Jobs Tax Credit
Jacksonville/Morgan County Enterprise Zone Jobs Tax Credit
The Jacksonville/Morgan County Enterprise Zone Jobs Tax Credit offers employers a tax credit on their Illinois income taxes for hiring employees who are certified as dislocated workers or economically disadvantaged individuals. The credit is available for eligible employees hired on or after January 1, 1986.
How Much is the Tax Credit?
An employer who conducts a trade or business in an enterprise zone is allowed a credit of $500 per eligible employee hired to work in a zone during the taxable year. Any unused portion of the credit may be carried forward five years. The credit must be applied to the earliest year for which there is a tax liability.
How Do Employers Qualify for the Jobs Tax Credit?
To qualify for the credit: a minimum of 5 eligible employees must be hired in a zone during the taxable years; and, the taxpayer’s total employment within the zone must increase by 5 or more full-time employees beyond the total employed in the zone at the end of the previous tax year for which a jobs tax credit was taken, or beyond the total employed as of December 31, 1985, whichever is later.
How Do Individuals Quality for the Jobs Tax Credit?
An Employee must be:
- Certified by a Substate Grantee (SSG) or Service Delivery Area Administrative Entity (SDA) as a dislocated worker or economically disadvantaged individual.
- Employed in an enterprise zone where the employee either works in the zone or the zone is the base of operations for the services performed; and,
- Employed at least 180 consecutive days for 30 or more hours per week.
How Do Employers Obtain Jobs Tax Credit Eligible Individuals?
An employer should list job openings with the local SSG or SDA, note that the business is within an enterprise zone, and specify that the business seeks to hire certified dislocated works or economically disadvantaged individuals. If employers have job applicants who have not been referred by the DWC or SDA, they should first refer them to the local SSG or SDA office to determine if they are eligible prior to being hired.
Eligible individuals will be issued a Jobs Tax Credit Certification Voucher to present to prospective employers. When a person is hired, the employer keeps a copy of the voucher for tax records. That’s all the paperwork required.
Does the Jacksonville/Morgan County Enterprise Zone offer benefits to lenders?
Yes! The Illinois Income Tax Act 35 ILCS 5/203 provides that financial institutions in Illinois, such as banks and savings and loans, are eligible for a special deduction from their Illinois Corporate Income Tax Return. Such institutions may deduct from their taxable income an amount equal to the interest received from a loan for development in an enterprise zone. This is limited to the interest earned on loans or portions of loans secured by property which is eligible for the enterprise zone investment tax credit. Please refer to the section on the Investment Tax Credit for a definition of eligible property.
Do stockholders of a corporation doing business in an Enterprise Zone receive any benefits?
Yes! Individuals may claim a 100% subtraction modification for dividends received from a corporation that conducts substantially all of its business operations in an Illinois Enterprise Zone or Zones. See Illinois Department of Revenue Schedule 1299-A Tax Subtraction’s and Credits for details.
What is the enterprise zone property tax abatement incentive?
The Revenue Act 35 ILCS 200/18-170, as amended provides that any taxing district may order the County Clerk to abate (that is, to give up) any portion of its taxes on real property, or on any particular class thereof, located within a zone and upon which new improvements have been constructed or upon which existing improvements have been renovated or rehabilitated.
Are taxes reduced on the current value of the property (or on existing improvements)?
No. The abatement applies only to taxes on the increase in assessed value attributable to the new construction, renovation, or rehabilitation. Taxes based on the assessed value of land and existing improvements continue to be extended and collected.
If property tax abatement is authorized, are new improvements made to property located with a zone assessed?
Yes. By law, every time property is improved, it is reassessed.
How do these incentives affect the multiplier?
They don’t. The multiplier or equalization factor is the application of a percentage increase or decrease, generated by the Illinois Department of Revenue, in order to adjust assessment levels in various counties to the same percentage of full value. Multipliers are not effected by the enterprise zone property tax abatement provision or by county assessment reductions.
Does the abatement of taxes on improvements in an enterprise zone affect the tax rate?
Yes, however in most cases the effect will be marginal. Tax rates depend on the levy (amount of tax revenue the local government is raising) and the size of the tax base (total equalized assessed valuation of the district less homestead exemptions, plus the value of any state assessed property). Under normal circumstances, the tax rate for a district is calculated by dividing the district’s tax levy by its tax base. The greater the tax base, the lower the rate needed to generate the amount of the levy.
Under the Enterprise Zone Program, the value of abated property is subtracted from the tax base prior to the calculation of the tax rate. In most cases, the tax base is large enough and the enterprise zone abatements are low enough that the overall effect is negligible.
How is property tax abated in the Jacksonville/Morgan County Enterprise Zone?
The enterprise zone provides property tax abatements on new construction, expansion or a revitalization project that would cause an increase in assessed valuation of the property. Following are several different schedules for the abatement periods by their classification.
Commercial and Industrial Projects
- 100% for the first three years
- 80% for the fourth year
- 60% for the fifth year
- 40% for the sixth year
- 20% for the seventh year
- Fully taxable the eighth year
Owner Occupied Single or Multi- Family Structures
Poverty – 100% for four years
Rental Multi Family
Poverty – 100% for ten years (Occupied by 51% meeting poverty test)
Non-Poverty – 100% for four years
(Occupied by 50% or less meeting poverty test)
What is the sales tax deduction?
The “Retailers’ Occupation Tax Act” 35 ILCS 120/5k, as amended provides that: “Each retailer whose place of business is within a county or municipality which has established an enterprise zone pursuant to the “Illinois Enterprise Zone Act” and who makes a sale of building materials to be incorporated into real estate in such enterprise zone by remodeling, rehabilitation or new construction, may deduct receipts from such sales when calculating the tax imposed by this Act.” To be eligible in the Jacksonville Enterprise Zone, the project for which the materials are to be used must require a building, plumbing or electrical permit.
What is the retailer’s role?
A retailer who is located within Jacksonville and who makes a sale of building materials to be incorporated into that enterprise zone may offer a point of sale exemption of the sales tax and deduct the receipts from those sales on the retailers sales tax return, provided, however, that the project for which the materials are to be used is of the nature and scope for which a building permit is required and has been obtained. The retailer does not charge sales tax on these sales.
Who is an eligible retailer?
Any retailer whose place of business is within the corporate limits of the municipality or within the unincorporated area of the county that authorized the enterprise zone is eligible to deduct receipts from such sales when calculating the tax imposed by the “Retailer’ Occupation Tax Act” (ROTA).
What is the purchaser’s role?
The purchaser must give the retailer a building permit providing the address of the property located within the enterprise zone and attesting that the materials purchased will be incorporated into that property only.
Do all retailers offer a point of sale exemption?
No. Retailers are not required by law to participate. The purchaser must ask the retailer for cooperation on this incentive. Retailers have, however, demonstrated good cooperation throughout the history of this program, as this incentive permits them to give customers a “break” without cost to themselves.
What qualifies as “building materials” eligible for the sales tax deduction?
Building materials that are eligible for the enterprise zone sales tax deduction include items that are permanently affixed to real property such as lumber, mortar, glued-down carpets, paint, wallpaper and similar affixed items.
Jacksonville/Morgan County Enterprise Zone Investment Tax Credit
The Illinois Income Tax Act 35 ILCS 5/201, as amended allows a .5 percent credit against the state income tax for investments in qualified property which is placed in service in an enterprise zone. This credit may be taken by corporations, trusts, estates, individuals, partners and subchapter S shareholders who make investments in qualified property and who otherwise meet the terms and conditions established by statute.
What is qualified property?
Qualified property is tangible, acquired by purchase or defined in the Internal Revenue Code (IRC) Section 179(d) as is depreciable pursuant to IRC Section 167. The property must have a useful life of four or more years and is an improvement or addition made on or after the date the zone was designated to the extent the improvement or addition is of a capital nature, which increases the adjusted basis of the property previously placed in service in the enterprise zone and otherwise meets the requirements of qualified property.
What are examples of Qualified Property?
Examples include building, structural components of buildings, elevators, material tanks, boilers, and major computer installations. Examples of non-qualifying property are land, inventories, small personal computers, trademarks, typewriters and other small non-depreciable or intangible assets. In some cases used property can qualify.
Does the enterprise zone investment tax carry forward?
The credit is allowed for the tax year in which the property is placed in service or, if the amount exceeds the tax liability for that year, the excess maybe carried forward and applied to the tax liability for the five (5) following taxable years.
Are there other Tax Credits available?
Yes, if a Corporation, S Corporation, Partnership, Trust or exempt organization is subject to replacement income tax, and qualified property is placed into service during the tax year, you may be entitled to a Replacement Tax Credit even if you are not in an enterprise zone. There are two (2) credits available. The first is an amount equal to .5 percent of the basis of qualified property placed in service during the taxable year.
There is an additional credit equal to .5 percent of the basis of qualified property placed in service if your base employment increased by .1 percent or more over the proceeding year, or if your business is new to Illinois.
See Illinois Department of Revenue Schedule ILA77. Replacement T Investment Credits for details.
In addition, there may be credit available against the Federal Income Tax through a targeted Jobs Tax Law.