Gross receipts tax would only hurt state

Wednesday, March 14, 2007

It would be a gross job killer and have a gross detrimental impact on the price of everything made or purchased in Illinois.

Gov. Blagojevich last week proposed a new tax on gross business receipts - essentially a new sales tax on nearly every transaction. Manufacturers, wholesalers and retailers would pay 1.8 cents on every dollar they receive. Other businesses would pay a half-cent on each dollar.

The governor said companies with less than $1 million in revenues would be exempt, claiming that would cover 75 percent of businesses. He said "loopholes" in the state's corporate income tax allow companies to avoid income tax on their sales here.

The proposed tax will generate $6 billion in new revenue for Gov. Blagojevich's ever-expanding agenda. He said the new money would be used to increase education funding and for a new program to provide health coverage for uninsured Illinoisans. While we agree that more money is needed for schools, we're wary about the new healthcare plan.

If there are "loopholes," as the governor describes, then he should work to close them. And if the state needs more money to pay its bills, increasing the income tax is the fairest and most efficient method to generate it.

The biggest concerns, however, are the effects the "gross" tax will have on the state's business climate, its pyramiding impact on consumers, and its fairness to commodity-oriented entities (particularly agriculture-related firms) that may have significant gross sales but very small net income.

The governor's staff argues that companies look at the total of all taxes and business expenses when considering where to locate, which is true. Combined with high property tax rates, high workers compensation premiums and myriad other fees Illinois companies pay, the new gross receipts tax will add to the state's anti-business reputation.

There's no question that a gross receipts tax will cause businesses to consider moving out of Illinois, if they don't have to operate here. That will cost jobs and put the state at a disadvantage when it comes to recruiting new companies.

Illinois lawmakers should take note that Indiana recently eliminated its gross receipts tax. Don't think for a minute that Hoosier state officials won't use that as leverage to recruit Illinois businesses, if such a tax is imposed here.

Taxing gross receipts will have a detrimental effect on the state's economy and consumers. Since the tax is imposed each time a business sells a product or service, it "pyramids" through the process. The more production or sales steps the greater the impact the tax will have on the end buyer.

A gross receipts tax will have a particularly sour effect on agriculture-related businesses. These operations may have millions of dollars in gross sales, but very little left on the bottom line. Because they often are dealing with commodities with no control over pricing, a gross receipts tax may very well sap whatever profit there may have been.

The governor's tax proposal will have a pyramiding, detrimental impact on the state's economy and hurt business recruitment efforts. It is, in a word, gross. - Don Cooper, publisher