December 13, 2011

Clip BoardA job creation and retention package and an increase in state income tax exemptions won final approval in the Senate Tuesday afternoon, Dec. 13. The measures now go to the Governor, who is expected to sign them.

The job creation and retention measure, SB 397, not only contained high profile changes aimed at keeping the CME Group and Sears Holding Company in Illinois, but also included a wide range of savings sought by businesses, including provisions to assist Champion Labs, at their downstate facility in Albion and at an office in Lake Forest.

The measure, which won approval in the Senate on a 44-9 vote, also extends the state's Research and Development tax credit for five years, reinstates a Net Operating Loss Deduction, reduces the Illinois estate tax, creates an Illinois Tax Tribunal, creates an income tax credit for live theater and extends a number of other business tax credits for five years.

Major provisions of the jobs package (SB 397) include the following:

CME Group

Creates a new tax apportionment method for the Chicago Mercantile Exchange and other eligible entities. Under the new apportionment method, income from electronic trades will be apportioned to Illinois at a 63.77% rate in 2012 and then drop down to 27.54 in subsequent years. This was designed to reflect the belief that the majority of trades conducted electronically represent out-of-state transactions. Floor trades, which occur in person at the Mercantile Exchange will continue to be apportioned 100% to Illinois.

Sears Holding Company

Gives two tax incentives to Sears, an Economic Development for a Growing Economy (EDGE) tax credit and an extension of a local Economic Development Area (EDA). The EDGE tax credit will allow the company to take a credit against its employee withholding liability. This is valued at $15 million annually for 10 years. To qualify the company must employ at least 4,250 full time workers at its corporate headquarters in Illinois, show a minimum of $40 billion in total revenue and make at least a $300 million capital investment. Extending the life of the economic development area will allow the company to recover about $125 million in development costs which they have already paid out.

Champion Labs

Offers a 10 year EDGE Tax Credit for employee expansion for Champion Lab's Albion facility and for office relocation in Lake Forest. Champion was founded in Illinois in 1955 and is one of the world's largest manufacturers of automobile and other air filters. Estimated cost is $350,000 each year for 10 years beginning in FY13.

Research and Development Credit

Reinstates the Research and Development Credit for five years (until Jan. 1, 2016) Also allows for a five year carry forward (which means that companies can use the tax credit against future tax liabilities for up to five years) The credit is designed to encourage companies to invest in research and develop in Illinois.

Net Operating Loss

Reinstates the Net Operating Loss Deduction beginning with the 2012 tax year. Caps the amount used as a carry forward at $100,000 per year. Estimated cost of $50 million in FY13 and $50 million in subsequent years.

Estate Tax

Increases the state's current $2 million inheritance tax exemption to $4 million over two years. Increases to $3.5 million on January 1 and to $4 million on Jan. 1, 2013. Estimated cost of $41million in year one and $64 million in future years. This is viewed as a high priority of small businesses and farmers. Many small businesses and farms are organized as sole proprietorships, as opposed to corporations. When the owner dies, his or her heirs are subject to the tax, which can force the closure or sale of the business or farm.

Live Theater Tax Credit

Creates a Live Theater Tax Credit for pre-Broadway and long-run shows to offset labor and production costs. The total amount of the credit for all live theater is limited to $2 million.

Investment Tax Credit

Extends, for five years, from Dec. 31, 2013 to Dec. 31, 2018, the investment tax credit provided under the Corporate Personal Property Replacement Tax.

Illinois Tax Tribunal

Creates an Independent Tax Tribunal Board to assume all rights and powers (1) pertaining to the protest of notices of tax liabilities or deficiencies administered by the Department of Revenue or (2) revocations of licenses issued by the Department of Revenue.

Gasohol Tax Extension

Extends the sales tax exemptions, credit and deductions granted to gasohol or other agri-fuels. Currently set to expire on 12/31/13, will now be extended for five years to 12/31/18.

Automatic Sunset Provision

Removes the automatic sunset provisions for any tax credits or deductions that were to expire in 2011, 2012 or 2013. These include the following: Replacement Tax Investment Credit, TECH-PREP Credit, Affordable Housing Donation Credit, Ex-Felon Jobs Credit, Veterans Jobs Credit, River Edge Zone Credit, Historic Preservation in River Edge Redevelopment Zone Credit and Angel Investment Credit.