is the 5% Gas Use Tax Exemption?
What is the .5% Investment Tax Credit?
What is the MM&E Sales Tax Exemption?
What is the Utility Tax Exemption?

FAQs – General Questions

Are tax incentives and other benefits offered on a case-by-case basis? No. “Case-by-Case” is contrary to the intent of the Enterprise Zone Act. Tax incentives must be offered uniformly and equitably by class. The local ordinance authorizing tax incentives, such as property tax abatement, extends the incentives through eligibility criteria, such as class of property (I.e., commercial and industrial) and formulas (i.e., percentages and number of years available).

Can small and large firms take advantage of the program? The program is set up to allow all businesses in the zone to use zone benefits when they expand or improve their businesses in the zone. All projects are valuable and important to the zone and zone governments!

FAQs – What is the Building Materials Sales Tax Exemption?

The sales and use taxes on building materials are exempt for materials being incorporated into the real estate in an enterprise zone. Contact the zone administrator for more information.

What is the sales tax deduction and what is the retailer’s role? Each retailer who makes a qualified sale of building materials to be incorporated into real estate in an enterprise zone established by a county or municipality under the Illinois Enterprise Zone Act by remodeling, rehabilitation or new construction, may deduct receipts from such sales when calculating the tax imposed by this Act. For purposes of this Section, “qualified sale” means a sale of building materials that will be incorporated into real estate as part of a building project for which a Certificate of Eligibility for Sales Tax Exemption has been issued by the Illinois Department of Revenue (IDOR). To document the exemption allowed under this Section, the retailer must obtain from the purchaser a copy of the Certificate of Eligibility for Sales Tax Exemption issued by IDOR.

Do all retailers offer a point of sale exemption? No. Retailers are not required by law to participate. The purchaser must ask the retailer for cooperation on this incentive. Retailers have, however, demonstrated good cooperation throughout the history of this program, as this incentive permits them to give customers a “break” without cost to themselves.

What qualifies as “building materials” eligible for the sales tax deduction? Building materials that are eligible for the enterprise zone sales tax deduction include items that are permanently affixed to real property such as lumber, framing, mortar, glued-down carpets, paint, wallpaper, gravel, paving, fencing, and similar affixed items. Building materials are defined by IDOR. Note: Use of this benefit requires annual reporting on a “BMEC Report” to the IDOR for each of the years the certificate is valid. This report is submitted by the contractor that is issued the certificate. Penalties for non-filing include suspension of certificates and ineligibility for future certificate issuance.

FAQs – What is the Local Property Tax Abatement on Improvements?

What amount is abated in the Lee-Ogle Enterprise Zone? The abatement schedule set in our designating ordinance calls for a 50% abatement for 6 years, commencing on the first full year of assessment after the improvements from an enterprise zone project. The abatement applies for those taxing districts with abatement resolutions for the zone, which varies by location in the zone. Contact the zone administrator to determine the amount of abatement, and the applicable tax districts for abatement. Note: Use of this benefit requires annual reporting on a “Business Incentive Report” to the IDOR for each of the years the abatement is applied.

How does the enterprise zone abatement work in the Lee-Ogle Enterprise Zone? Projects must apply to the zone for abatement to be authorized. The zone administrator has the authority to inform county tax officials which projects are enterprise zone projects. Contact the zone administrator for more information.

Am I automatically entitled to abatement? No. Project owners must apply to the enterprise zone administrator, meet criteria, and be approved as a project to be entitled to abatement. Contact the zone administrator to determine the amount of abatement, the number of years of abatement, and the classes of real property eligible for abatement.

Do property tax abatements continue if the property is sold prior to the end of the six-year abatement period? The Lee-Ogle Enterprise Zone property tax abatement is specifically granted to the Applicant and is re-assigned or transferred without a Written Notice of Transfer Request being submitted to the Zone Administrator.  This notice consists of correspondence to the Lee-Ogle Enterprise Zone Administrator requesting transfer of the abatement to the new owner for the time remaining on the abatement.  The Zone Administrator shall then review the request and determine the taxpayer’s eligibility for such transfer. Please inquire with any questions about transfer of the abatement incentive.

Can property tax be abated in a tax increment-financing district (TIF)? Tax increment financing is a financing technique that cities may use to pay for public improvements such as land assemblage, building demolition, utilities, streets, and sidewalks. Property owners in the project area do pay their full share of taxes. Taxes generated by the increase in assessed valuation — the tax increment — go into a special allocation fund used to pay the bonds, which financed the public improvement costs. This financing method is not a tool to speculatively prepare for development — tax increment financing requires an advance commitment by a developer to a project. Property tax abatement is, however, a tool that is used for development. It is not a financing technique. The Revenue Act provides that any taxing district, upon a majority vote of its governing authority, may order the county clerk to abate any portion of its taxes on improvements made to real property located in a zone, The increase in assessed valuation due to new construction, rehabilitation or renovation is not taxed for the term of the abatement as set by local ordinance. A TIF district may be included in the legal description of the zone and consequently be eligible to receive other tax incentives and benefits. However, the Enterprise Zone designating Ordinance pertaining to property tax abatement must be amended to exclude the TIF district from the area eligible for abatement.

Are taxes reduced on the current value of property (or on existing improvements)? No. The abatement applies only to taxes on the increase in assessed value attributable to the new construction, renovation, or rehabilitation. Taxes based on the assessed value of land and existing improvements continue to be extended and collected.

If property tax abatement is authorized, are new improvements made to property located within a zone assessed? Yes. By law, every time property is improved, it is reassessed.

FAQs – What is the 5% Gas Use Tax Exemption?

The 5% Gas Use Tax is imposed on persons or firms who purchase natural gas from outside of Illinois for their own use (not for resale). This applies to most purchases as Natural Gas is typically sourced outside Illinois. Exemptions that apply to Gas Use Tax include gas used by a business located in an enterprise zone.  Note: the 5% Gas Use Tax is NOT the Utility Tax Exemption referred to below.

How does an enterprise zone business become exempt from the Gas Use Tax? They need to verify their location in an enterprise zone with the zone administrator and file Illinois Form RG-61.  Note: Use of this benefit requires annual reporting on a “Business Incentive Report” to the IDOR.

FAQs – What is the .5% Investment Tax Credit?

What is the enterprise zone investment tax credit? The Illinois Income Tax Act 35 ILCS 5/201, as amended allows a .5% credit against the state income tax for investments in qualified property, which is placed in service in an enterprise zone.

Who are qualifying taxpayers? The credit may be taken by corporations, trusts, estates, individuals, partners and Subchapter S shareholders who make investments in qualified property and who otherwise meet the terms and conditions established by statute.

What is qualified property? “Qualified property” is property which:
•is tangible; whether new or used, including buildings and structural components of buildings;
•is acquired by purchase as defined in Internal Revenue Code (IRC) Section 179( d);
•is depreciable pursuant to IRC Section 167;
•has a useful life of four or more years as of the date placed in service in an enterprise zone;
•is used in the enterprise zone by that taxpayer;
•has not been previously used in Illinois in such a manner and by such a person as would qualify for the credit; and, is an improvement or addition made on or after the date the zone was designated to the extent that the improvement or addition is of a capital nature, which increases the adjusted basis of the property previously placed in service in an enterprise zone and otherwise meets the requirements of qualified property.

What are examples of “qualified property”? Examples include buildings, structural components of buildings, elevators, materials tanks, boilers, and major computer installations. Examples of nonqualifying property are land, inventories, small personal computers, trademarks, typewriters, and other small, non-depreciable, or intangible assets.

What does “placed in service” mean? Qualified property is “placed in service” on the earlier of 1) the date the property is placed in a condition of readiness and availability for use, or 2) the date on which the depreciation period of that property begins. To qualify for the enterprise zone investment tax credit, the property must be placed in service on or after the date the zone was certified by the Department of Commerce and Economic Opportunity, and on or before the last day of the firm’s taxable year.

What is “depreciable” property? Property must be depreciable pursuant to Internal Revenue Code Section 167. Depreciable property is used in the taxpayer’s trade or business or held for the production of income (but not inventory), which is subject to wear and tear, exhaustion or obsolescence. There are some types of assets that may not be depreciable, even though they are used in the taxpayer’s business or trade or are held for the production of income. Good will and land are examples. Other examples of tangible property, which are not depreciable, are inventories, natural resources and currency.

Does “used” property qualify for the enterprise zone investment tax credit? Used property does not qualify if it was previously used in Illinois in such a manner and by such a person as would qualify for either the statewide investment tax credit or the enterprise zone investment tax credit.
Example: A corporation purchases a used pick-up truck for use in its manufacturing business in an enterprise zone from an Illinois resident who used the truck for personal purposes in Illinois. If the truck meets the other requirements for the investment tax credit, it will not be disqualified because it was previously used in Illinois for a purpose, which did not qualify for the credit. However, had the corporation purchased the truck from an Illinois taxpayer in whose hands the truck qualified for the credit, the truck would not be qualified for the investment tax credit, even though the party from whom the truck was acquired had never received an investment tax credit for it.

What is the “basis” value of property? The “basis” value of property, for the purposes of this credit, is defined the same way it is defined for purposes of federal depreciation calculations. Essentially, the basis is the cost of the property, as well as related capital costs.

Does the enterprise zone investment tax credit carry forward? Yes. The credit is allowed for the tax year in which the property is placed in service, or, if the amount of the credit exceeds the tax liability for that year, the excess may be carried forward and applied to the tax liability of the five taxable years following the excess credit year. The credit must be applied to the earliest year for which there is a liability. If there is credit from more than one tax year that is available to offset a liability, the credit accruing first in time is applied first.

How does an enterprise zone project utilize this incentive? Upon making capital investments in the enterprise zone, this tax credit is captured on your Illinois Income or Corporate Tax Return. Consult your Illinois tax preparer. Note: Use of this benefit requires annual reporting on a “Business Incentive Report” to the IDOR for each of the years the credit is applied.

FAQs – What is the Manufacturing Machinery and Equipment Sales Tax Exemption (on large projects as defined as follows)?

What is the Manufacturing Machinery and Equipment (MM&E) Sales Tax Exemption? The Revenue Act 35 ILCS 120/1d-1f, as amended allows a business enterprise that is certified by DCEO, that either creates a minimum of 200 full-time equivalent jobs in Illinois; or retains a minimum of 2,000 full-time jobs in Illinois; or which retains 90% of the existing jobs, a 6.25% state sales tax exemption on all tangible personal property which is used or consumed within an enterprise zone in the process of manufacturing or assembly of tangible personal property for wholesale or retail sale or lease. This exemption includes repair and replacement parts for machinery and equipment used primarily in the wholesale or retail sale or lease, and equipment, manufacturing fuels, material and supplies for the maintenance, repair or operation of manufacturing, or assembling machinery or equipment.  Note: Use of this benefit requires annual reporting on a “Business Incentive Report” to the IDOR for each of the years the exemption is applied.

How does a business become eligible for the MM&E Sales Tax Exemption? To be eligible for this incentive, DCEO must certify that the business has made an investment of at least $5 million in an enterprise zone and has created a minimum of 200 full-time equivalent jobs in Illinois or has made an investment of at least $40 million in an enterprise zone and has retained a minimum of 2,000 full-time jobs in Illinois or has made an investment of $40 million in an enterprise zone and retained 90% of the jobs in place on date of certification. A majority of the “jobs created” or “retained” must be in the Enterprise Zone in which the eligible investment is made. A business must submit an application to DCEO documenting the eligible investment and that the job creation or job retention criteria will be met.

What is an eligible investment? For purposes of this incentive, eligible investment may be either: 1) investments in qualified property as defined in the Enterprise Zone Investment Tax Credit; or, 2) non-capital and non-routine investments and associated service costs made for the basic construction, renovation or improvement of qualified property including productive capacity, efficiency, product quality or competitive position. Regular maintenance and routine expenditures are not included.

Are eligible sales limited to the units of government sponsoring the zone? No. Items eligible for the 6.25% state sales tax exemption may be purchased anywhere in Illinois. What tangible personal property is eligible for the M, M & E sales tax exemption? To be eligible for this exemption the tangible personal property must be directly used or consumed in the process of manufacturing or assembling tangible personal property for wholesale or retail sale or lease. Examples of this include: repair and replacement parts; hand tools; materials and supplies such as abrasives, acids or lubricants; protective clothing and safety equipment; and, any fuel used for machinery and equipment.

FAQs – What is the Utility Tax Exemption? (on large projects as defined as follows)

The Public Utilities Act 220 ILCS 5/9-222.1 – as amended – and the Telecommunications Excise Tax Act 35 ILCS 630/2(a)(5) – as amended – allows a business enterprise that is certified by DCEO, as making an investment in a zone that either creates a minimum of 200 full-time equivalent jobs in Illinois or retains a minimum of 1,000 full-time jobs in Illinois, a 5% state tax exemption on gas, electricity and the Illinois Commerce Commission .1% administrative charge and excise taxes on the act or privilege of originating or receiving telecommunications.  Note: Use of this benefit requires annual reporting on a “Business Incentive Report” to the IDOR for each of the years the exemption is utilized.

How does a business become eligible for the Utility Tax Exemption? To be eligible for this incentive, DCEO must certify that the business makes an investment of at least $5 million in an enterprise zone and has created a minimum of 200 full-time equivalent jobs in Illinois or makes an investment of at least $175 million in an enterprise zone and has created a minimum of 150 full-time equivalent jobs in Illinois or makes an investment of at least $20 million in an enterprise zone and has retained a minimum of 1,000 full-time jobs in Illinois. A majority of the “jobs created” or “retained” must be in the Enterprise Zone in which the eligible investment is made. A business must submit an application to DCEO documenting the eligible investment and that the job creation or job retention criteria has been met.

What is an eligible investment? For purposes of this incentive, eligible investment may be either: 1) investments in qualified property as defined in the Enterprise Zone Investment Tax Credit; or, 2) non-capital and non-routine investments and associated service costs made for the basic construction, renovation or improvement of qualified property including productive capacity, efficiency, product quality or competitive position. Regular maintenance and routine expenditures are not included.