Background


For more than a decade, the Illinois Department of Commerce and Economic Opportunity, or DCEO, has been giving select businesses many millions of dollars more in tax credits than the law allows. So the Liberty Justice Center is fighting in court to stop it.

The Economic Development for a Growing Economy Tax Credit Act, or EDGE Act, empowers the DCEO to give tax credits to select businesses – which allows some firms to avoid paying any state income taxes at all while other businesses and taxpayers are forced to shoulder a heavy tax burden.

The EDGE Act supposedly exists to attract businesses to Illinois and to induce businesses that are already here to expand.

That’s why a business applying for EDGE tax credits must propose a particular project in Illinois, and it’s why the act ties the amount of tax credits a business can receive to the new employees it hires in the state. The law says that a company’s tax credit cannot be greater than the amount of state income tax withheld from the paychecks of its “new employees” in Illinois, meaning employees hired after the business entered into a tax-credit agreement to work on the company’s proposed Illinois project.

But, in fact, the DCEO has been giving businesses tax credits based on taxes withheld from their old employees – and therefore has been giving tax credits that far exceed what the law allows.

The DCEO’s administrative rules – the regulations the department has written for itself – say the DCEO can give businesses tax credits up to the amount of income taxes withheld from both new employees and “retained employees;” that is, employees the company already employed before it entered into a tax-credit agreement, who spend part of their time on the company’s new project.

That’s illegal. A government agency can’t expand its power by enacting rules that contradict a statute passed by the General Assembly.

The DCEO’s unlawful awards of excessive tax credits hurt ordinary taxpayers who do not get special tax breaks and who will be on the hook for the tax dollars the state doesn’t receive from these businesses. It also hurts other businesses that don’t qualify for EDGE tax credits, which are placed at a competitive disadvantage when the government picks winners and losers through selective awards of tax credits.

The Liberty Justice Center has filed this lawsuit on behalf of taxpayers to make the DCEO follow the law. We’re asking the court to strike down the DCEO’s regulation that increases the limit for tax credits above the amount the law allows, and we’re asking the court to order the DCEO to immediately stop issuing these excessive tax credits.