Article

Illinois creates Advancing Innovative Manufacturing Tax Credit

Credit offered up to 7% of eligible capital spend beginning in 2026

June 19, 2025
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Manufacturing Income & franchise tax Business tax State & local tax

Executive summary: Illinois budget agreement presents opportunities for manufacturing tax credits

In addition to myriad state and local tax changes, the fiscal year 2026 budget provides a new tax credit intended to spur innovation in growth industries and fast-growing sectors, including automotive manufacturing, aerospace manufacturing, energy and life sciences, machine manufacturing, fabricated metal manufacturing, chemical manufacturing, robotics and the production of advanced materials. Taxpayers located within Illinois, or considering expanding to Illinois, should evaluate this new tax credit for potentially significant incentive opportunities. The following article briefly summarizes the incentive and explains how recent changes may offer new benefits to taxpayers beginning in the 2026 tax year.


The advancing innovative manufacturing for Illinois tax credit act.

Required investment

The Advancing Innovative Manufacturing for Illinois Tax Credit program is operated by the Illinois Department of Commerce and Economic Opportunity (DCEO) and designed to offer a special tax incentive to encourage businesses to locate or expand operations in Illinois with a minimum $10 million capital improvement investment related to the manufacturing of critically needed goods. The program can provide tax credits to qualifying businesses up to 7% of eligible capital improvements made to a new or existing facility for the purpose of modernizing, upgrading, automating or streamlining a manufacturing or production process. ‘Capital improvements’ means the purchase, renovation, rehabilitation or construction of permanent tangible land, buildings, structures, equipment and furnishings at an approved project site in Illinois and expenditures for goods or services that are normally capitalized, including organizational costs and research and development costs incurred in Illinois.

Credit awards

The non-refundable credits will not exceed 7% of the applicant’s total capital improvement investments for the year for which the applicant seeks credit. This credit is used to offset income tax liabilities, although under certain circumstances, the credits can be carried forward up to 10 years. In addition, certain specified taxpayers may elect to offset their employer payroll withholding obligations as opposed to their income tax liability. The DCEO will determine the amount and duration of the credit awarded as described under the law and applicable regulations.

The credit amount is determined based on the total amount of capital improvement investment made by the taxpayer. A capital improvement investment of $10,000,000 or more, but less than $50,000,000, results in a maximum credit of 3% of the capital improvement amount; a capital improvement investment of $50,000,000 or more, but less than $100,000,000, results in a maximum credit of 5% of the capital improvement amount; and a capital improvement investment of $100,000,000 or more results in a maximum credit of 7% of the capital improvement amount. Projects may be granted a tax credit award that reflects investments made within a maximum five-year period.

Takeaways

The Advancing Innovative Manufacturing Tax Credit offers up to 7% of total capital investments. Before commencing investment, taxpayers should, at the very least, consider the following. First, taxpayers must apply to the program with details of the investment that the DCEO will incorporate into a robust project agreement. Nuanced and extensive descriptions of the project will be required. Second, the terms of the agreement between the DCEO and the taxpayer become public information. Additionally, taxpayers receiving the credit may become ineligible for other state incentives. Finally, taxpayers should consider all potential credit and incentives options before beginning the project.

Even in slowing and uncertain economic conditions, states continue to fund credits and incentives programs. The Illinois program is one example, but many states maintain programs that encourage hiring, capital investment, innovation and worker training. Taxpayers considering the Advancing Innovative Manufacturing Tax Credit program, or considering investing or hiring in Illinois generally, should speak to their Illinois tax advisers with questions about eligibility, available credit programs and application strategy.

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