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Late on January 20th, the State of Illinois passed legislation to extend the Economic Development for a Growing Economy (EDGE) Tax Credit through April 30, 2017. This brief extension gives companies the ability to take advantage of a powerful program that recently expired on December 31, 2016. Given news from Springfield that the Illinois corporate and individual rates may be rising by nearly 2%, it is crucial to lock in place this multi-year tax reduction mechanism while it is still available.
Illinois designed the EDGE program to attract and retain companies that are considering locating or expanding operations within Illinois. Through the offer of a state income tax credit, the EDGE program provides a financial incentive for Illinois capital investment and job creation.
The non-refundable EDGE credit, calculated by the state income taxes withheld on the newly created jobs, is awarded on a project-by-project basis to companies actively considering investment multiple states. The credit offsets, and in some cases, nearly eliminates Illinois corporate, and shareholder/member income tax for up to 15 years per project. Any excess credits carry forward and may be used for five years.
To participate in the EDGE program, each company must submit a written request for designation of its project and meet the following requirements, including:
- The applicant is in the manufacturing, processing, assembling, warehousing, distribution, research and development or tourism service business.
- The company will commit to a capital investment in Illinois of at least $5 million and a minimum creation of 25 new full-time jobs or, if the applicant has 100 or fewer employees, the thresholds adjust to $1 million of new capital investment and creation of at least five (5) new, full-time jobs.
- Company demonstrates competitiveness of the project in that without the receipt of tax credits the project may be located in another state.
There is no requirement that the capital investment and job creation begin in 2017; the program provides a window up to two years for a project to begin.
Illinois Department of Commerce and Economic Opportunity (DCEO) is advising companies with potential EDGE Tax Credit projects to submit their applications by March 31st in order to guarantee that all of the review, processing and final signatures will be completed in time to approve and award the EDGE credits by the April 30, 2017 deadline.
Given the impact of EDGE credits, applying for and securing an EDGE award is a competitive process. The period to file for the program is short but provides enough time for those with experience to gather the required information and draft project applications worthy of tax credit awards. Howard & Howard recently assisted on a project that closed right before the initial year-end sunset date and will create over $30 million in tax credits over a fifteen-year period.
Companies considering capital investment and job creation over the next three (3) years should evaluate whether they will have Illinois income tax over the next 10 to 15 years. If the answer is yes, EDGE credits result in cash benefit. The state has yet to identify a willingness to extend further the sunset date of the EDGE or to introduce a replacement program.
Please contact any of the members of the Howard & Howard Credits and Incentives team for more information, or contact our business tax planning team for information on other corporate tax issues.