A new policy report published by the University of Illinois System’s Institute of Government and Public Affairs provides a timely look at Illinois’ financial health and examines potential policy shifts, with a particular focus on the state’s sales tax structure.

The report explores several ways in which broadening the Illinois sales tax to include the service economy would benefit state and local governments and enhance the fairness of the state’s tax code.

Titled “The State of Illinois’ FY 2024 Fiscal Situation: A Solid Performance but Threats Remain,” the report leverages an “all-funds” methodological framework to assess Illinois’ financial standing. While the analysis reveals that Illinois achieved a marginal surplus in FY 2024 (July 1, 2023 through June 30, 2024), it also underscores the presence of significant headwinds that warrant careful consideration by policymakers. These challenges include the impending expiration of pandemic-era federal aid, the potential for disruptive policy shifts at the federal level and persistent fiscal pressures impacting local governments throughout Illinois.

A key focal point of the spotlight is the role of sales tax revenue within Illinois’ broader fiscal framework. Sales tax revenues are a critical component of the state’s funding mechanisms, with all-funds sales tax revenue reaching $16.4 billion in FY 2024. Notably, Illinois maintains a general sales tax rate of 6.25%, which exceeds the national average. When combined with local sales taxes, the state’s average sales tax rate climbs to 8.86%, positioning it as the seventh highest in the nation.