New Electric Vehicle Incentives
One of the bright spots for Illinois manufacturing, and the automobile industry as a whole, is the future of the electric vehicle industry. Illinois hopes to become a nationwide leader in the production of electric vehicles and components.
In pursuit of that goal, HB 1769 (Vella-Stadelman) creates the Reimagining Electric Vehicles Act to incent the building and expansion of EV facilities and suppliers in Illinois. This has been a major push of the Governor’s office. Late Thursday, that bill passed the General Assembly. I’m going to provide not only the details of that legislation but also more background than normal on how we got here.
The first attempt was filed in Senate Amendment 1. Details follow below from our tax guru Keith Staats, but it is sufficient to acknowledge that this was overall a good amendment and the Illinois Chamber supported amendment 1 despite some parts we didn’t like, namely Project Labor Agreements.
- Establishes the “Reimagining Electric Vehicles in Illinois Act”
- Provides incentives to Electric Vehicle manufacturers, their suppliers, and electric vehicle power supply manufacturers.
- Incentive agreements entered into with DCEO (similar to EDGE agreements)
Eligible projects:
- Manufacture of electric vehicles (Electric Vehicles have to be plug-ins, hybrids do not qualify),
- Manufacture electric vehicle component parts,
- Manufacture electric vehicle power supply equipment
Requirements:
- Electric vehicle manufacturer;
- Minimum investment of $1.5 billion in capital improvements
- Placed in service within 60 months of application approval
- Create at least 500 new full-time employee jobs
Electric vehicle component parts manufacturer;
- Minimum investment of $300 million in capital improvements
- Manufacture one or more parts primarily used for electric vehicle manufacturing
- Placed in service within 60 months of application approval
- Create at least 150 new full-time employee jobs
Electric vehicle manufacturers, electric vehicle power supply manufacturer, or electric vehicle component part manufacturer (Staats note: the language “that does not qualify under paragraph (2) above” – perhaps a typo, should probably be paragraphs (1) or (2))
Minimum investment of at least $20 million in capital improvements
For electric vehicle component part manufacturers – manufacture one or more parts that primarily used for electric vehicle manufacturing
- Placed in service within 48 months of application approval
- Create 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 to electric vehicles, electric vehicle component parts manufacturing or electric vehicle power supply equipment manufacturing;
- Minimum investment of $100 million in capital improvements
- Placed in service within 60 months
- Create the lesser of 75 new full-time jobs or new full-time employee jobs equivalent to 10% of the statewide baseline applicable to the taxpayer and any related member at the time of application
- Jobs must have a total compensation equal to or greater than 120% of the average wage paid to full-time employees in the county where the project is located.
- Can’t enter into an agreement under this Act “with respect to a single address or location for the same period of time for which the taxpayer currently holds an active EDGE agreement.”
- May submit an application under this program after terminating an existing EDGE agreement “for the same address or location"
Income Tax credit awards:
- DCEO can award credits on and after 1/1/2022
- Credit against the regular income tax not to exceed the sum of 75% of the incremental income tax attributable to new employees at the applicant’s project, and 10% of the training costs of the new employees (training costs defined in statute).
- Credit against the regular income tax in an “underserved area” not to exceed the sum of 100% of the incremental income tax attributable to new employees at the applicant’s project, and 10% of the training costs of the new employees.
- Training costs can be increased by an additional 15% if new employees that are recent graduates, certificate holders, or credential recipients from “an institution of higher education in Illinois or apprenticeship program located in Illinois and approved by U.S. Dept. of Labor Bureau of Apprenticeship.”
-
If an applicant agrees to hire the required new employees – the maximum amount of the credit can be increased by an amount not to exceed 25% of the incremental income tax attributable to retained employees, or 50% if the project is located in an underserved area. (Staats note: How do you have incremental income tax from a retained employee?)
- Construction Jobs credit – 50% of the incremental income tax attributable to construction wages paid in connection with construction of the project facilities, or up to 75% if the project is in an underserved area.
-
The credits can be taken against the regular income tax beginning with tax years beginning on and after 1/1/25 (Staats note: The credits are earned beginning in 2022, but may not be taken until beginning in 2025. However, note that in the income tax credit there is language that credits may be carried forward for 5 years from when they are earned. If I’m reading the language correctly, there is a limited carry forward period for credits earned in 2022 through 2024 because the 5 year carry forward period begins to run before the credits can 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. The credit against the withholding tax can’t be utilized until after 12/31/2024.
-
The duration of the agreement with DCEO for electric vehicle manufacturers, component parts manufacturers either new or existing who want to convert to electric vehicles and component parts is 15 years, and 10 years for power supply manufacturers (Staats note: As I read this it also allows for a 10 year agreement for electric vehicle manufacturers and component parts manufacturers who do not qualify under the investment and job creation minimums in the legislation? – in other words a smaller investment or job creation number?)
Clawback – cease operations prior to the end of the agreement – the entire credit amount awarded is clawed back.
Sunset date – no new agreements between DCEO and taxpayers after 12/31/2027 – This appears to be like EDGE, because any agreement entered into before the sunset date will be valid for the full length of the agreement.
Utility Tax exemptions – can be certified under the agreement with DCEO. Doesn’t appear to extend to locally-imposed and collected electricity taxes. “The taxpayer is also exempt from any additional charges added to the taxpayer’s utility bills at the project site as a pass-on of State utility taxes under Section 9-222 of the Public Utilities Act” – this exemption can’t exceed 10 years from the date of Department’s initial certification.
Investment tax credit – Against the regular Illinois income tax for the tax year in which the taxpayer invests in qualified property placed in service at the project. The credit is .5% of the basis of the property. Excess credits can be carried forward for 5 years.
Building materials exemption from sales tax – This exemption can’t extend for more than 5 years. It appears to apply to both state and local sales taxes.
Property Tax Exemption – Any taxing district may upon a majority vote of its governing body may abate any portion of real property taxes “otherwise levied or extended by the taxing district” on a facility owned by an electric vehicle manufacturer, electric vehicle component parts manufacturer, or an electric vehicle power supply manufacturer subject to an agreement with DCEO during the period of time the agreement is in effect.
Unfortunately, the legislature did not stop with amendment 1. Due to pressure from organized labor, amendments 2 and then 3 were introduced. These amendments were “line” amendments meaning that they made targeted changes to amendment 1 without “gutting and replacing” the language. The main element of these amendments was the addition of labor neutrality requirements for manufacturers that do not currently operate in Illinois. For those of you that are familiar with the issues we’ve had with labor peace agreements, this labor neutrality language is “labor peace lite” in that labor neutrality clauses are one of the two most problematic portions of a labor peace agreement. Under current Illinois law, these labor peace agreements are only implemented against one industry (cannabis) but there has been a rapid push to expand them to data centers, charter schools and now manufacturing.
Chamber President & CEO Todd Maisch testified in both the Senate and House Executive Committees. There is a world of difference between a Project Labor Agreement that deals with union labor for someone else’s employees when constructing or expanding a facility than the labor neutrality requirements which wrench control of the workforce from management. Todd urged legislators to support amendment 1 and table the subsequent amendments with the labor language that would neutralize any benefit from the incentives. In part because of the Chamber’s testimony, this legislation received only a solitary Republican vote in favor in committee.
Republican Leader Dan McConchie then cut a deal with the Senate President Harmon and Governor Pritzker to include an Illinois Chamber proposal that would provide great potential tax savings to not just auto manufacturers but companies in every business sector.
For many companies, these tax savings will be extremely significant. Once again to the Chamber’s Keith Staats description of a tax proposal:
- add language that extends the carryforward period for Illinois net losses for all taxpayers under Section 207 of the Illinois Income Tax Act from 12 years to 20 years. That effort was successful, and I worked with the others to draft the change to Section 207. My recommended language that extends the carryforward period to 20 years for existing net losses, as well as for years going forward beginning with calendar 2021, was included. Here is the language amending Section 207:
-
"(3) for any taxable year ending on or after December 31, 2003 and prior to December 31, 2021, such loss shall be allowed as a net operating loss carryover to each of the 12 taxable years following the taxable year of such loss, except as provided in subsection (d); and
-
(4) for any taxable year ending on or after December 31, 2021, and for any net loss incurred in a taxable year prior to a taxable year ending on or after December 31, 2021 for which the statute of limitation for utilization of such net loss has not expired, such loss shall be allowed as a net operating loss carryover to each of the 20 taxable years following the taxable year of such loss, except as provided in subsection (d)."
This tax language was added to the labor neutrality language in an amendment number 4 that was sent straight to the Senate Floor for adoption. The tax benefits balanced out the labor costs and removed the Chamber’s opposition. Without a brick from the business community, the bill flew out of the Senate Chamber unanimously and the House 110-2. The Governor will sign the bill quickly.
House Transportation Regulation, Roads & Bridges Subject Matter Hearing
The House Transportation Committee held two subject matter hearings near the major Chicago Airports about soundproof windows.
Chicago Department of Aviation (CDA) Project Administrator Vildana Celik spoke. Residential sound insulation program (RSIP) began in 1996 as a pilot program. The goal of the program is to reduce air traffic noise by 5 decibels in nearby areas to the airport. 21,000 homes have been insulated. Overall, 11,500 have been near O’Hare airport.
Phase 17 and Phase 18 of the RSIP are under construction at O’Hare airport and phase 19 is in its design process. There is concern of odor in some residential homes emitted from RSIP windows. CDA did not receive funding from airlines or FAA for replacement. CDA hopes to award a contract for warranty services for the RSIP windows soon.
The odor does not pose a health risk.
In 2019, the state funded a replacement for odorous windows and doors. The state passed legislation creating an advisory committee and eligibility criteria for replacements. All RSIP participants were notified of potential odor and countless inspections have occurred or are scheduled.
$8 million is in the state fund. It is anticipated that this fund could provide odor mitigation to 225 homes. Additional home window replacements scheduled will have to be funded by additional funds. It will cost Approximately $35,000 per home to replace the acoustic windows. Around 1,000 homes have been reported as odorous homes, but newly confirmed homes are still being added. Estimates from committee members about what the total cost of this program would be if carried to full conclusion produced jaw dropping estimates of $60-$200 million. As Yogi Berra would have said, that’s real money and thus we will continue to watch this issue.
Future of Work Meeting
The Future of Work Task Force met virtually on Monday this week. We heard from professors from the University of Illinois to share a study they conducted on worker happiness. We also discussed scheduling practices that quickly devolved into talk about the gig economy. Sadly, this virtual meeting was less productive than the previous meeting in Chicago.
I look forward to returning to an in-person format next month in Elgin. The agenda is a discussion on New Technologies and Challenges Reshaping Work. If you or your company would like to address this task force, please reach out to me.
Articles of Interest
Until next time,
Clark
