SB3009 99TH GENERAL ASSEMBLY

LRB099 18719 HLH 43103 b

99TH GENERAL ASSEMBLY
State of Illinois
2015 and 2016
SB3009

Introduced 2/18/2016, by Sen. Chuck Weaver

SYNOPSIS AS INTRODUCED:

New Act
35 ILCS 5/224 new

Creates the Business and Employment Development Tax Credit Act. Provides that the Department of Commerce and Economic Opportunity may certify a business as eligible for an income tax credit under the Act and may award credits to certified businesses. Sets forth the amount of the credit, which is calculated as a percentage of the wages paid to new or retained full-time and part-time employees. Provides that the duration of the credit is 5 taxable years, except that the credit may be carried forward for 5 years. Contains provisions concerning recapture of the credit. Amends the Illinois Income Tax Act to make conforming changes. Provides that the Business and Employment Development Tax Credit is exempt from the Act's automatic sunset provision. Effective immediately.

FISCAL NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning revenue.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the Business and Employment Development Tax Credit Act.

Section 5. Purpose. The General Assembly finds that, in an increasingly global economy, the State's economy would benefit from efficient use of State resources in support of business development and increased employment. Tax credits shall be granted under this Act only for genuine business development and employment growth within the State.

Section 10. Definitions. As used in this Act:

"Applicant" means a taxpayer seeking certified business status from the Department.

"Average number of employees" means, in the case of a calendar year taxpayer, the sum of the total number of full-time equivalent employees of the business in the State on March 31, June 30, September 30, and December 31, divided by 4. In the case of a fiscal year taxpayer, the sum of the total number of full-time equivalent employees of the business in the State at the end of each quarter of the taxable year of the taxpayer divided by 4.

"Certified business" means a taxpayer that is operating a business located, or that the taxpayer plans to locate, within the State that is certified as eligible for the credits awarded under this Act.

"Credit" means the credits awarded pursuant to Section 20 of this Act.

"Department" means the Department of Commerce and Economic Opportunity or its successor.

"Director" means the Director of Commerce and Economic Opportunity.

"Eligible new employee" means a full-time or part-time employee of a certified business. The term "eligible new employee" does not include a person classified as an independent contractor under laws and rules administered by the Department of Employment Security.

Full-time employee" means an individual who is employed for consideration for at least 35 hours each week or who renders any other standard of service generally accepted by industry custom or practice as full-time employment. An individual for whom a W-2 is issued by a Professional Employer Organization (PEO) is a full-time employee if employed in the service of the Applicant for consideration for at least 35 hours each week or who renders any other standard of service generally accepted by industry custom or practice as full-time employment.

"New employee" means each Illinois-domiciled resident hired as an eligible new employee employed in a net new job.

"New job" means a job that did not exist in the business of the taxpayer in this State prior to the taxable year in which the new job was created. New jobs must be filled by new employees.

"Net new employment" means the average number of new jobs of a certified business in the State during the taxable year that equals or exceeds the average number of employees of the business in the State during the immediately preceding taxable year.

"Net new job" means a job that: (1) is new to this State; (2) has not been transferred from another business located in this State through an acquisition, merger, consolidation, or other reorganization of the business, or through the acquisition of the assets of another business, or transferred from the existing employees of a related person, as defined in Section 465(b)(3)(C) of the Internal Revenue Code, located in the State, to similar employment with the taxpayer unless the business has received approval from the Department; and (3) is not filled by an individual employed within the State within the preceding 60 months by a related person.

"Pass-through entity" means an entity that is exempt from the tax under subsection (b) or (c) of Section 205 of the Illinois Income Tax Act.

"Professional Employer Organization" (PEO) means an employee leasing company, as defined in Section 206.1 of the Unemployment Insurance Act.

"Related member" means a person who, with respect to the taxpayer during any portion of the taxable year, is any one of the following:

(1) An individual stockholder, if the stockholder and the members of the stockholder's family (as defined in Section 318 of the Internal Revenue Code) own directly, indirectly, beneficially, or constructively, in the aggregate, at least 50% of the value of the taxpayer's outstanding stock.

(2) A partnership, estate, or trust, and any partner or beneficiary, if the partnership, estate, or trust, and its partners or beneficiaries own directly, indirectly, beneficially, or constructively, in the aggregate, at least 50% of the profits, capital, stock, or value of the taxpayer.

(3) A corporation, and any party related to the corporation in a manner that would require an attribution of stock from the corporation to the party or from the party to the corporation under the attribution rules of Section 318 of the Internal Revenue Code, if the taxpayer owns directly, indirectly, beneficially, or constructively, at least 50% of the value of the corporation's outstanding stock.

(4) A corporation and any party related to that corporation in a manner that would require an attribution of stock from the corporation to the party or from the party to the corporation under the attribution rules of Section 318 of the Internal Revenue Code, if the corporation and all such related parties own in the aggregate at least 50% of the profits, capital, stock, or value of the taxpayer.

(5) A person to or from whom there is attribution of stock ownership in accordance with Section 1563(e) of the Internal Revenue Code, except that, for purposes of determining whether a person is a related member under this paragraph, 20% shall be substituted for 5% wherever 5% appears in Section 1563(e) of the Internal Revenue Code.

"Retained job" means a full-time or part-time position of employment by a taxpayer that would either be eliminated or transferred outside of this State absent an award of the credits in Section 20 of this Act.

"Taxpayer" means an individual, corporation, partnership, or other entity that is subject to the Illinois Income Tax Act, and means each individual member of a unitary business group, as that term is defined in Section 1501 of the Illinois Income Tax Act, and does not mean a unitary business group as a whole.

"Training costs" means 50% of employee wage costs for a new employee during the first 6 months of employment of that new employee.

Section 15. Powers of the Department. The Department, in addition to those powers granted under the Civil Administrative Code of Illinois, is granted and shall have all the powers necessary or convenient to carry out and effectuate the purposes and provisions of this Act, including, but not limited to, power and authority to:

(1) adopt rules deemed necessary and appropriate for the administration of the this Act;

(2) establish forms for applications, notifications, contracts, or any other agreements, and accept applications for credits under this Act at any time during the year;

(3) provide and assist taxpayers pursuant to the provisions of this Act and cooperate with taxpayers that are certified businesses to promote, foster, and support economic development, capital investment, and job creation or retention within the State;

(4) enter into agreements and memoranda of understanding for participation of and engage in cooperation with agencies of the federal government, units of local government, universities, research foundations or institutions, regional economic development corporations, or other organizations for the purposes of this Act;

(5) establish, negotiate, and effectuate any term, agreement, or other document with any person, necessary or appropriate to accomplish the purposes of this Act;

(6) provide for sufficient personnel to permit the administration, staffing, operation, and related support required to adequately discharge the Department's duties and responsibilities described in this Act from funds as may be appropriated by the General Assembly for the administration of this Act;

(7) require applicants, upon written request, to issue any necessary authorization to the appropriate federal, State, or local authority for the release of information concerning a project being considered under the provisions of this Act, with the information requested to include, but not be limited to, financial reports, returns, or records relating to the taxpayer or the project; and

(8) require that a certified business shall at all times keep proper books of record and account in accordance with generally accepted accounting principles consistently applied, with the books, records, or papers related in the custody or control of the certified business open for reasonable Department inspection and audits, and including, without limitation, the making of copies of the books, records, or papers, and the inspection or appraisal of any assets of the certified business or project.

Section 20. Tax credit awards.

(a)For taxable years beginning after December 31, 2016, the Department shall award credits against the tax imposed under subsections (a) and (b) of Section 201 of the Illinois Income Tax Act to certified businesses for jobs created or retained in an amount equal to:

(1) 10% of the wages paid to each eligible new full-time employee during the taxable year in which he or she is hired and each of the subsequent 4 taxable years; 10% of the wages paid to each eligible retained full-time employee in the first year in which the taxpayer is a certified business and each of the subsequent 4 taxable years; and an additional 5% of the wages paid to an eligible new or retained full-time employee during those taxable years if the wages paid to that eligible new or retained full-time employee are more than 150% of the Illinois minimum wage when calculated on an hourly basis; and

(2) 5% of the wages paid to each eligible new part-time employee during the taxable year in which he or she is hired and the subsequent 4 taxable years; 5% of the wages paid to each eligible retained part-time employee in the first year in which the taxpayer is a certified business and each of the subsequent 4 taxable years; and

(3) an additional amount of 10% of the wages of an eligible new or retained full-time or part-time employee employed by the certified business in a labor market area that meets any one of the following criteria:

(A) the labor market area has a poverty rate of at least 20%, according to the latest federal decennial census;

(B) 50% or more of the children in the local labor market participate in the federal free lunch program, according to reported statistics from the State Board of Education, or

(C) 20% or more of the households in the local labor market area receive food stamps, according to the latest federal decennial census.

(4) In lieu of the credits provided under paragraphs (1), (2), and (3) of this subsection (a), an amount equal to 50% of the training costs, as defined in Section 10, associated with each new employee.

(b) The Department shall award credits for investment in an amount equal to:

(1) 50% of the amount claimed by the certified business for the taxable year pursuant to subsection (e) of Section 201 of the Illinois Income Tax Act; or

(2) 50% of the amount claimed by the Certified Business for the taxable year pursuant to subsection (h) or (f) of Section 201 of the Illinois Income Tax.

(c) The maximum amount of all new credits awarded by the Department during any calendar year may not exceed $50,000,000. Any taxpayer who is otherwise qualified for a credit but is not awarded a credit in a taxable year solely because the $50,000,000 cap has been reached is eligible for the credit in the following taxable year.

(d) Any tax credits awarded under this Act and not previously claimed by a taxpayer against its income tax liability under Section 201 of the Illinois Income Tax Act may be sold, assigned, or transferred, in whole or in part, to another Illinois taxpayer subject to all of the following conditions:

(1) A taxpayer awarded an income tax credit under this Act may make only a single sale, assignment, or transfer of the tax credit earned in a taxable year; however, the credit may be sold, assigned, or transferred to one or more transferees.

(2) The tax credit earned by the transferor may be transferred before the due date, including extensions, of the Illinois income tax return of the transferor. The amount of the credit transferred to the transferee or transferees may not exceed the amount of the credit earned by the transferor in the transferor's taxable year.

(3) Written notification of the transfer or sale of credits awarded under this Act shall be submitted to the Department and the Department of Revenue within 30 days after the sale, assignment, or transfer. The Department of Revenue shall provide by rule the information required to be provided in such written notification.

(4) The transfer or sale of tax credits under this subsection does not extend the time during which those tax credits may be used. The carry-forward period for a tax credit that is transferred or sold shall begin on the date on which the tax credit was originally earned.

(5) A transferee shall have only those rights to claim and use the tax credit that were available to the taxpayer that earned the credit, except that credits sold or transferred may not be used against a transferee's withholding tax liability.

(6) If the taxpayer earning the credit is later determined to not be in entitled to the credit, the Department of Revenue shall hold the transferor liable for any tax, penalty, or interest due as a result of such determination.

Section 25. Application to be a certified business.

(a) Any taxpayer proposing to increase investment and employment in Illinois may request designation as a certified business by application to the Department in which the taxpayer states its intent to hire or retain a specified number of full-time or full-time equivalent employees at designated locations in Illinois.

(b) In order to qualify for credits under this Act, the applicant must create net new jobs or retain existing jobs that would be eliminated or transferred to locations outside of Illinois but for the credits to be received by the taxpayer.

(c) After review of the application, the Department may certify the applicant as a certified business.

Section 30. Relocation of jobs in Illinois. A taxpayer may not claim the credits provided by this Act with respect to any jobs that the taxpayer relocates from one site in Illinois to another site in Illinois, except for those jobs certified as retained jobs. Determinations under this Section shall be made by the Department.

Section 35. Duration of the credit. The duration of the credit is 5 taxable years, except as the credit may be applied in a carryover year pursuant to Section 224 of the Illinois Income Tax Act.

Section 40. Recapture of the credit. If a taxpayer fails to maintain any retained job or net new job for the year in which the job was created or retained, then no credit shall be granted for that net new job. If a taxpayer fails to maintain any retained job or net new job for the subsequent 4 taxable years after the year of creation or retention, the credits granted under this Act for those jobs shall be recaptured. Any amounts recaptured pursuant to this Section shall be reported and paid to the Department of Revenue on the income tax return for the taxable year in which the recapture is triggered. Any such amounts repaid by the original due date of the income tax return on which the recapture is reported shall be subject to only to interest, but not penalties under the Uniform Penalty and Interest Act.

Section 45. Certificate of verification.

(a) A certified business claiming credits under this Act shall submit to the Department of Revenue a copy of the Department's certificate of verification under this Act for the taxable year. However, a failure to submit a copy of the certificate with the tax return of the certified business shall not invalidate a claim for a credit.

(b) For a certified business to be eligible for a certificate of verification, the certified business shall provide proof as required by the Department prior to the end of each calendar year, including, but not limited to, attestation by the certified business of the retained jobs and net new employment in the State during the taxable year.

Section 50. Pass-through entity. The shareholders or partners of a certified business that is a pass-through entity shall be entitled to the credits awarded under this Act.

Section 55. Rulemaking. The Department and the Department of Revenue shall adopt rules necessary to implement this Act.

Section 60. Noncompliance; notice; assessment. If the Department determines that a taxpayer who has received a credit under this Act is not complying with the requirements of this Act, the Department shall provide written notice to the taxpayer of the alleged noncompliance. The notice shall provide the basis for the Department's determination and shall allow the taxpayer to request a hearing before the Department of Revenue, provided such request is made within 60 days after the notice is provided to the taxpayer. Any hearing authorized pursuant to this Section shall be subject to the rules of the Department of Revenue and shall be open to the public in the same manner as any other matter before the Department of Revenue. If, after such notice and any hearing, the Department of Revenue determines that a noncompliance exists, the Department of Revenue shall issue to the Department of Commerce and Economic Opportunity a notice to that effect, stating the revocation date.

Section 65. Annual report. On or before July 1 each year, the Department shall submit a report on the tax credit program under this Act to the Governor and the General Assembly. The report shall include information on the number of certifications made under this Act during the preceding calendar year, a description of the subject of each certification, an update of the status of certifications entered into in preceding calendar years, and the sum of credits awarded under this Act.

Section 100. The Illinois Income Tax Act is amended by adding Section 224 as follows:

(35 ILCS 5/224 new)

Sec. 224. Business and employment development tax credit.

(a) For tax years beginning on or after January 1, 2017, a taxpayer who has been certified by the Department of Commerce and Economic Opportunity as a certified business under the Business and Employment Development Tax Credit Act is entitled to a credit against the taxes imposed under subsections (a) and (b) of Section 201 of this Act as provided in this Act. If the taxpayer is a partnership or Subchapter S corporation, the credit shall be allowed to the partners or shareholders in accordance with the determination of income and distributive share of income under Sections 702 and 704 and subchapter S of the Internal Revenue Code. The Department, in cooperation with the Department of Commerce and Economic Opportunity, shall adopt rules to enforce and administer the provisions of this Section. This Section is exempt from the provisions of Section 250 of this Act.

(b) The amount of the credit shall be determined on an annual basis. Except as applied in a carryover year, the credit may not be applied against any State income tax liability in more than 10 taxable years.

(c) In no event shall a credit under this Section reduce the taxpayer's liability to less than zero. If the amount of the credit exceeds the tax liability for the year, the excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year. The tax credit shall be applied to the earliest year for which there is a tax liability. If there are credits for more than one year that are available to offset a liability, the earlier credit shall be applied first.

(d) No credit shall be allowed with respect to any certification for any taxable year ending after the revocation of the certification by the Department of Commerce and Economic Opportunity. Upon receiving notification by the Department of Commerce and Economic Opportunity of the revocation of certification, the Department shall notify the taxpayer that no credit is allowed for any taxable year ending after the revocation date, as stated in such notification. If any credit has been allowed with respect to a certification for a taxable year ending after the revocation date, any refund paid to the taxpayer for that taxable year shall, to the extent of that credit allowed, be an erroneous refund within the meaning of Section 912 of this Act.

(e) A sale, assignment, or transfer of the tax credit award may be made by the taxpayer in accordance with rules adopted by the Department of Commerce and Economic Opportunity.

(f) The terms used in this Section have the meanings given to those terms in the Business and Employment Development Tax Credit Act.

Section 999. Effective date. This Act takes effect upon becoming law.