Current through Register Vol. 48, No. 38, September 20, 2024
a)
For tax years beginning on or
after November 16, 2021, a taxpayer shall be allowed a credit
against the tax imposed by IITA Section 201 (a) and (b) for
investment in qualified property which is placed in service at the site of a
REV Illinois Project subject to an agreement between the taxpayer and the
Department of Commerce and Economic Opportunity (DCEO)
pursuant to the Reimagining Electric Vehicles in Illinois Act
[20 ILCS
686 ] (REV Illinois Act). (IITA Section
237(a))
b) For the purposes of the
REV Illinois investment tax credit, "Project" or "REV Illinois Project" shall
have the same meaning as when used in Section 10 of the REV Illinois
Act.
c)
The credit shall be
0.5 % of the basis for such
property. (IITA Section 237(a))
d)
The credit shall be available only
in the taxable year in which the property is placed in service 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) to less than
zero. 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 tax
liability for that year, whether it exceeds the original liability or the
liability as later amended, such excess may be carried forward and applied to
the tax liability of the 5 taxable years following the excess credit year. The
credit shall 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 earlier credit shall be applied first.
(IITA Section 237(a))
e) The credit
allowed under this Section shall be taken in the taxable year that includes the
date of the tax credit certificate issued by DCEO under Section 100 of the REV
Illinois Act.
f)
The term
"qualified property" means property which:
1)
is tangible, whether new or
used;A) Tangible property includes
objects or things that are physically capable of being touched and seen and
over which a person may assert rights of ownership.
B) Tangible property consists of personal or
real property and includes such items as buildings, structural
components 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.
D) The terms "new or used"
shall have their commonly ascribed meanings.
2)
is depreciable pursuant to
Internal Revenue Code (IRC)
Section 167, except that "3-year
property" as defined in IRC
Section 168 is not eligible for
the credit provided by IITA Section 237;
A) Depreciable property is property used in
the trade or business of a taxpayer, or held for production of income, which 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 this
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 Internal Revenue Service
(IRS) Regulation Section
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 REV Illinois investment tax credit. Property not fully expensed
under IRC Section 179 would qualify for the credit based on the cost of the
depreciable property reduced by the IRC Section 179
deduction.
3)
is
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 Sections 267 or 707(b),
ii) an acquisition by one component member of
a controlled group from another component member of the same controlled
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 the individual's spouse and the ancestral and
lineal descendants of the individual and the individual's 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 C.F.R.
1.179-4) .
D) Property that the taxpayer constructs,
reconstructs or erects is generally considered acquired by purchase.
E) A lessee of tangible property may never
claim the credit because a lessee has not acquired the property by
purchase.
4)
is
used at the site of the REV Illinois Project by the taxpayer; and
A) The term "used at the site of the REV
Illinois Project" means that the property for which the credit is being claimed
is physically located within the boundaries of a REV Illinois Project site
certified by DCEO. Storage of property in a REV Illinois Project site will not
constitute use. The taxpayer must make use of, convert to its service, avail
itself of, or employ the property in the REV Illinois Project site in order to
demonstrate use of the property.
B)
Mobile property, such as vehicles, must be used predominantly at the REV
Illinois Project site in order to qualify for the credit.
i) Removal of such property from the REV
Illinois Project site for a temporary or transitory purpose will not disqualify
the property so long as it continues to be used predominantly in the Illinois
operation of the taxpayer at the REV Illinois Project site.
ii) Mobile property is considered to be
predominantly used at the REV Illinois Project site if usage at the site
exceeds usage outside the site. For example, if a taxpayer sometimes uses its
trucks based at a REV Illinois Project site to deliver goods both in Illinois
and out-of-state, then the temporary absence of its trucks from the REV
Illinois Project site does not disqualify them as qualified property used at
the site by the taxpayer.
C) A lessor may claim the credit for
otherwise qualified property if the property is physically located in a REV
Illinois Project site from the time it is placed in service and all other
conditions of eligibility for the credit are met.
5)
has not been previously used in
Illinois in such a manner and by such a person as would qualify for the credit
provided by this Section. (IITA Section 237(b))
A) Generally, used property will not qualify
for the credit if it was previously used in Illinois in such a manner and by
such a person 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 and by such a person that it could have qualified
for the credit, if that use pre-dated the effective date of the law (11/16/21)
that established the credit.
EXAMPLE 1: Corporation A purchases a used pickup truck for
use at its REV Illinois Project site 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.
g)
The basis of qualified property
shall be the basis used to compute the depreciation deduction for federal
income tax purposes. (IITA Section 237(c))
1) In computing the amount of credit
available for a taxable year, the credit rate will be applied to the total
basis of all qualified property that is placed in service at the site of the
REV Illinois Project during the taxable year, provided the property continues
to qualify on the last day of the taxable year.
2)
If the basis of the property for
federal income tax depreciation purposes is increased after it has been placed
in service at the site of the REV Illinois Project by the taxpayer, the amount
of such increase shall be deemed property placed in service on the date of such
increase in basis. (IITA Section 237(d))
3) Property that has been fully expensed
under IRC Section 179 has no federal depreciable basis with which to compute
the credit. Property not fully expensed under IRC Section 179 can still qualify
for the credit.
h)
The term "placed in service" shall have the same meaning as
under IRC Section 46 (also see IRS Regulation Section
1.46 -3). (IITA Section 237(e))
Property is placed in service for purposes of the credit in the earlier of the
following taxable years:
1) The taxable year
in which, under the taxpayer's depreciation practice, the period for
depreciation with respect to such property begins, or
2) The taxable year in which the property is
placed in a condition or state of readiness and availability for a specifically
assigned function.
i)
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 from the REV Illinois
Project site within 48 months after being placed in service, the tax imposed
under IITA Section 201(a) and (b) for such taxable year shall
be increased.
1) Any property
disposed of by the taxpayer within 48 months after being placed in service
ceases to qualify for the credit.
A) A
taxpayer disposes of property when the taxpayer 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 at the REV
Illinois Project site.
D) Property
transferred to a trustee in bankruptcy is considered disposed of property in
the year the property is transferred to the trustee.
E) A transfer of property by foreclosure is a
disposition of property.
F)
A reduction of the basis of qualified property resulting from a
redetermination of the purchase price of the property is a
disposition of qualified property to the extent of such 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 which would have been allowed for the
year in which credit for such property was originally allowed by eliminating
such property from such computation, and
B)
subtracting such recomputed credit
from the amount of credit previously allowed. (IITA Section 237(f))
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.
EXAMPLE: In 2021, taxpayer places qualifying property with a
basis of $55,000 into service at the site of a REV Illinois Project and
computes a credit for the year of $275 ($55,000 x 0.5%). Taxpayer's 2021 income
tax is $275. After application of the credit, taxpayer has no remaining income
tax liability. In the following year, taxpayer moved a qualifying asset having
a basis of $5,000 from Illinois to Missouri and is required to recapture a
portion of the credit applied against its 2021 income tax liability. The credit
applied against taxpayer's income tax must be recaptured because the property
was moved outside of Illinois and no longer qualifies for the credit. In order
to determine its additional income tax for 2022, taxpayer must recompute its
2021 credit by eliminating the disqualified property (($55,000 - $5,000) x 0.5%
= $250). This recomputed credit is subtracted from the credit actually used in
2021 against the income tax ($275 - $250 = $25) and the difference is added to
taxpayer's 2022 income tax.
j) Partnerships and Subchapter S Corporations
1)
For partners, shareholders of
Subchapter S corporations, and owners of limited liability companies, if the
liability company is treated as a partnership for purposes of federal and State
income taxation, there shall be allowed a credit under this Section 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
IRC. (IITA Section 237(a))
2) The
credit earned by a partnership or a subchapter S corporation will be treated as
earned by its owners as of the last day of the taxable year of the partnership
or subchapter S corporation in which the tax credit certificate is issued by
DCEO under Section 100 of the REV Illinois Act.
3) The credit shall be allowed to each owner
in the taxable year of the owner in which the taxable year of the partnership
or subchapter S corporation ends and may be carried forward to the 5 succeeding
taxable years of the owner until used.
4) Any credit passed through to a partnership
or subchapter S corporation under this subsection shall pass through to its
partners or shareholders in the same manner as a credit earned by the
partnership or subchapter S corporation.
k) To claim the credit, a taxpayer shall
attach to its Illinois income tax return:
1) a
copy of the tax credit certificate and annual certification (if any) issued by
DCEO; and
2) in the case of a
partner in a partnership or shareholder of a subchapter S corporation that
earned the credit, a Schedule K-1-P or other written statement from the
partnership or subchapter S corporation stating:
A) the portion of the total credit shown on
the tax credit certificate that is allowed to that partner or shareholder;
and
B) the taxable year of the
partnership or subchapter S corporation in which the tax credit certificate was
issued.
l)
Any taxpayer qualifying for the REV Illinois Investment Tax Credit
shall not be eligible for the investment tax credits in Section 201(e), (f), or
(h) of the IITA. (20 ILCS 686/100)
