FREQUENTLY ASKED QUESTIONS

 

SALES TAX EXEMPTION

 

What is the sales tax deduction and what is the retailer's role?  Each retailer who makes a qualified sale of building materials to be incorporated into real estate in an enterprise zone established by a county or municipality under the Illinois Enterprise Zone Act by remodeling, rehabilitation or new construction, may deduct receipts from such sales when calculating the tax imposed by this Act.  For purposes of this Section, "qualified sale" means a sale of building materials that will be incorporated into real estate as part of a building project for which a Certificate of Eligibility for Sales Tax Exemption has been issued by the Illinois Department of Revenue (IDOR).  To document the exemption allowed under this Section, the retailer must obtain from the purchaser a copy of the Certificate of Eligibility for Sales Tax Exemption issued by IDOR.  

 

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.

​

I was issued a sales tax exemption certificates for building materials - where can I file my reports to the State of Illinois? Businesses, utilities and entities that have been issued sales tax exemption certificates for building materials may file their reports on-line at the Illinois Department of Revenue website.

 

INVESTMENT TAX CREDIT

 

Who are  qualifying  taxpayers?  The 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 Illinois Statute.

 

What is qualified property? "Qualified property" is property which:

a) is tangible; whether new or used, including buildings and structural components of buildings;

b) is acquired by purchase, as defined in Internal Revenue Code (IRC) Section 179( d);

c) is depreciable pursuant to IRC Section 167;

d) has a useful life of four or more years as of the date placed in service in an enterprise zone;

e) is used in the enterprise zone by that taxpayer; or

f) has not been previously used in Illinois in such a manner and by such a person as would qualify for the credit; and, is an improvement or addition made on or after the date the zone was designated to the extent that the improvement or addition is of a capital nature, which increases the adjusted basis of the property previously placed in service in an enterprise zone and otherwise meets the requirements of qualified property.

 

What are examples of "qualified property"?  Examples include buildings, structural components of buildings, elevators, materials tanks, boilers, and major computer   installations.  Examples of property which are not qualified include: land, inventories, small personal computers, trademarks, typewriters, and other small, non-depreciable, or intangible assets.

 

What does "placed  in service"  mean?  Qualified property is "placed in service" on the earlier of 1) the date the property is placed in a condition of readiness and availability for use, or 2) the date on which the depreciation period of that property begins. To qualify for the enterprise zone investment tax credit, the property must be placed in service on or after the date  the  zone was certified  by the Department  of Commerce and Economic Opportunity, and on or before the last day of the firm's taxable year.

 

What  is "depreciable" property?  Property must be depreciable pursuant to Internal  Revenue Code Section 167. Depreciable property is used in the taxpayer's trade or business or held for the production of income (but not inventory), which is subject to wear and tear, exhaustion or obsolescence.

 

There are some types of assets that may not be depreciable, even though they are used in the taxpayer's business or trade or are held for the production of income.  Good will and land are examples.  Other examples of tangible property, which are not depreciable, are inventories, natural resources and currency.

 

Does "used" property qualify  for the Enterprise Zone investment tax  credit?  Used property does not qualify if it was previously used in Illinois in such a manner and by such a person as would qualify for either the statewide investment tax credit or the Enterprise Zone investment tax credit.

 

Example:  A corporation purchases a used pick-up truck for use in its manufacturing business in an Enterprise Zone from an Illinois resident who used the truck for personal purposes in Illinois. If the truck meets the other requirements for the investment tax credit, it will not be disqualified because it was previously used in Illinois for a purpose, which did not qualify for the credit. However, had the corporation purchased the truck from an Illinois taxpayer in whose hands the truck qualified for the credit, the truck would not be

qualified for the investment tax credit, even though the party from whom the truck was acquired had never received an investment tax credit for it.

 

What  is the "basis" value of property?   The "basis" value of property, for the purposes of this credit, is defined the same way it is defined for purposes of federal depreciation calculations. Essentially, the basis is the cost of the property, as well as related capital costs.

 

Does the enterprise zone investment tax credit carry forward?   Yes. The credit is 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, the excess may be carried forward and applied to the tax liability of the five taxable-years following the excess credit year. The credit must 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 credit accruing first in time is applied first.

 

 

MANUFACTURER MACHINERY AND EQUIPMENT SALES TAX EXEMPTION

 

How does a business become eligible for the M, M & E Sales Tax Exemption?  To be eligible for this incentive, DCEO must certify that the business has made an investment of at least $5 million in an enterprise zone and has created a minimum of 200 full-time equivalent jobs in Illinois or has made an investment of at least $40 million in an enterprise zone and has retained a minimum of 2,000 full-time jobs in Illinois or has made an investment of $40 million in an enterprise zone and retained 90 percent of the jobs in place on date of certification. A majority of the "jobs created" or "retained" must be in the Enterprise Zone in which the eligible investment is made. A business must submit an application to DCEO documenting the eligible investment and that the job creation or job retention criteria will be met.

What is an eligible investment?   For purposes of this incentive, eligible investment may be either: 1) investments in qualified property as defined in the Enterprise Zone Investment Tax Credit or, 2) non-capital and non-routine investments and associated service costs made for the basic construction, renovation or improvement of qualified property including productive capacity, efficiency, product quality or competitive position.  Regular maintenance and routine expenditures are not included.

 

Are eligible sales limited to the units of government sponsoring the zone?  No. Items eligible for the 6.25 percent state sales tax exemption may be purchased anywhere in Illinois, but it is encouraged that the items be purchased, where practical, from retailers in the City of Loves Park and the Village of Machesney Park.

 

What tangible personal property is eligible for the M, M & E sales tax exemption?  To be eligible for this exemption the tangible personal property must be directly used or consumed in the process of manufacturing or assembling tangible personal property for wholesale or retail sale or lease. Examples of this include: repair and replacement parts; hand tools; materials and supplies such as abrasives, acids or lubricants; protective clothing and safety equipment; and, any fuel used for machinery and equipment.

 

NOTE: The above examples are only exempt to the extent they are used with machinery and equipment that qualifies for the statewide Manufacturing Machinery and Equipment Sales Tax Exemption.

 

 

UTILITY TAX EXEMPTION

 

What is an  eligible  investment?   For purposes of this incentive, eligible investment may be either:  1) investments in qualified property as defined in the Enterprise Zone Investment Tax Credit or, 2) non-capital and non-routine investments and associated service costs made for the basic construction, renovation or improvement of qualified property including productive capacity, efficiency, product quality or competitive position. Regular maintenance and  routine expenditures are not included.