The Illinois Senate is calling for a broader sales tax with a lower rate. It has proposed a plan to broaden sales tax to many services, drop the sales tax rate from 6.25 percent to 5.75 percent, and increase the sales tax rate on groceries and medicines from 1 percent to 5.75 percent.
The “Grand Bargain,” as the Senate’s plan is called, does not have unilateral support. In his 2017 Budget Address, Gov. Rauner said he is open to broadening the sales tax “to cover everyday services.” However, he strongly opposes raising the tax rate on food and medicine: “We cannot raise taxes on people’s groceries and medicine.”
Expand sales tax to services
Senate Bill 09, which was introduced earlier this month, proposes a broader tax as of January 1, 2018, but no rate reduction. Bill sponsor Sen. Toi Hutchison provided a simple explanation for the measure: “Our economy used to be things we made. Now, it’s things we do.” Noting that neighboring Wisconsin taxes 16 types of services, she said her plan would tax the following eight services:
- Cable television and digital streaming services
- Landscaping services
- Laundry, dry cleaning, cloth pressing services (except coin-operated, self-service machines)
- Personal care services (e.g., nail care, tanning, tattooing) not including hair styling
- Private detective services and home security system installs
- Repair, servicing, alteration, fitting, cleaning, painting, coating, towing, inspection, or maintenance services
- Storage services, including self-storage or mini-storage
- Structural pest control services
Taxing these currently exempt services would generate approximately $291 million annually.
Lowering the sales tax rate and broadening sales tax to include more services is an idea embraced by the Civic Federation, “an independent, non-partisan government research organization.” Its State of Illinois FY2018 Budget Roadmap underscores the untenable nature of the state’s fiscal situation and proposes enacting “a new service tax including a broad-based definition of consumer services” to stabilize Illinois’ financial position. It proposes reducing the general sales tax rate to 5.5 percent (as compared to the Senate proposed 5.75 percent). The plan exempts business-to-business transactions.
On the other side of the issue, Illinois Chamber of Commerce President Todd Maisch says that taxing services would hurt the small businesses that provide them. Other opponents argue that sales tax is by nature regressive, hitting people with lower incomes the hardest.
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