Current through Register Vol. 48, No. 38, September 20, 2024
a) A
taxpayer shall be allowed a credit against the tax imposed by IITA Section
201(a) and (b) for investment in qualified property placed in service in an
enterprise zone created pursuant to the Illinois Enterprise Zone Act [20 ILCS
655 ] or for qualified property placed in service on or after July 1, 2006 in a
river edge redevelopment zone established pursuant to the River Edge
Redevelopment Zone Act [65 ILCS 115 ].
b) For partners and shareholders of
Subchapter S corporations, there shall be allowed an enterprise zone or river
edge redevelopment zone investment credit to be determined 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.
c) The credit shall be .5% of the basis for
property in a zone.
d) The credit
shall be available only in the taxable year in which the property is placed in
service in the enterprise zone or river edge redevelopment zone and shall not
be allowed to the extent that it would reduce a taxpayer's liability for the
tax imposed by IITA Section 201(a) and (b) below zero.
1) Qualifying property shall be considered
placed in service in an Illinois enterprise zone or river edge redevelopment
zone on the date on which the property is placed in a condition or state of
readiness and availability for a specifically assigned function.
2) Property that is disposed of, is moved out
of the enterprise zone or river edge redevelopment zone, or ceases to qualify
for any other reason during the same taxable year it was placed in service in
an enterprise zone or river edge redevelopment zone will not be considered in
computing the credit for the taxable year.
3) The credit shall be allowed for the tax
year in which the property is placed in service, or, if the amount of the
credit exceeds the original liability or the liability as later amended, the
excess may be carried forward and applied to the tax liability of the 5 taxable
years following the excess credit year.
4) The credit shall be applied to the
earliest year for which there is a liability.
5) If there is credit for more than one tax
year that is available to offset a liability, the credit accruing first in time
shall be applied first.
e) The term "qualified property" means
property that is:
1) tangible, whether new or
used. The terms "new" and "used" shall have their commonly ascribed meanings.
Buildings and structural components of buildings may be qualified property. The
term tangible property generally includes:
A)
objects or things that are physically capable of being touched and seen and
over which a person may assert rights of ownership.
B) personalty or realty, which may consist of
such items as buildings, component parts of buildings, machinery, equipment and
vehicles.
C) items such as stock
certificates, bonds, notes and the like are not tangible personal property.
While the certificate or paper may be tangible, the item itself, the share of
ownership of a corporation or the promise to pay, is an intangible that is
memorialized by the paper.
2) depreciable pursuant to IRC section 167,
except that 3-year property as defined in IRC section 168(c)(2)(A) is not
eligible for the credit.
A) Depreciable
property is property used in the trade or business of a taxpayer, or held for
production of income, that is subject to wear and tear, exhaustion, or
obsolescence.
B) Property that is
depreciated under the Modified Accelerated Cost Recovery System (MACRS), as
provided by IRC section 168, is considered depreciable pursuant to IRC section
167 for purposes of the enterprise zone or river edge redevelopment zone
Investment Credit.
C) Examples of
tangible property that is not depreciable include land, inventories or
stock-in-trade, natural resources, and coin or currency.
D) The provisions of 26 CFR 1.167(a)-4 will
be utilized in making determinations as to whether particular leasehold
improvements are depreciable.
E)
IRC section 179 allows taxpayers, under certain circumstances, to expense a
designated dollar amount of equipment purchased in a single tax year. Based on
this provision, if the total cost of the property was equal to or less than the
amount specified under IRC section 179, the taxpayer has the option of
expensing the cost all in one year as a depreciation expense. While the
property does have a useful life of four or more years, since the election was
made to completely expense the cost of the property in one year, the property
has no federal depreciable basis and does not have a basis upon which to
compute the Illinois investment tax credit. Property not fully expensed under
section 179 would qualify for the credit based on the cost of the depreciable
property reduced by the section 179 deduction.
3) acquired by purchase as defined in IRC
section 179(d).
A) A purchase is any
acquisition of property except:
i) an
acquisition from a person whose relationship to the acquiring person is such
that a resulting loss would be disallowed under IRC section 267 or
707(b);
ii) an acquisition by one
component member of a controlled group from another component member of the
group;
iii) an acquisition of
property if the basis of the property in the hands of the person acquiring it
is determined in whole or in part by its adjusted basis in the hands of the
person from whom the property was acquired; or
iv) an acquisition of property, the basis of
which is determined under IRC section 1014(a). IRC section 1014(a) covers
property received from a decedent. Property acquired by bequest or demise is
not acquired by purchase.
B) For purposes of determining whether
property is acquired by purchase as defined by IRC section 179(d), the family
of an individual includes only his or her spouse and ancestral and lineal
descendants of the individual and his or her spouse.
C) For purposes of determining whether
property is acquired by purchase only, a controlled group has the same meaning
as in IRC section 1563(a), except stock ownership of only 50% or more is
required (also see
26
CFR 1.179-4) .
D) Property that the taxpayer constructs,
reconstructs or erects is generally considered acquired by purchase.
4) used in the enterprise zone or
river edge redevelopment zone by the taxpayer.
A) The term "used in an Illinois enterprise
zone or river edge redevelopment zone" means that the property for which the
credit is being claimed is physically located within the boundaries of an
Illinois enterprise zone certified by the Illinois Department of Commerce and
Economic Opportunity or river edge redevelopment zone established pursuant to
the River Edge Redevelopment Zone Act from the time it is placed in service and
while it is being utilized by the taxpayer claiming the credit in that
taxpayer's business operation.
i) Storage of
property in an enterprise zone or river edge redevelopment zone will not
constitute use. The taxpayer must make use of, convert to its service, avail
itself of, or employ the property in the enterprise zone or river edge
redevelopment zone in order to demonstrate use of the property in the
enterprise zone or river edge redevelopment zone.
ii) A lessor may claim the credit for
otherwise qualified property if the property is physically located in an
Illinois enterprise zone or river edge redevelopment zone from the time it is
placed in service and all other conditions of eligibility for the credit are
met.
iii) A lessee of tangible
property may never claim the credit because a lessee has not acquired the
property by purchase.
B)
Mobile property, such as vehicles, must be used predominantly in an Illinois
enterprise zone or river edge redevelopment zone in order to qualify for the
credit.
i) Removal of such property from the
enterprise zone or river edge redevelopment zone for a temporary or transitory
purpose will not disqualify the property so long as it continues to be used
predominantly in the enterprise zone or river edge redevelopment
zone.
ii) Mobile property is
considered to be predominantly used in an enterprise zone or river edge
redevelopment zone if usage in the enterprise zone or river edge redevelopment
zone exceeds usage outside of the enterprise zone or river edge redevelopment
zone.
5) not
property that has been previously used in Illinois in such a manner and by such
a person as would qualify for the credit.
A)
Generally, used property will not qualify for the credit if it was previously
used in Illinois in such a manner that it could have qualified for the
credit.
B) However, property that
would otherwise qualify for the credit will not be disqualified because it was
previously used in Illinois in such a manner that it could have qualified for
the credit, if that use pre-dated the effective date of the law that
established the credit.
EXAMPLE 1: Corporation A purchases a used pickup truck for
use in its manufacturing business in Illinois from an Illinois resident who
used the truck for personal purposes in Illinois. If the truck meets all other
requirements for the credit, it will not be disqualified because it has been
previously used in Illinois for a non-qualifying purpose.
EXAMPLE 2: Corporation A purchases a used pickup truck from
Corporation B. Corporation B used the truck in its business in a qualifying
manner and could have claimed the credit for the truck, but did not.
Corporation A may not claim the credit for the truck because the truck has been
previously used in Illinois in such a manner that it could have qualified for
the credit.
f) The basis of qualified property shall be
the basis used to compute the depreciation deduction for federal income tax
purposes, including any bonus depreciation deduction allowed under IRC section
168(k). If the basis of the property for federal income tax depreciation
purposes is increased after it has been placed in service in the enterprise
zone or river edge redevelopment zone by the taxpayer, the amount of the
increase shall be deemed property placed in service on the date of the increase
in basis.
g) If, during any taxable
year, any property ceases to be qualified property in the hands of the taxpayer
within 48 months after being placed in service, or the situs of any qualified
property is moved outside the enterprise zone or river edge redevelopment zone
within 48 months after being placed in service, the tax imposed under IITA
Section 201(a) and (b) for the taxable year shall be increased.
1) Any property disposed of by the taxpayer
within 48 months after being placed in service ceases to qualify.
A) A taxpayer disposes of property when he or
she sells the property, exchanges or trades-in worn-out property for new
property, abandons the property or retires it from use.
B) Property destroyed by casualty, stolen, or
transferred as a gift is disposed of property.
C) Property that is mortgaged or used as
security for a loan is not disposed of property, provided that the taxpayer
continues to use the property in its business within an Illinois enterprise
zone or river edge redevelopment zone.
D) Property transferred to a trustee in
bankruptcy is considered disposed of property.
E) A transfer of property by foreclosure is a
disposition of property.
F) A
reduction in the basis of qualified property resulting from a redetermination
of the purchase price of the property is a disposition of property to the
extent of the reduction in basis in the year in which the reduction takes
place. For example, this would occur when property is purchased and placed in
service in one year, and in a later year the taxpayer receives a refund of a
portion of the original purchase price.
2) Any property converted to personal use
ceases to qualify for the credit.
3) The increase in tax shall be determined
by:
A) recomputing the investment credit that
would have been allowed for the year in which credit for the property was
originally allowed by eliminating the property from the computation,
and
B) subtracting the computed
credit from the amount of credit previously allowed. The difference between the
recomputed credit and the credit actually claimed is added to the income tax
for the year in which the property ceased to qualify or was moved outside of
the enterprise zone or river edge redevelopment zone.
EXAMPLE: In 2007, Corporation A places qualifying property
with a basis of $55,000 into service in an enterprise zone or river edge
redevelopment zone located in Illinois and computes a Section 201(f) enterprise
zone or river edge redevelopment zone Investment Tax Credit of $275 ($55,000 x
.5%). Corporation A's 2007 income tax liability is $420. After the application
of the credit, Corporation A has remaining income tax liability of $145. In the
following year, Corporation A moved a qualifying asset having a basis in 2007
of $5,000 from the enterprise zone or river edge redevelopment zone to another
location in Illinois. As a result, Corporation A is required to recapture a
portion of the enterprise zone or river edge redevelopment zone Investment
Credit that was applied against its 2007 income tax liability. In order to
determine its additional income tax for 2008, Corporation A must recompute its
2007 enterprise zone Investment Tax Credit by eliminating the disqualified
property ($55,000 - $5,000 x .5% = $250). This recomputed credit is subtracted
from the enterprise zone Investment Tax Credit actually used in 1985 ($260 -
$250 = $10), and the difference is added to Corporation A's 2008 income tax
after application of the Investment Tax Credit.
h) Automatic Sunset of Credit for
River Edge Redevelopment Zone Property. IITA Section 250(a) provides that, if a
reasonable and appropriate sunset date is not specified in the Public Act that
creates a credit, a taxpayer shall not be entitled to take the credit for tax
years beginning on or after 5 years after the effective date of the Public Act
creating the credit. IITA Section 250(b) provides that any credit scheduled to
expire in 2011, 2012, or 2013 by operation of this Section shall be extended by
5 years. The credit for property placed in service in a river edge
redevelopment zone was created by PA 94-1021, which had an effective date of
July 12, 2006, and specified no sunset date for the credit. Accordingly, no
credit is allowed under this Section for property placed in service in a river
edge redevelopment zone for any taxable year beginning on or after July 12,
2016.
