Legislation expected to be introduced Wednesday would lower the state sales tax rate by half a percentage point but apply the tax to more goods and services, including groceries and medicine.
According to Senate colleagues, Olympia Fields Democratic state Sen. Toi Hutchinson is expected to submit the bill, which would replace previous revenue-related bills she drafted to help end a two-year budget standoff between Republican Gov. Bruce Rauner and Democratic Party leaders in both chambers of the Legislature.
Under the proposal, the state sales tax would drop from 6.25 percent to 5.75 percent, Chicago Democratic state Sen. Heather Steans said.
The state generated $8 billion in sales tax revenue last year. The rate reduction would potentially translate to nearly $700 million in lost revenue.
However, a bevy of business services currently not subject to the sales tax could add as much as $563 million, according to estimates from the legislature’s Commission on Government Forecasting and Accountability. Figures for applying the tax to groceries and medicine were not immediately available but were expected to easily exceed the remaining lost sales tax revenue. Steans said low-income residents and seniors would be exempt from grocery and medicine taxes.
While operators of service-based businesses affected by the proposed tax complained about its impact, some government finance experts say such taxes on services would merely be “modernizing” the state’s limited sales tax.
“Out of 45 states with a sales tax, Illinois has the most narrow scope because it doesn’t include the modern service economy,” said Ralph Martire, executive director of the Center for Tax and Budget Accountability, a bipartisan government finance think tank based in Chicago. “Why is leaving that out of our sales tax a loser game? It’s simple, it’s called math. You can’t ignore the largest and fastest growing segment of the economy in your tax base and expect revenue growth.”
Hutchinson’s service tax plan is expected to closely mimic Wisconsin’s except without the tax on tickets to concerts, sporting events, amusement parks and other recreational places. The services that would be taxed include boat docking and storage, cable television subscriptions, internet access, parking garages, landscaping, laundry and towing. The service that would generate the most revenue under the plan would be a tax on charges for repair labor. That means the hourly labor fees charged by mechanics, carpenters and handymen would be taxed. COGFA estimates that could generate as much as $177 million annually when fully implemented.
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