Jumpstarting Illinois’ Electric Vehicle Industry

New legislation seeks to make Illinois a green transport hub with tax incentives for electric vehicle manufacturers and their suppliers.

In the last weeks of 2021, Gov. J.B. Pritzker signed the Reimagining Electric Vehicles in Illinois Act into law. HB 1769, intended to establish Illinois as a leader in a growing green transportation industry, provides extensive tax incentives and subsidies to manufacturers of electric vehicles, related parts, and their power suppliers. Eligible manufacturers will enter into these incentive agreements with the Illinois Department of Commerce and Economic Opportunity (IDCEO). The agreements will look much like the Economic Development for a Growing Economy (EDGE) tax credits. Let’s review the basics of this new program.

Eligibility

Projects eligible for the various credits and exemptions include the manufacturing of electric vehicles, electric vehicle component parts, and electric vehicle power supply equipment.

In order to qualify for tax incentives under the legislation, electric vehicle manufacturers must make a minimum investment of $1.5 billion in capital improvements which must be “placed in service,” as defined in the Internal Revenue Code, within 60 months of application approval and must also create at least 500 new full-time employee jobs. The electric vehicles must be plug-in vehicles and can’t be hybrid electric vehicles or extended-range electric vehicles that are also equipped with conventional fueled propulsion or auxiliary engines.

For electric vehicle component parts manufacturers, the qualifications include a minimum investment of $300 million in capital improvements which must be placed in service within 60 months of application approval. The company must manufacture one or more parts primarily used for electric vehicle manufacturing and create at least 150 new full-time employee jobs.

An electric vehicle manufacturer, electric vehicle power supply manufacturer, or electric vehicle component part manufacturer that doesn’t qualify under the standards outlined above may also qualify with a minimum investment of at least $20 million in capital improvements that are placed in service within 48 months of application approval and the creation of at least 50 new full-time jobs.

Electric vehicle manufacturers or vehicle component parts manufacturers with existing operations in Illinois that intend to convert or expand an existing facility for the manufacture of electric vehicles, electric vehicle component parts, or electric vehicle power supply equipment may also be eligible. For these manufacturers, the minimum investment is $100 million in capital improvements that must be placed in service within 60 months. The project must create the lesser of 75 new full-time jobs or new full-time employee jobs equivalent to 10 percent of the number of the applicant’s existing full-time employees.

The legislation also makes clear that taxpayers aren’t eligible for addresses and locations that currently hold active EDGE agreements but clarifies that they may apply after they terminate their EDGE agreement.

The duration of the agreement with the IDCEO for vehicle and component parts manufacturers, either new or existing, who wish to convert to electric vehicles and component parts is a maximum of 15 years or 10 years for power supply manufacturers. The jobs created by these projects must have a total compensation equal to or greater than 120 percent of the average wage paid to full-time employees in the county where the project is located.

The incentives have a clawback provision: If a taxpayer that has entered into an incentive agreement ceases operations prior to the end of the agreement, the entire credit amount awarded is clawed back. The IDCEO will begin awarding credits on Jan. 1, 2022, and the program has a sunset date of Dec. 31, 2027.

Tax Incentives

The credits can be taken against the regular income tax (not the personal property tax replacement income tax) for tax years beginning on and after Jan. 1, 2025. The legislation provides that excess credits may be carried forward for five years from when they’re earned, meaning there’ll be a limited carry-forward period for credits earned in 2022 through 2024, because the five-year carry-forward period begins during years in which those credits cannot be utilized. Taxpayers can elect to use the income tax credits against the income tax withholding obligations in lieu of claiming the credit against the regular income tax, but the credit against the withholding tax can’t be utilized until after Dec. 31, 2024.

The basic annual credit against the regular income tax may not exceed the sum of 75 percent of the incremental income tax attributable to new employees at the applicant’s project and 10 percent of the eligible training costs of the new employees. The income tax credit is increased for facilities located in an “underserved area” (in simple terms, an impoverished area) to a maximum of 100 percent of the incremental income tax attributable to new employees at the applicant’s project. The credit for eligible training costs can be increased by an additional 15 percent if the new employees are recent graduates, certificate holders, or credential recipients from an institution of higher education or apprenticeship program located in Illinois and approved by the U.S. Department of Labor’s Office of Apprenticeship.

If a company agrees to hire the required new employees as well as retain existing employees, it may also receive a credit for retained employees. The maximum amount of the credit can be increased by an amount not to exceed 25 percent of the incremental income tax attributable to retained employees, or 50 percent if the project is in an underserved area. (I’m not sure how you have incremental income tax from a retained employee, but I suppose it’s considered incremental because, absent the credits, those jobs would cease to exist.)

The legislation also authorizes a construction jobs income credit, which may be up to 50 percent of the incremental income tax attributable to construction wages paid in connection with construction of the project facilities, or up to 75 percent if the project is in an underserved area.

The act also creates utility tax exemptions, an investment tax credit, a sales tax exemption for building materials, and property tax exemptions. As I understand it, the utility tax exemption would cover the electricity excise tax, the gas revenue tax, and the telecommunications excise tax, but not locally imposed and collected utility taxes. The investment tax credit would offer 0.5 percent of the basis of a qualified property placed in service for a project against regular Illinois income tax for the tax year in which the taxpayer invests. Excess credits can be carried forward for five years. The building materials sales tax exemption can’t extend for more than five years and appears to apply to state and local sales taxes. The property tax exemptions allow a taxing district, upon a majority vote of its governing body, to abate any portion of real property taxes on a facility owned by an electric vehicle manufacturer, electric vehicle component parts manufacturer, or an electric vehicle power supply manufacturer while the manufacturer is in an agreement with the IDCEO.

Whether this legislation, which sped through the General Assembly and onto the governor’s desk, will accelerate the creation and growth of Illinois’ lost manufacturing jobs remains to be seen, but on the surface, the generous tax incentives show Illinois is committed to becoming a haven for the electric vehicle industry