Illinois and Missouri Enact Legislation to Assist Automotive Industry
Legal Alerts
7.27.10
Continuing to recognize the importance of the automobile industry to state and local economies, two states have recently enacted new legislation to incentivize vehicle manufacturers and their suppliers to retain or create jobs. On June 4, 2010, the State of Illinois enacted Public Act No. 096-0905 and on July 15, 2010, the State of Missouri passed into law House Bill No. 2. While the new laws differ slightly in scope, both allow vehicle manufacturers and suppliers to retain payroll withholding taxes that would otherwise have to be remitted to the State for retained or newly created jobs. A short description of both pieces of legislation is set forth below.
In recent years, the State of Illinois' principal economic development tool has been the Economic Development for a Growing Economy Act (EDGE). The EDGE program authorizes the Department of Commerce and Economic opportunity to award corporate income tax liability tax credits to any company that creates or maintains jobs in the State and makes a certain level of capital investment. The EDGE program, however, sometimes has limited utility because some companies do not have sufficient income tax liability to take full advantage of the credit—either due to substantial past net operating losses or simply because of a lower state tax liability.
Faced with the potential out of state relocation of a major vehicle and vehicle part manufacturing company with substantial past net operating losses, Illinois enacted Public Act No. 096-0905. This new legislation allowed the company to elect to retain payroll withholding taxes that would otherwise be due in lieu of a credit against its corporate income tax liability. As noted, the legislation was specifically tailored for this company. Nonetheless, the message from the State was and continues to be important, i.e., Illinois supports the vehicle manufacturing industry and will take legislative action to retain or attract industry jobs.
The State of Missouri sent a similar message when it passed the Manufacturing Jobs Act (the "Act") on July 15th. Targeted at a broader group of companies than the Illinois legislation, the Act allows "qualified manufacturing companies" and "qualified suppliers" to retain withholding taxes that would otherwise be due for newly created or retained jobs.
A "qualified manufacturing company" generally is a business with a NAICS code of 33611 that: (a) manufactures goods at a facility in Missouri; (b) makes a capital investment of between $50,000 and $75,000 per retained job within no more than two years of the date the qualified manufacturing company begins to retain withholding taxes; and (c) manufactures a "new product" or modifies or expands the manufacture of an existing product.
A "qualified supplier" generally is a manufacturing company that: (a) attests to the Missouri Department of Economic Development that it derives more than 10 percent of its total annual sales from sales to a qualified manufacturing company; (b) adds five or more new jobs at a Missouri facility; (c) has an average wage for such new jobs that is equal to or exceeds the lower of the county average wage for Missouri; and (d) provides health insurance for all full-time jobs and pays at least 50 percent of the premiums for such insurance.
A "new product" generally is a new model or line of a manufactured good that has not been manufactured in Missouri by the qualified manufacturing company, or an existing brand, model, or line of a manufactured good that is redesigned with more than 75 percent new exterior body parts and incorporates new powertrain options.
The amount of withholding taxes that may be retained varies. For example, a qualified manufacturing company that manufactures a new product may retain 100 percent of the withholding taxes for employees at the facility for a period of 10 years from the date the company executes an agreement with the State of Missouri. A qualified manufacturing company that modifies or expands the manufacture of an existing product may retain 50 percent of the withholding taxes for employees at the facility for a period of seven years. A qualified supplier may retain 100 percent of the withholding taxes for new employees at its facility for three years. However, if the wages paid to the new employees equal or exceed 120 percent of the county average wage, then the qualified supplier may retain the withholding taxes for five years.
Several other provisions of the Act are worth noting. First, the Act generally precludes combining the benefits of the Act with certain other economic development programs such as incentives for large scale developments and incentives for locating within an enterprise zone. Second, a qualified manufacturing company may not retain more than $10 million in withholding taxes in any single calendar year, and the aggregate amount of taxes retained by all qualified manufacturing companies may not exceed $15 million in any calendar year. Third, the Act includes State clawback and retention suspension rights for companies that fail to make the required capital investment or discontinue the manufacture of a new product. Finally, the Act sunsets six years after its effective date.
For further information about these new pieces of legislation or economic development incentives in other states, please contact Aleksandra Miziolek at 313-568-6762 or Andrew Scott at 312-627-8325.
Dykema has provided legal insight to the automotive industry since its inception, and as the industry expanded, so did our client base. Few law firms in the United States can equal Dykema’s experience in, and knowledge of, the automotive industry. Founded in Detroit, Michigan, Dykema is more than a logistically convenient legal resource for the automotive industry. As a full-service law firm with more than 50 integrated practice areas, including a Washington, D.C., office focused on government policy, Dykema is strategically organized to fully support all our clients in the automotive sector.
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