Frequenly Asked Questions on the Uirvda Enterprise Zone

The Illinois Enterprise Zone (EZ) Act took effect December 7, 1982. An enterprise zone is a specific area designated by the State of Illinois in cooperation with a local government to receive various tax incentives and other benefits to stimulate economic activity and neighborhood revitalization. The Enterprise Zone Program is administered at the state level by the Illinois Department of Commerce and Economic Opportunity (DCEO) and administered locally by the Enterprise Zone Administrator. Enterprise zones range from a half square mile to fifteen square miles.

The Illinois Income Tax Act 35 ILCS 5/201, as amended allows a 0.5 percent credit against the state income tax for investments in qualified property, which is placed in service in an enterprise zone.

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 statute.

“Qualified property” is property which: is tangible; whether new or used, including buildings and structural components of buildings; is acquired by purchase as defined in Internal Revenue Code (IRC) Section 179 (d); is depreciable pursuant to IRC Section 167; has a useful life of four or more years as of the date placed in service in an enterprise zone; is used in the enterprise zone by that taxpayer; 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.

Examples include buildings, structural components of buildings, elevators, materials 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.

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.

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.

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.

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.

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.

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. Here is a link to the IDOR bulletin outlining the process for receiving the building material sales tax exemption: https://tax.illinois.gov/content/dam/soi/en/web/tax/research/publications/pubs/documents/pub-139.pdf

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.

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.

The Revenue Act 35 ILCS 120/1d-1f, as amended allows a business enterprise that is certified by DCEO, that either creates a minimum of 200 full-time equivalent jobs in Illinois; or retains a minimum of 2,000 full-time jobs in Illinois; or which retains 90% of the existing jobs, a 6.25 percent state sales tax exemption on all tangible personal property which is used or consumed within an enterprise zone in the process of manufacturing or assembly of tangible personal property for wholesale or retail sale or lease. This exemption includes repair and replacement parts for machinery and equipment used primarily in the wholesale or retail sale or lease, and equipment, manufacturing fuels, material and supplies for the maintenance, repair or operation of manufacturing, or assembling machinery or equipment.

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.

For purposes of this incentive, eligible investment may be either: 1) investments in qualified property as defined in the Enterprise Zone Investment Tax Credit (described on Page 3 of this publication); 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.

No. Items eligible for the 6.25 percent state sales tax exemption may be purchased anywhere in Illinois.

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.

The Public Utilities Act 220 ILCS 5/9-222.1, as amended and the Telecommunications Excise Tax Act 35 ILCS 630/2(a)(5), as amended allows a business enterprise that is certified by DCEO, as making an investment in a zone that either creates a minimum of 200 full-time equivalent jobs in Illinois or retains a minimum of 1,000 full-time jobs in Illinois, a 5 percent state tax exemption on gas, electricity and the Illinois Commerce Commission .1 percent administrative charge and excise taxes on the act or privilege of originating or receiving telecommunications. Local units of government may also exempt their taxes on gas, electricity and water.

To be eligible for this incentive, DCEO must certify that the business makes 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 makes an investment of at least $175 million in an enterprise zone and has created a minimum of 150 full-time equivalent jobs in Illinois or makes an investment of at least $20 million in an enterprise zone and has retained a minimum of 1,000 full-time jobs in Illinois. 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 has been met.

For purposes of this incentive, eligible investment may be either: 1) investments in qualified property as defined in the Enterprise Zone Investment Tax Credit (described on Page 3 of this publication); 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.

There are two types of property tax incentives related to the Enterprise Zone Program: tax abatement and assessment reduction. Assessment reduction is available in Cook County only.

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.

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.

Yes. Every time property is improved, it is reassessed under the law.

Cook County offers special property tax incentives for property anywhere in the county. However, property in enterprise zones receives special consideration under the Class 6b – Industrial Program. Industrial property in Cook County is generally assessed at 25 percent of market value in the absence of any incentives. For information about the special incentives for improvements to enterprise zone property, contact the Development Incentives Department of the Office of the Cook County Assessor at 312/603-7529.

All other counties assess all property at 33 percent of market value. Cook is the only county that classifies property at different assessment rates.

For tax abatement, contact local zone administrators to find out if abatements are available in their zone. In the UIRVDA EZ, please contact each local unit of government. Most of the property tax abatements and the Cook County program require taxpayers to apply or give some formal notice before beginning construction. Contact the local zone administrator, and, if applicable, Cook County Assessor as early as possible to assure that eligibility is not denied due to tardy notice.

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 affected by the enterprise zone property tax abatement provision or by county assessment reductions.

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.

The enterprise zone provision is broader and more flexible. The enterprise zone property tax abatement: may be offered on all classes of real property, including commercial, residential and industrial (18-165 abatements are limited to commercial and industrial improvements); may be offered for any number of years, up to the termination date of zone certification (18-165 abatements cannot exceed 10 years); may be offered by a taxing district in any amount (the abatement offered under 18-165 limits the aggregated amounts of an abatement offered by all taxing districts to $4,000,000).

Tax increment financing is a financing technique that cities may use to pay for public improvements such as land assemblage, building demolition, utilities, streets, and sidewalks. Property owners in the project area do pay their full share of taxes. Taxes generated by the increase in assessed valuation — the tax increment — go into a special allocation fund used to pay the bonds, which financed the public improvement costs. This financing method is not a tool to speculatively prepare for development — tax increment financing requires an advance commitment by a developer to a project. Property tax abatement is, however, a tool that is used for development. It is not a financing technique. The Revenue Act provides that any taxing district, upon a majority vote of its governing authority, may order the county clerk to abate any portion of its taxes on improvements made to real property located in a zone, The increase in assessed valuation due to new construction, rehabilitation or renovation is not taxed for the term of the abatement as set by local ordinance. A TIF district may be included in the legal description of the zone and consequently be eligible to receive other tax incentives and benefits. However, the Enterprise Zone designating Ordinance pertaining to property tax abatement must be amended to exclude the TIF district from the area eligible for abatement.

No. Eligibility criteria and abatement formulas are established by local ordinance and vary with the zone. In the UIRVDA EZ, please contact the local units of government to determine the amount of abatement, the number of years of abatement, and the classes of real property eligible for abatement.

No. “Case-by-Case” is contrary to the intent of the Enterprise Zone Act. Tax incentives must be offered uniformly and equitably by class. The local ordinance authorizing tax incentives, such as property tax abatement, extends the incentives automatically through eligibility criteria, such as class of property (I.e., residential, commercial and industrial) and formulas (i.e., percentages and number of years available).

To learn more about a specific enterprise zone, please contact the local zone administrator. A list of local zone administrators can be found on the Department of Commerce and Economic Opportunity (DCEO) website http://www.illinoisbiz.biz/dceo/Bureaus/ Business_Development/ Tax+ Assistance /Enterprise-Zone.htm

Income tax forms are available from  https://tax.illinois.gov/
IDOR’s toll free number is 800/732-8866.

1. Each construction contractor or other entity that purchases building materials to be permanently incorporated into real estate in an Enterprise Zone or River Edge Redevelopment Zone by rehabilitation, remodeling or new construction.
2. Each construction contractor or other entity that purchases building materials that will be permanently incorporated into a High Impact Business location as designated by the Department of Commerce and Economic Opportunity.

All applications must be submitted through the Business Incentives Reporting and Building Materials Exemption Certification area on the Department of Revenue’s website. The following groups have specific instructions:

1. Construction contractors or other entities seeking exemption certificates must go through the Zone Administrator of the zone where the project is located or through the High Impact Business project manager. IMPORTANT:If you are a sole proprietor using a Social Security Number (SSN) as your business’ identification number, you must first obtain an “Applicant ID” through the Building Materials Exemption Certificate program.
2. Zone Administrators must submit applications for those construction contractors or other entities purchasing materials to permanently incorporate into real estate in an Enterprise Zone or River Edge Redevelopment Zone.

High Impact Business project managers must submit applications for those construction contractors or other entities purchasing materials to be permanently incorporated into a High Impact Business location.

CZone maps, Zone Administrators and zone contacts are available from https://dceo.illinois.gov/expandrelocate/incentives/taxassistance/enterprisezone.html

1. Name, address and e-mail address of the construction contractor or other entity seeking a certificate;
2. Name of the Enterprise Zone or River Edge Redevelopment Zone (not necessary for High Impact Business locations);
3. The address (or location) of the project;
4. The estimated amount of the exemption based on the percentage of the contract that consists of materials;
5. The project’s expected completion date;
6. Federal Employer Identification Number (FEIN)

An applicant without an FEIN must go to the Department of Revenue’s secure website and enter his or her Social Security number.  The department will provide an Applicant ID, which the applicant can bring to the Zone Administrator or High Impact Business project manager to complete the application.

Name, social security number (SSN), e-mail address, mailing address and phone number

Certificates are valid for a maximum of two years. The exact expiration date of each certificate will vary and is based upon the expected project completion date provided at the time the application is submitted.

No. The expiration date on the certificate is the date the certificate is no longer valid.

Yes. If your Building Materials Exemption Certificate is set to expire before your project is complete, you must seek a renewal through the Zone Administrator or High Impact Business project manager who submitted your original application.

No.  Each certificate allows the contractor or entity identified on the certificate to make unlimited purchases of eligible building materials for the project identified on the certificate until the expiration date identified on the certificate.  However, each time building materials are purchased, the purchaser must leave with the seller a completed EZ-1 form, identifying what was purchased, who made the purchase, for what project the purchase was made, and the purchaser’s exemption certificate number.

No.  The certificate is good for the project identified to the Zone Administrator or High Impact Business project manager when the application was submitted.  The original application included a contract amount.  A new contract, or expansion of a contract beyond what was identified in the certificate application, would constitute a new project and require a new exemption certificate.

No.  Each certificate is unique to that project. It cannot be used for any other project and can only be used

The applicant must provide identifying business information only for the first certificate.  Each subsequent certificate can be issued based on the contractor’s FEIN or previously-issued ID, the location of the project, an estimate of the dollar amount of the materials subject to exemption, and the expected date that the project will conclude.

The Department will send a message to the e-mail address submitted on the application with a link.  The applicant can access its exemption certificate by clicking on the link in the e-mail message and following the directions provided.

When purchasing tax-exempt building materials, the purchaser must submit a signed statement to the retailer that contains the certificate number, the zone, the project, and the materials being purchased. Form EZ-1, Building Materials Exemption Certification, contains all necessary information and will be provided to certificate holders when they receive their certificates.

Certificate holders are responsible for ensuring that their certificates are used only to make qualified purchases. A certificate holder who uses the certificate or allows it to be used to improperly avoid tax will be assessed taxes and penalties on the purchase, an additional monetary penalty equal to the state and local sales taxes on the purchase, and may be barred from securing additional certificates.

Building materials that are eligible for the 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.

Building Materials Exemption Certificates should be applied for and issued to the entity that will be making purchases of exempt materials, whether contractor or other entity. The certificate holder is responsible for ensuring that the certificate is used only to make qualified purchases.

This new certificate process applies only to the Enterprise Zone-related businesses. Beginning July 1, 2013, those businesses must have a new certificate and they must show it to you each time they make a purchase. This program and this process do not impact other entities holding exemption certificates.

You must file a report if you were issued a Building Materials Exemption Certificate by the Illinois Department of Revenue to purchase tax exempt building materials for a high impact business, or for a business located in an Enterprise Zone or River Edge Redevelopment Zone.

All reports for the Building Materials Exemption Certificates issued during the previous year are due no later than May 31 of the following year. For certificates obtained in a calendar year, reports are due no later than May 31st of the following calendar year. However, if that date falls on a Sunday, the deadline to file defaults to the following business day, or Monday.

You must file a single Building Materials Exemption report. Your filing will contain all of your certificates for all projects that were active for that calendar year which is the current reporting year. You must supply information for each certificate under the appropriate certificate and appropriate project on a single report.

You must report the value of all tax-exempt building materials purchased. The law requires reports to be filed with the Illinois Department of Revenue on or before May 31 annually. If a due date falls on a weekend or a holiday, a report is due the next business day.

You will need the identification number you used to register for your Building Materials Exemption Certificate, which is your Federal Employer Identification Number (FEIN), Social Security Number (SSN), or Applicant Identification Number. You will need to report the value of the building materials purchased with each of your certificates.

Public Act 98-0109, effective July 25, 2013, mandates that Building Materials Exemption Certificate holders report their project-related tax-exempt purchases for each Enterprise Zone, River Edge Redevelopment Zone, or High Impact Business project by May 31 of the following year.

Each certificate is good for no more than two years from the date of issuance. Each certificate’s expiration date is identified on the certificate.

If you make a mistake or need to correct a report that you already filed with the Illinois Department of Revenue, you must submit an entirely new report for all of your certificates again, even the ones that were correctly filed the first time. You will need to log into your account and file a new report. This new report will completely replace your earlier submissions.

The reporting application will provide a list of all certificates issued for your identification number that were active at some point during the calendar year of the report. You must report purchases for each project under the certificate number for that project.

This is a warning message that displays when the exempt building material purchase amount is listed as 0.00 for one or more of your certificates in your BMEC report. If the purchased amount of 0.00 is correct, you can choose to proceed and click “next.” If the purchased amount is not 0.00, please correct the number to represent the correct amount purchased, and then click “next.”

Immediately after you have submitted your report, a confirmation page will appear. You should print or write down the confirmation number given. You will need this number in order to view your report, if you choose to at a later date. Please note: once the window of time for filing your report ends (soon after June 2, 2014), you will no longer be able to log into the reporting interface to view past reports.

The Illinois Department of Revenue recommends that you keep your confirmation number at least through the end of the filing deadline in case you wish to view your report again. You should keep your reports with your tax returns and information, and follow the standard time frame for keeping tax records for audit purposes. Please note: once the window of time for filing your report ends (soon after June 2, 2014), you will no longer be able to log into the reporting interface to view past reports.