Illinois Public Act 096-0028 (the “Act”) became effective June 30, 2009. The Act permits wind energy projects across Illinois to obtain exemptions from sales and use taxes by direct application to the state.
The Act will significantly affect the development of wind energy in Illinois by expanding the locations in the state in which developers can obtain sales and use tax exemptions and by streamlining the process for obtaining such exemptions. The Act provides that new wind power facilities that are constructed in Illinois in a location not already included in a designated Enterprise Zone and that are placed in service on or after July 1, 2009, may be considered a “High Impact Business” that qualifies for certain sales and use tax exemptions. Eligible facilities include both newly constructed and expanded electric generation facilities that generate electricity using wind energy devices, and include all associated transmission lines, substations, and other equipment. Owners of new wind power facilities may make an application to the Illinois Department of Commerce and Economic Opportunity (the “DCEO”) for this designation at any time during the year, and the DCEO shall review and make a determination of the qualification of the proposed High Impact Business within 90 days.
Unlike other types of High Impact Businesses, the state may designate a wind energy facility as a "Wind Energy Business" without requiring proof of any impact on job retention or economic development or that alternative sites exist in other states for the development of the facility. Wind Energy Businesses are also exempt from provisions of the Enterprise Zone Act concerning revocation of High Impact Business status if a determination is made that the business would have been built at the site without the High Impact Business designation.
A new wind power facility that receives designation as a High Impact Business shall qualify for an exemption for building materials incorporated into the facility pursuant to Section 5l of the Retailer’s Occupation Tax Act, 35 ILCS 120/5l. As a result, the 6.25 percent state tax and any applicable local sales and use taxes shall not apply to receipts for building materials that will be incorporated into a Wind Energy Business.
The Act also makes Wind Energy Businesses subject to the requirements of the Prevailing Wage Act for construction labor. Penalties for failure to comply with the Prevailing Wage Act include liability to the Illinois Department of Labor for a portion of the value of underpayments, punitive damages to an underpaid worker, and possibly being found guilty of a Class A misdemeanor and being subject to an injunction to suspend work on the project. However, the Act does not permit the state to revoke a High Impact Business designation as a result of failure to comply with the Prevailing Wage Act.
Prior to the adoption of the Act, in Illinois only wind energy facilities located within an Enterprise Zone were eligible to receive sales and use tax exemptions on building materials. The Act opens the field for wind development in Illinois because developers now have a method to obtain sales and use tax exemptions for projects throughout the state through direct application to the DCEO instead of having to locate within an Enterprise Zone or within the vicinity of an Enterprise Zone that is then expanded.
Wind energy developers seeking a High Impact Business designation will be required to submit an application to the DCEO and obtain approval of the application from the DCEO. The DCEO is currently in the process of adopting an application for this wind energy High Impact Business designation.
Upon approval of an application, developers will be required to comply with the requirements of Illinois law, including regulations adopted by the Illinois Department of Revenue, regarding sales and use tax exemptions applicable to a project. In addition, developers should take steps to implement proper documentation to ensure that they comply, and that all of their contractors comply, with all applicable requirements so that the project obtains the full benefit of the exemptions.
For more information about this legislation, or any other matter mentioned in this Client Alert, please contact the author, Joseph Seliga, at +1 312 701 8818.