Current through Register Vol. 48, No. 38, September 20, 2024
a)
For tax years beginning on or
after January 1, 2025, 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 project that is
subject to an agreement between the taxpayer and the Department of Commerce and
Economic Opportunity (DCEO) pursuant to the Manufacturing
Illinois Chips for Real Opportunity (MICRO) Act [35 ILCS 45] (MICRO
Act). (IITA Section 239(a))
b) For
the purposes of the MICRO Investment Tax Credit, "Project" or "MICRO Illinois
Project" shall have the same meaning as when used in Section 110-10 of the
MICRO Act.
c)
The credit
shall be 0.5% of the basis for such property. (IITA Section
239(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 239(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 110-100 of the MICRO 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 239;
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 MICRO 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 MICRO Illinois Project by the taxpayer; and
A) The term "used at the site of the MICRO
Illinois Project" means that the property for which the credit is being claimed
is physically located within the boundaries of a MICRO Illinois Project site
certified by DCEO. Storage of property in a MICRO 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 MICRO Illinois Project site in
order to demonstrate use of the property.
B) Mobile property, such as vehicles, must be
used predominantly at the MICRO Illinois Project site in order to qualify for
the credit.
i) Removal of such property from
the MICRO 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 MICRO Illinois Project
site.
ii) Mobile property is
considered to be predominantly used at the MICRO 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 MICRO Illinois Project site to deliver
goods both in Illinois and out-of-state, then the temporary absence of its
trucks from the MICRO 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 MICRO
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 239(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 that
established the credit.
EXAMPLE 1: Corporation A purchases a used pickup truck for
use at its MICRO 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 239(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
MICRO 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 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 239(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 239(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 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 MICRO 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. (IITA Section 239(f)) 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 239(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 2025, taxpayer places qualifying property with a
basis of $65,000 into service at the site of a MICRO Illinois Project and
computes a credit for the year of $325 ($65,000 x 0.5%). Taxpayer's 2025 income
tax is $325. 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 2025 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 2026, taxpayer must recompute its
2025 credit by eliminating the disqualified property (($65,000 - $5,000) x 0.5%
=$300). This recomputed credit is subtracted from the credit actually used in
2025 against the income tax ($325 - $300 = $25) and the difference is added to
taxpayer's 2026 income tax.
j) Partnerships and Subchapter S Corporations
1)
If the taxpayer is a partnership
or a 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
IRC, or as otherwise agreed by the partners or shareholders, provided
that such agreement shall be executed in writing prior to the due date of the
return for the taxable year and meet such other requirements as the Department
may establish by rule. Partnership has the meaning prescribed in IITA Section
1501(a)(16). (IITA Section 251)
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 110-100 of the MICRO
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 MICRO Investment Tax
Credit shall not be eligible for the investment tax credits in Section 201(e),
(f), or (h) of the IITA. (35 ILCS
45/110-100)
