Two
articles in recent days have shed a little bit more light on the as-yet
unconfirmed plan by Gov. Rod Blagojevich to propose a gross receipts tax on
Illinois business. The tax would levy all corporate revenues, regardless of
profitability or existing tax exemptions and loopholes.
Crain's
Chicago Business reported that the governor is looking at scrapping the
corporate income tax in favor of a one percent gross receipts tax. A State Journal-Register
columnist claimed a poll several weeks ago, which appeared to be sponsored by
the governor, was testing the idea of exempting the first million dollars of
revenue from the tax.
According
to Crain's, 37 of the "Fortune 100" companies didn't pay any income
tax in 2004, "despite average Illinois sales that year of $1.2
billion." Also according to the article, "the corporate share of
total income-tax collections deposited into the state's operating fund has
dropped five percentage points to 15% since 1980."
The
corporate tax situation has long been an issue for Lt. Gov. Pat Quinn, and
sources say the governor has jumped on the bandwagon in a big way, griping to
Senate Democrats in private meetings about huge corporations, including some
prominent Illinois businesses, which don't pay state taxes. The governor's
aides have been harping about specific Illinois corporations that don't pay
taxes in their talks with Senate Democratic budget people, according to
sources, and they're some of the biggest, most well-known companies in the
state.
Another
major target of the gross receipts tax, according to Crain's, would be law
firms, medical practices and other professional service firms, which pass
through profits to partners, who pay only individual income taxes. A separate
article in the magazine quoted an official with mega Chicago law firm (and
Statehouse lobbying outfit) Hinshaw & Culbertson claiming that a one
percent gross receipts tax would cost the firm $1.6 million a year, based on
its most recent revenues.
You
can probably imagine the size, intensity and ferocity of the lobbying effort if
the state's largest corporations and its most powerful law firms and medical
practices teamed up to fight this tax. A trial lawyer who won hundreds of thousands
of dollars in fees from winning a case would have to pay gross receipts taxes
on all of that, even if the lawyer spent a fortune to move the case along over
several years. Medical practices that invested a significant portion of their
profits in new equipment or technology would receive no deductions. Giant
corporations, which can move headquarters and plants at the drop of a hat,
would see their tax bills rise in a big way.
Combine
that with large businesses that traditionally operate at extremely low profit
margins or whose razor-thin margins are tied to unpredictable commodity prices
(like supermarkets, airlines and farmers), add in giant publishing companies
with ever-growing fixed costs and declining ad sales (like the Tribune
Company), toss in companies that regularly invest large amounts of their annual
revenues into infrastructure and technology (like utilities and hospitals) and
that's pretty much everybody with a lobbyist in Springfield.
Small
businesses might be exempted from the tax, according to a State
Journal-Register columnist, who reported about a poll several weeks ago that
asked people about the gross receipts tax. The columnist claimed the poll
mentioned that the tax might exempt the first million dollars of corporate
revenue.
Exempting
the smallest of businesses probably won't necessarily lessen the Statehouse
lobbying effort because the groups that work on their behalf in Springfield
also have plenty of big business members. The Retail Merchants Association
represents the mom and pop stores on Main Street as well as the big chains like
Wal-Mart. The Press Association advocates for tiny newspapers in small towns
all over Illinois along with the Tribune. The same goes for the Illinois
Chamber, the Pharmacist Association and pretty much every other business group
you can name.
Meanwhile,
the governor's office is reportedly putting the arm on tax eater groups to back
his gross receipts tax idea.
The
process is pretty simple and straightforward. The groups are being asked to
support the tax increase, and then it's pointed out to them all the money they
or their members receive from the state and the new spending they want. Support
it or suffer, is the essential gist.
It's
a common Statehouse tactic, but it shows the guv is dead serious about rounding
up as much support as possible and isn't afraid of using a bit of muscle.
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Rich
Miller also publishes Capitol Fax, a daily political newsletter, and
thecapitolfaxblog.com