Part 2 of a three-part series on the Illinois Advancing Innovative Manufacturing (AIM) Tax Credit. Read Part 1.
For companies evaluating eligibility for Illinois’ AIM Tax Credit, a key question is whether what they make qualifies as a “critically needed good.” If you have an elementary-age child or tween who has joined the NeeDoh craze, the hunt for a squishy toy can become a surprisingly big assignment: another store to check, another product page to refresh and a child who knows exactly which one they want. If you’ve been on this quest, you know the difference between wanting a product and being able to get it.
At home, that may make a NeeDoh feel like a “must-have.” Under Illinois’ AIM rules, however, popularity and hard-to-find inventory do not by themselves make a product a “critically needed good.” AIM addresses a bigger manufacturing question: how can Illinois encourage investment in goods whose disrupted supply could affect health, safety, economic security or infrastructure?
Illinois’ new AIM Tax Credit offers a state tax credit of up to 3% to 7% of qualified capital improvement investment for eligible projects. For companies, the next question is: “Do we qualify?” In practice, AIM eligibility is dependent upon two definitions that are broader than many companies expect:to Notepad.
Under Illinois AIM rules, eligibility is tied to advanced-manufactured goods whose availability is essential to health, safety, economic security or infrastructure and whose supply chains face disruption.
The practical takeaway is that a product doesn’t have to be headline-grabbing to matter. Components, subassemblies and inputs can be just as critical as finished goods when downstream industries depend on them.
Illinois’ AIM rules identify examples across several industries, including:
That last category is important. If your product supports one of the listed industries, or functions like a critical input, it may still be worth evaluating rather than assuming it does not qualify.
Manufacturing is not the only route into AIM. Under Section 565.30(b) of Illinois’ AIM rules, a business can potentially qualify through R&D if at least 50% of its business activities involve R&D in the manufacturing of critically needed goods.
This can be relevant for businesses developing process technology, materials or production methods — even if they don’t run high-volume production today.
If you’re near the line, the analysis becomes a measurement issue: how you define “activities,” how R&D is organized across entities and how you track time and costs. Businesses conducting R&D may also want to consider the federal R&D tax credit. What Actually Counts Toward the $10 Million Threshold.
AIM projects generally need at least $10 million of qualified capital improvements within a five-year investment window. Many companies underestimate how quickly they can get there because “capital improvements” is defined broadly.
Under Illinois’ AIM rules, eligible spending can extend beyond production equipment to real estate, facility work and furnishings at an approved Illinois project site, as well as normally capitalized organizational costs and R&D costs incurred in Illinois. If you’ve ever renovated a kitchen, you know the cabinets aren’t the whole budget. Installation, electrical work and finishing touches can make that initial estimate look incomplete. The same “look beyond the equipment” mindset helps here: a project with $8 million in equipment may reach AIM’s $10 million threshold once eligible building work, site improvements, fixtures and capitalized soft costs are included.
AIM’s eligibility concepts are broader than terminology suggests and companies may miss the opportunity by ruling themselves out too soon. For companies considering any investment in Illinois, the next question is “Could what we make qualify?”
If you make something the economy would miss or devote at least half of your business activities to R&D in the manufacturing of critically needed goods and have an Illinois capital plan approaching $10 million —the AIM analysis may be worth running.
Next in the series: Part 3 will cover how the DCEO agreement process works, placed-in-service timing, the 15-year operating commitment, how the credit is claimed and carried forward and how AIM may interact with other Illinois incentives like EDGE, REV Illinois and Enterprise Zone programs.
For more information on this topic, please contact a member of our team.
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