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Businesses gird against Blagojevich’s gross-receipts tax plan

November 17, 2010

Illinois Gov. Rod Blagojevich’s proposed 2008 budget seeks $32 billion in new revenue, including $6 billion from a gross-receipts tax on all business transactions, regardless of profitability.

The governor unveiled his proposal in a March 7 speech combining his annual budget plan and State of the State address. Other new revenue would come from raising $16 billion in bonds to pay off pension debt and $10 billion by leasing the state lottery.

No Illinois governor has sought to generate so much new revenue in so short a time. Critics of the new gross-receipts levy have been gearing up to fight it in the legislature.

A political science professor at the University of Illinois at Springfield, Charles Wheeler, said a gross-receipts tax is alluring politically because estimates show it would "bring in a ton of money" through essentially "hidden taxes" eventually paid by most consumers.

"Under our current law, you pay a sales tax at the actual final point of sale," Wheeler said. "But the intermediate sale of materials used in production generally aren’t subject to the sales tax.

"Whereas the gross-receipts tax, at every stage, at every step of the process, the company involved would have to pay a gross-receipts tax."

The gross-receipts tax would be an alternative to the state’s current corporate income tax, which many large businesses do not pay. Confidents of the governor said the plan would impose a sliding scale of tax rates—with a maximum of almost 2 percent—based on the type of business and the amount of gross receipts.

Businesses in several categories, including those with less than $1 million in revenues, would be exempt from the gross-receipts tax.

The new levies represent Blagojevich’s way of raising billions of dollars to keep the state government afloat while adhering to his campaign pledge not to raise personal, sales or income taxes.

Blagovevich frames the spending side of the ledger as "investing in Illinois families." In addition to education, health care and pensions, the governor contends that requiring more of businesses is a matter of "tax fairness" compared with the burden borne by individuals.

But business interests say the cost of the new gross-receipts tax would be passed along to consumers. "This will be the largest tax increase on the Illinois population since the implementation of the Illinois income tax in 1970," said Greg Baise, president of the Illinois Manufacturing Association. "No matter what (Blagojevich) tries to say, these costs will be passed on, whether in manufacturing or services."

All revenue from the bond sale and the lottery lease would be devoted to the state’s woefully underfunded public employee pension systems, reducing the liability from $40 billion to $15 billion and easing pressure on future state budgets.

Businesses also are expected to rail against a new payroll tax on employers who don’t offer health insurance or who offer minimal coverage. The business tax equivalent of 3 percent of payroll would generate up to $1 billion.

Senate President Emil Jones (D-Chicago) has already indicated support for new tax levies on businesses, but House Speaker Michael Madigan (D-Chicago) has said little about the proposed business taxes, with his spokesman saying to "wait for the fine print." Madigan has questioned the wisdom of leasing the lottery.