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    AN ACT concerning revenue.

 
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    Be it enacted by the People of the State of Illinois,
 
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represented in the General Assembly:


 
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    Section 5. The Illinois Income Tax Act is amended  by adding 
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Section 218 as follows:
 
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    (35 ILCS 5/218  new)
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    Sec. 218. Alternate research and development credit.
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    (a) For taxable years ending on or after December 31, 2007, 
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each taxpayer who, during the taxable year, makes qualified 
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research expenditures is entitled to a credit against the tax 
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imposed under subsections (a) and (b) of Section 201 in an 
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amount equal to the following:
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        (1) For taxpayers who have conducted business 
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    activities in each of the 3 preceding taxable years, the 
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    credit under this Section is 12% of the taxpayer's adjusted 
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    research expense; or
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        (2) For taxpayers who have not conducted business 
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    activities in each of the 3 preceding taxable years, the 
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    credit under this Section is 6.5% of the qualified research 
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    expenditures made in the current taxable year.
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    (b) For the purpose of this Section:
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    "Adjusted research expense" means an amount equal to: (i) 
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the amount of qualified research expenditures made in the 
 


 






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current taxable year; less (ii) 50% of the average of the 
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qualified research expenditures made for the 3 preceding 
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taxable years.
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    "Qualifying research expenditures" means the qualifying 
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expenditures as defined for the federal credit for increasing 
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research activities that would be allowable under Section 41 of 
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the Internal Revenue Code and that are conducted in this State.
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    (c) For partners, shareholders of Subchapter S 
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corporations, and owners of limited liability companies, if the 
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liability company is treated as a partnership for purposes of 
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federal and State income taxation, there is allowed a credit 
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under this Section to be determined in accordance with the 
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determination of income and distributive share of income under 
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Sections 702 and 704 and Subchapter S of the Internal Revenue 
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Code.
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    (d) The credit may not be carried back.   Any credit in 
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excess of the tax liability for the taxable year may be carried 
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forward. A taxpayer may elect to have the unused credit shown 
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on its final completed return carried over as a credit against 
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the tax liability for the following 5 taxable years or until it 
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has been fully used, whichever occurs first. If an unused 
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credit is carried forward to a given year from 2 or more 
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earlier years, that credit arising in the earliest year must be 
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applied first against the tax liability for the given year. If 
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a tax liability for the given year still remains, the credit 
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from the next earliest year must then be applied, and so on, 
 


 






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until all credits have been used or no tax liability for the 
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given year remains. Any remaining unused credit or credits then 
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must be carried forward to the next following year in which a 
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tax liability is incurred, except that no credit may be carried 
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forward to a year that is more than 5 years after the year in 
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which the expense for which the credit is given was incurred.

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    (e) This Section is exempt from the provisions of Section 
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250 of this Act.

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    (f) A taxpayer may not claim a credit under this Section in 
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any taxable year that the taxpayer claims a credit under 
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subsection (k) of Section 201 of this Act.

 

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    Section 99. Effective date. This Act takes effect upon 
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becoming law.