Tax Incentives

If you are looking to relocate your corporate headquarters or manufacturing facility, you may want to consider Cook County. If your project qualifies, these tax incentives are a good start. There is also a very low, effective state income tax, tax credits for employee training, low interest loans and tax abatements. Chicago is headed by Mayor Richard M. Daley whose style of government is often described as extremely efficient and politically stable. The Chicago public school system has become vastly improved and with 18 universities, the workforce is educated and capable. Combine that with excellent transportation systems, a Mecca for architecture and culture, a broad/spectrum economic base and you have a very conducive business atmosphere.

Cook County offers several tax incentive programs: 6b, 7a, 7b, 8, 9, C, L and S. Each of these programs are the result of a government initiative to stimulate certain types of development. The end result may or may not resemble the advertised tax incentive. Applicants are advised that merely applying for the program will not necessarily qualify the property for participation in an incentive program. Cook County applies the"But For" test to each application. Under that test, assessing officials must be made reasonably certain that the proposed project will not become a reality "but for" the existence of tax incentives.

The State of Illinois offers numerous incentives to encourage businesses to expand or relocate here. Low interest loans, tax credits, employee training and numerous other programs make Illinois a progressive leader in the area of economic development.

The City of Chicago is at the forefront with incentives designed to stimulate economic development. Additionally, many other Cook County municipalities offer numerous types of enticements that may be used in conjunction with some of the tax incentives listed below.

CITY OF CHICAGO INCENTIVE PROGRAMS
Tax Increment Financing, see below

Empowerment Zone Program
The Empowerment Zone program offers special financing and tax incentives for qualified businesses in order to stimulate private investment and create jobs within designated communities. These incentives include:

-Employer wage credits of up to $3,000.00 for wages and certain training expenses paid on behalf of a qualified zone resident that works within an EZ
-Tax deductions of up to $37,500.00 of the cost to certain EZ property
-Tax-exempt bond financing for businesses seeking to expand within the EZ
-Employer wage credits up to $2,100.00 for hiring "high-risk youth" who reside in Empowerment Zones or Enterprise Communities
-Empowerment Zone businesses that are located in one of Chicago's Enterprise Zones may be eligible for additional benefits, including property, sales and income tax relief

Chicago's Empowerment Zone consists of three noncontiguous areas on the City's West, near Southwest and South Sides.

Enterprise Zone Program
Enterprise Zones are geographic areas designated by the City and certified by the State of Illinois to receive various tax incentives and other benefits, including:

-Exemption from city & state sales tax on building materials purchased in Chicago
-6.25% sales tax exemption on machinery and equipment used in manufacturing or assembly, or pollution control
-Exemption from the state tax on gas and electricity as well as administrative charges
-Exemption from real estate title transfer tax
-$500 income tax credit for each job created for disadvantaged or dislocated workers
-Investment tax credits
-Property tax reduction
-Low interest loans

Industrial Revenue Bonds
Tax-exempt bonds issued by the City on behalf of an industrial company. Offers long-term, low interest rate financing. Eligible costs projects include new construction, renovation or the acquisition of fixed assets.

Bank Participation Loans
Low interest financing for 50% of eligible project costs. City participation will not exceed $250,000.00 for commercial projects or $500,000.00 for industrial projects. Funds can be used for construction, renovation and fixed assets.

CBDG Float Loans
A two-year loan with an interest rate fixed at 40% of prime. Minimum loan is $1 million. Must be backed by an irrevocable letter of credit from a qualified bank. Funds can be used for new construction, demolition, rehabilitation, land/building acquisition, machinery, equipment and related costs.

Micro Loans
Low interest loans up to $20,000.00 for small business projects that will create or retain jobs. Funds can be used for machinery, equipment, renovation or working capital.

COOK COUNTY TAX INCENTIVE PROGRAMS
These programs tend to be promoted by everyone with a vest interest. The truth is that a fewer number of projects than expected actually qualify for one of these programs. The only way to safeguard yourself is to get an agreement from Cook County prior to being committed to the project. Effective 4-2-07, Cook County charges a fee of $500.00 for application to its incentive programs.

Class 6B:
An incentive designed to encourage industrial development throughout Cook County.

If the property is found to qualify, it will be assessed at 16% during the first 10 years, 23% during the 11th year and 30% during the 12th year.

John P. Fitzgerald, Ltd. recently obtained Class 6B status for the former General Mills plant located on the east side of Chicago.
Class 6B Eligibility Bulletin
Updated 12-15-06

Class 7A:
An incentive designed to stimulate smaller commercial development in areas "in need of commercial development".

Projects or those portions of projects which qualify, will be assessed at 16% during the first 10 years, 23% during the 11th year and 30% during the 12th year.
Class 7A Eligibility Bulletin
Updated 12-15-06

Class 7B:
An incentive designed to stimulate larger commercial developments in areas "in need of commercial development".

Projects or those portions of projects which qualify, will be assessed at 16% during the first 10 years, 23% during the 11th year and 30% during the 12th year.
Class 7B Eligibility Bulletin
Updated 12-15-06

Class 8:
An incentive program designed to encourage development of industrial and commercial properties within certain defined areas of Cook County which are experiencing severe economic stagnation.

If the property is found to qualify, it will be assessed at 16% during the first 10 years, 23% during the 11th year and 30% during the 12th year.
Class 8 Eligibility Bulletin
Updated 12-15-06

Class 9:
An incentive designed to encourage the rehabilitation and new construction of multifamily rental housing for use by low and moderate income households.

If a property is found to qualify, it will be assessed at 16% during the first 10 years. Some properties may qualify for an additional 10 year period.
Class 9 Eligibility Bulletin
Updated 12-15-06

Class C:
An incentive designed to encourage the development of industrial and commercial properties upon land that was formally environmentally contaminated.

If the property qualifies, the land and improvements are assessed at 16% during the first 10 years, 23% during the 11th year and 30% during the 12th year.
Class C Eligibility Bulletin
Updated 12-15-06

Class L:
Designed to encourage the preservation and rehabilitation of architecturally significant commercial, industrial and multifamily buildings.

If the subject property qualifies, the building portion of the assessed valuation will be assessed at 16% during the first 10 years, 23% during the 11th year and 30% during the 12th year.
Class L Eligibility Bulletin
Updated 12-15-06

Class S:
Designed to preserve Section 8 multifamily housing.
Class S Eligibility Bulletin
Updated 12-15-06

TAX INCREMENT FINANCING "TIF":
Tax Increment Financing is a method of financing public and private improvements through the sale of municipal bonds. The bonds are secured by future tax revenues which are presumed will be derived by increased property values. TIF's have been responsible for the revitalization and stabilization of many marginal and declining areas throughout Cook County. The following programs are available in TIF's throughout Cook County. Owners and users of real estate located within a TIF should know that taxes always increase after the TIF is in place.

Expenses eligible for TIF grants include:

-Land acquisition, clearance and site preparation
-Environmental remediation measures
-Employee training
-Building rehab and repair
-Signage
-Remodeling of tenant improvements
-Professional fees (Architectural and Engineering)
-Up to 30% of the owners borrowing cost

Small Business Improvement Fund (Chicago)
Provides matching TIF grants of up to $50,000.00 to help small and mid-sized industrial and commercial companies improve their facilities in specially designated areas of the City.

Laboratory Facilities Fund (Chicago)
Allocates TIF assistance to "second-stage" or "graduate" technology companies seeking to construct lab space ranging in size from 5,000 to 25,000 square feet. Provides up to 25% of eligible base lab construction costs to a maximum of $1.4 million.

TIF Works (Chicago)
Businesses located within Chicago's TIF districts can access funds for workforce development activities such as customized training, English-as-a-Second-Language instruction and industry-specific instruction related to regulatory compliance.

The downside about TIF's is that commercial and industrial real estate located in or near a TIF almost always will be assessed at a higher market value after the TIF is put into place. This phenomenon seems to develop regardless of whether the property values have in fact increased. Since TIF bonds are guaranteed by the local municipality, all taxpayers located within the municipality are responsible for repayment of the bonds.

TIF's seem to be viewed by every suburban mayor as a means of inexpensive financing of a pet project. Such a perspective leads to the possibility of TIF abuse. When bond issuers and real estate brokers are touting the TIF as a no-lose proposition and the local municipal leaders fail to objectively analyze their true needs, the taxpayers will be the ones ultimately holding the bag. Could it be that TIF's are the next mini-Enron?

On June 25, 2004, suit was filed in the Circuit Court of Cook County, Case # 04 CH 10144, against the City of Palos Heights, Illinois alleging certain improprieties in connection with what is commonly known as the Lake Katherine TIF. The suit requested injunctive relief and reimbursement for the conversion of public funds. Among the allegations were that TIF funds were used for general city expenses, park programs, the purchase of consumer goods, entertainment and other items unrelated to approved TIF purposes. This case was settled on February 4, 2005 when the City of Palos Heights agreed to deactivate the TIF.

TAX ABATEMENT:
A written agreement between a taxpayer and a taxing body whereby a certain dollar amount is refunded to the taxpayer each year.

35 ILCS 200/18-165 Abatement of Taxes
[a] Any taxing district, upon a majority vote of it governing authority, may, ..........order the clerk of that county to abate any portion of its taxes on the following types of property:
1. Commercial and industrial
2. Horse racing
3. Auto racing
4. Academic or research institute
5. Housing for older persons
6. Historical society
7. Recreational facilities
8. Relocated corporate headquarters

The tax abatement is generally used in conjunction with other incentive packages and is particularly effective in home-rule municipalities and state certified enterprise zones.


STATE OF ILLINOIS INCENTIVE PROGRAMS
Economic Development for a Growing Economy aka EDGE
Provides tax credits to qualifying businesses that make a capital investment of at least $5 million and create a minimum of 25 new jobs. The amount of the credit is based on the amount of tax receipts collected from the Illinois income taxes paid by newly hired and/or retained employees.

High Impact Business Program
Provides tax credits and exemptions to businesses that make a minimum eligible investment of $12 million which causes the creation of 500 full-time jobs, or make a $30 million investment that retains at least 1,500 full-time jobs.

Large Business Development Programs aka LBDP
Provides incentive financing to encourage large, out-of-state companies with 500 or more employees to locate in Illinois and also encourages existing Illinois companies to undertake major job expansion or retention projects.

Corporate Relocation Headquarters Act
Provides incentives for large companies that relocate their corporate headquarters to Illinois. An eligible company must relocate at least 250 corporate headquarter jobs to Illinois and have annual worldwide revenues of at least $25 billion.

Industrial Training Program
Assists Illinois companies in training new workers or upgrading the skills of existing workers.

State Treasurers Economic Program aka STEP
Provides Illinois companies with access to affordable capital to expand their operations and retain or create jobs in the state. For each permanent fulltime job that is created or retained, the Treasurer can deposit up to $25,000.00 at below market rates into the borrower's financial institution. That institution will then lend the money at below prevailing interest rates to the borrower.

Manufacturer's Purchase Credit
Tax credit for businesses that purchase manufacturing machinery and equipment.

Research and Development Tax Credit
A 6.5% credit for increasing research activities in Illinois.

If you have any questions with regards to tax incentives, please give me a call.