Two articles in recent days have shed a little bit more light on the as-yet-unconfirmed plan by Governor Rod Blagojevich to propose a gross-receipts tax on Illinois businesses. The tax would be levied on 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 1-percent gross-receipts 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 5 percentage points to 15 percent since 1980."
The corporate-tax situation has long been an issue for Lieutenant Governor 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, that 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 1-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 (such as supermarkets, airlines, and farmers), add in giant publishing companies, with ever-growing fixed costs and declining ad sales (such as the Tribune Company), toss in companies that regularly invest large amounts of their annual revenues into infrastructure and technology (such as 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 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 such as Wal-Mart. The Illinois Press Association advocates for tiny newspapers in small towns all over Illinois along with the Chicago Tribune.
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.
Rich Miller also publishes Capitol Fax (a daily political newsletter) and (http://www.thecapitolfaxblog.com).