HB 6745 — INC TAX-RESEARCH CREDIT

HB6745 *LRB09315927SJM41545b*Engrossed 93RDLRB093 GENERAL15927 ASSEMBLYSJM State41545 ofb IllinoisAN andACT 2004concerning Introducedtaxes. 02/09/04, by Eileen Lyons SYNOPSIS AS INTRODUCED:

ILCS 5/201 from Ch.

120, par.

2-201 Amends the Illinois Income Tax Act.

Reinstates the research and development credit beginning with taxable years ending on or after July 1, with changes.

Provides that the credit is equal to 6.5% of the qualifying exepnditures for research activities paid or incurred in this State during the taxable year.

Provides that "qualifying expenditures for expenses" under Section 41(b) of the Internal Revenue Code.

Exempts theh credit from the sunset requirements of the Act.

Effective immediately.

LRB093 15927 SJM 41545 b FISCAL NOTE ACT MAY APPLY A BILL FOR HB6745 LRB093 15927 SJM 41545 b AN ACT concerning taxes.

HB6745 Engrossed - 2 - LRB093 15927 SJM 41545 b (4) (Blank).

The personal property tax replacement income tax imposed by this subsection and subsection (c) of this Section in the case of a corporation, other than a Subchapter S corporation and except as adjusted by subsection (d-1), shall be an additional amount equal to 2.85% of such taxpayer’s net income for the taxable year, except that beginning on January 1, 1981, and thereafter, the rate of 2.85% specified in this HB6745 Engrossed - 3 - LRB093 15927 SJM 41545 b subsection shall be reduced to 2.5%, and in the case of a partnership, trust or a Subchapter S corporation shall be an additional amount equal to 1.5% of such taxpayer’s net income for the taxable year.

(A) the total amount of tax imposed on such foreign insurer under this Act for a taxable year, net of all credits allowed under this Act, plus (B) the privilege tax imposed by Section 409 of the Illinois Insurance Code, the fire insurance company HB6745 Engrossed - 4 - LRB093 15927 SJM 41545 b tax imposed by Section 12 of the Fire Investigation Act, and the fire department taxes imposed under Section 11-10-1 of the Illinois Municipal Code, equals 1.25% for taxable years ending prior to December 31, 2003, or 1.75% for taxable years ending on or after December 31, 2003, of the net taxable premiums written for the taxable year, as described by subsection (1) of Section 409 of the Illinois Insurance Code.

Taxpayers who are new to Illinois shall be deemed to have met the 1% growth in base employment for the first year in which they file employment records with the Illinois HB6745 Engrossed - 5 - LRB093 15927 SJM 41545 b Department of Employment Security.

For tax years ending after December 31, 1988, the credit shall be allowed for the tax year in which the property is placed in service, or, if the amount of the credit exceeds the tax liability HB6745 Engrossed - 6 - LRB093 15927 SJM 41545 b for that year, whether it exceeds the original liability or the liability as later amended, such excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit years.

(3) For purposes of this subsection (e), "manufacturing" means the material staging and production of tangible personal property by procedures commonly regarded as manufacturing, processing, fabrication, or assembling which changes some existing material into new HB6745 Engrossed - 7 - LRB093 15927 SJM 41545 b shapes, new qualities, or new combinations.

(8) Unless the investment credit is extended by law, the basis of qualified property shall not include costs incurred after December 31, 2003, except for costs incurred HB6745 Engrossed - 8 - LRB093 15927 SJM 41545 b pursuant to a binding contract entered into on or before December 31, 2003.

(1) A taxpayer shall be allowed a credit against the tax imposed by subsections (a) and (b) of this Section for investment in qualified property which is placed in service HB6745 Engrossed - 9 - LRB093 15927 SJM 41545 b in an Enterprise Zone created pursuant to the Illinois Enterprise Zone Act.

(C) is acquired by purchase as defined in Section HB6745 Engrossed - 10 - LRB093 15927 SJM 41545 b 179(d) of the Internal Revenue Code;

HB6745 Engrossed - 11 - LRB093 15927 SJM 41545 b (1) A taxpayer conducting a trade or business in an enterprise zone or a High Impact Business designated by the Department of Commerce and Economic Opportunity Community Affairs conducting a trade or business in a federally designated Foreign Trade Zone or Sub-Zone shall be allowed a credit against the tax imposed by subsections (a) and (b) of this Section in the amount of $500 per eligible employee hired to work in the zone during the taxable year.

(B) Hired after the enterprise zone or federally designated Foreign Trade Zone or Sub-Zone was designated or the trade or business was located in that HB6745 Engrossed - 12 - LRB093 15927 SJM 41545 b zone, whichever is later.

(1) Subject to subsections (b) and (b-5) of Section 5.5 of the Illinois Enterprise Zone Act, a taxpayer shall be allowed a credit against the tax imposed by subsections (a) and (b) of this Section for investment in qualified property which is placed in service by a Department of Commerce and Economic Opportunity Community Affairs HB6745 Engrossed - 13 - LRB093 15927 SJM 41545 b designated High Impact Business.

Changes made in this subdivision (h)(1) by Public Act 88-670 restore changes made by Public Act 85-1182 and HB6745 Engrossed - 14 - LRB093 15927 SJM 41545 b reflect existing law.

Such increase shall be determined by (i) recomputing the investment credit which would have been allowed for the year in which credit for such property was originally allowed by eliminating such property from HB6745 Engrossed - 15 - LRB093 15927 SJM 41545 b such computation, and (ii) subtracting such recomputed credit from the amount of credit previously allowed.

This credit shall be HB6745 Engrossed - 16 - LRB093 15927 SJM 41545 b applied first to the earliest year for which there is a liability.

Any credit allowed under this subsection which is unused in the year the credit is earned may be carried forward to each of HB6745 Engrossed - 17 - LRB093 15927 SJM 41545 b the 5 taxable years following the year for which the credit is first computed until it is used.

For purposes of this subsection, "qualifying expenditures for research activities" means those expenses defined as "qualified research expenses" under Section 41(b) of the Internal Revenue Code the qualifying expenditures as defined for the federal credit for increasing research activities which would be allowable under Section 41 of the Internal Revenue Code and which are conducted in this State, "qualifying expenditures for increasing research activities in this State" means the excess of qualifying expenditures for the taxable year in which incurred over qualifying expenditures for the base period, "qualifying expenditures for the base period" HB6745 Engrossed - 18 - LRB093 15927 SJM 41545 b means the average of the qualifying expenditures for each year in the base period, and "base period" means the 3 taxable years immediately preceding the taxable year for which the determination is being made.

For purposes of this Section, "unreimbursed eligible remediation costs" means costs approved by the HB6745 Engrossed - 19 - LRB093 15927 SJM 41545 b Illinois Environmental Protection Agency ("Agency") under Section 58.14 of the Environmental Protection Act that were paid in performing environmental remediation at a site for which a No Further Remediation Letter was issued by the Agency and recorded under Section 58.10 of the Environmental Protection Act.

For partners and shareholders of subchapter S corporations, there shall be HB6745 Engrossed - 20 - LRB093 15927 SJM 41545 b allowed a credit under this subsection to be determined in accordance with the determination of income and distributive share of income under Sections 702 and 704 and subchapter S of the Internal Revenue Code.

Beginning with tax years ending after December 31, 1999, a taxpayer who is the custodian of one or more qualifying pupils shall be allowed a credit against the tax imposed by subsections (a) and (b) of this HB6745 Engrossed - 21 - LRB093 15927 SJM 41545 b Section for qualified education expenses incurred on behalf of the qualifying pupils.