Recent Developments in Business Taxation in Illinois

1
Recent Developments in Business Taxation in
Illinois

J. Fred Giertz University of Illinois and
National Tax Association

• State and Local Business Taxation
• Is there a better way?
• Federal Reserve Bank of Chicago
• and the National Tax Association
• September 13, 2004

2
Illinois--Background

• Illinois a moderate tax state
• High PC state and local taxes-- 8th highest at
  105 of U. S. average
• Low taxes as percentage of income--32nd highest
  at 97 of U. S. average
• Low state taxes, high local taxes (property taxes)

3
Importance of Property Taxes in Illinois--2003
4
Business Taxes in Illinois

• Business taxhalf full, half empty
• Moderate corporate rates with constitution
  protection (4.8 2.5 PPRT)
• Sales taxation of inputs
• High local property taxes
• Heavy business burden--Non-residential
  assessments
• State--40
• Cook50
• Collar24
• Special Cook County issuesclassification de jure
  and de facto

5
Relative Size of Illinois Corporate Income Tax
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Illinois Business Taxes (continued)

• Rankings
• Tax Foundation14th best (state only)
• COST -36th best (including local property taxes)
• Summary of state taxes
• Basically sound
• Issues
• Sales Taxtaxation of inputs
• Corporate
• Reasonable rate
• Apportionment formula and related issues
• Conformity and decoupling (depreciation)
• Creditstraining, RD, ITC, EDGE (enterprise zone
  incentives)

7
Under Performance of State Revenues
8
Recent Economic Performance
9
Recent Economic Performance
10
Recent Developments in Illinois

• Slow recovery
• Severe revenue problems
• Few degrees of freedom in responding
• No increases in major taxes
• No cuts in education, health and welfare
• What is left? Focus on creative revenue
  sources often one-time
• Borrowing
• Amnesty
• Fund transfers
• Sales of assets
• One-time federal aid

11
Recent Developments (continued)

• Focus on businesshigher taxes and fees
• Misunderstanding of impact of taxing business
• FY2004
• Business fees and transfers to GF
• Out of state gas purchases
• Trucking
• Gambling
• Business preferences
• Maintenance of single factor apportionment

12
Recent Developments (continued)

• FY2005
• Heavier focus on corporate issues
• No groundwork or discussion of reform
• Retrenchment on previous years actions
• Man. purchase credit
• R D credit
• Trucking taxes and fees
• Shifting of property tax burden to business
• No general discussion of basic tax issuesall
  driven by revenue needs
• Budget still not in long run equilibrium