Posted by Robert Hancock on 07.17.24
Governor JB Pritzker recently signed a game-changing bill to supercharge Illinois' tax credit programs and lure cutting-edge tech businesses to the state. This bold move aims to turn Illinois into the next Silicon Valley with major investments in quantum research and electric vehicle manufacturing.
In 2023, Illinois tripled its corporate investments, and job creation through the Economic Development for a Growing Economy (EDGE) and Reimagining Energy and Vehicles (REV) programs soared by over 60% compared to the previous year. "We're not just talking tax credits here," Pritzker declared. "This is about revitalizing our communities and boosting our economy. Illinois has plenty to brag about!”
Big moves for Quantum Research and EVs
The new law carves out an enterprise zone to build a colossal quantum research campus, backed by $500 million in the Fiscal Year 2025 budget. This investment aims to ignite innovation and future tech growth. Also, the state's research and development tax credit, originally set to expire in 2027, now extends till Jan. 1, 2032. Plus, there's a shiny new tax credit for quantum computing campuses to pull in more quantum jobs.
EDGE tax credits are now extended from 10 to 15 years, targeting big projects with over $50 million and 100 employees. This bill puts Illinois in a prime spot to leverage this tech leap.
Fueling R&D and Green Tech
The legislation also prolongs the Research and Development Tax Credit, a lifeline for the state's manufacturing sector. "R&D is the lifeblood of manufacturers creating new and better products," said Mark Denzler, President and CEO of the Illinois Manufacturers' Association. "This shows that Illinois is open for business and committed to advancing research to solve big challenges."
Electric vehicle companies, green steel manufacturing, and electric/hybrid aircraft production are all on the list for new tax incentives. Lt. Governor Juliana Stratton beamed, "We're investing in workforce development, expanding resources, and opening new paths to success. This is a future full of opportunities.” This is a big win for Illinois, pushing the state to the forefront of innovation and economic growth.
The Illinois R&D Tax Credit:
• Qualified research is defined in IRC § 41(d). IRC § 41(b) as the sum of in-house research expenses and contract research expenses paid or incurred by the taxpayer during the taxable year in carrying on any trade or business of the taxpayer
• Qualifying expenditures - expenditures as defined for the federal credit for increasing research activities that would be allowed under IRC § 41 and that are conducted in Illinois
• Qualifying expenditures for the base period - the average of the qualifying expenditures for each year in the base period
• The base period is the three years immediately preceding the tax year for which the credit is calculated
• Qualifying expenditures also include basic research payments, as that term is defined in IRC § 41(e)
• Any credit in excess of tax liability for the tax year can be carried forward for five years or until it is fully used, whichever occurs first
The 4 Part Test
The Federal legislation describes the exact set of criteria that activities must pass to be eligible for the credit. This is commonly called the four part test. Illinois uses these same guidelines.
1. Qualified Purpose – The purpose of the research must be to create a new or improved product, process, or formulation, resulting in increased performance, function, reliability or quality.
2. Technological in Nature – The research must rely on the hard sciences, such as engineering, physics, chemistry, biology or computer science.
3. Elimination of Methodology or Capability Uncertainty – Activities must overcome some technical challenges that involve optimal design or methodology or create capability uncertainty
4. Process of Experimentation – Experimentation can be demonstrated through test batches, simulations, systematic trial and error, or other methods of evaluating alternatives to achieve a desired result.
Home to Chicago, the financial capital of the Midwest, Illinois is a state with strong economic roots. The top industries in Illinois that significantly benefit the economy include services, manufacturing, agriculture, and mining and this boost will help those industries as well as the R&D going on in Quantum technologies and Electric Vehicles. R&D tax credits represent a money-saving opportunity overlooked by countless Illinois businesses simply because owners aren’t aware the tax credit is available to them, or they misunderstand its intent.
Viewing qualifying activities in terms of new and improved designs, concepts and processes, companies across many industries will likely find that many of their activities will be eligible for valuable R&D tax credits that they can use to reinvest in their business. Also, qualified start-up companies can now take a credit on their payroll taxes for their R&D credit, allowing the company to utilize the R&D credit immediately, even if the company does not have taxable income.
Qualifying activities include:
• Developing or testing new products or materials
• Developing new or enhanced formulations
• Testing new concepts
• Improving existing products
• Trial and error experimentation in Illinois
• Designing and analyzing prototypes or models
• Developing or improving production or manufacturing processes
• Developing, implementing or upgrading systems and software
• Paying outside consultants or contractors to perform any of these activities
Many of the activities conducted by companies across Illinois qualify for the R&D tax credit. Tax Point Advisors currently partners with some of the most forward-thinking companies and we’re eagerly looking to help additional companies take full advantage of the available credits in the most effective way.
Tax Point Advisors provides R&D tax credit study services and other specialty tax services to CPA firms and businesses throughout the U.S. To learn more about R&D tax credits from the experts at Tax Point Advisors, please call us at (800) 260-4138 or please leave us a message below.
