Chapter 3: The Illinois Economy - Taxing Business
Authors: Nathan B. Anderson, IGPA faculty, and Joshua Miller
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Business taxes that are too high threaten to drive businesses out of the state of Illinois. This chapter attempts to assess the status of business taxes in Illinois, and what (if any) measures ought to be adopted to strike a favorable balance between revenues for the state and growth in business, and therefore the economy.
Nathan B. Anderson discusses Illinois' corporate tax structure. (transcript-PDF)
Though Illinois has experienced a low level of employment growth in recent years, it has also seen an increase in Gross State Product. This means that Illinois companies are becoming moreefficient, because decreases or stagnation in the labor force is nevertheless being followed by increased production. Nonetheless, examining Illinois’ business tax structure can help to elucidate what kind of progress can be made in Illinois with respect to fostering business.
Different kinds of businesses are taxed differently in Illinois, though often many of them receive the same exemptions and deductions (such as the deduction for lost profits in previous years). Additionally, Illinois has recently adopted a series of laws that reduce and/or simplify business taxes in the state. For instance, Illinois uses SSF (single sales factor) to tax businesses, which means that a single calculation – how many sales the company has made in Illinois – is used to determine what kinds of taxes this company will pay.
There are four main types of businesses affected by these tax structures: C corporations (large to mid-size companies owned by shareholders), S Corporations (100 shareholders or less), Limited Liability Corporations (most suitable for single-owner companies), and partnerships (companies with two or more members among whom profit is shared). Each of these is taxed at a different rate, with the rates for C corporations being the highest at 7.3 percent.
Given the experience of Illinois and other states, and information about taxpayers’ concerns, replacing the corporate income tax with a progressive individual income tax will better the business environment and economy of Illinois. By getting rid of the corporate income tax, businesses would be heavily encouraged to do business in Illinois, and the legal structure of Illinois’ tax laws would be significantly simplified. On the other hand, a progressive individual income tax would assure that tax revenue in the state is sufficient to cover expenses and that those with higher incomes contribute more to the state’s revenue.
