* The Civic Federation, the Chicago Metropolitan Agency for Planning, the Illinois Economic Policy Institute and the Center for Tax and Budget Accountability have released a report calling for the expansion of the sales tax to some services…
As the State of Illinois’ second largest revenue source, the sales tax is a critical tool that supports government operations and public services throughout the state. First implemented in the 1930s, Illinois’ antiquated sales tax structure still primarily taxes goods rather than services. Due to this narrow tax base — which does not reflect the modern, service-oriented economy — the sales tax is falling short. Illinois needs a more strategic and sustainable fiscal structure that delivers consistent and reliable revenue growth, efficient spending, and economic competitiveness.
The time has come to fundamentally modernize the sales tax in Illinois to better reflect a 21st century economy. Applying the sales tax to consumer services would help secure Illinois’ financial future and its ability to meet residents’ needs by supporting critical public services, reducing tax inequities, and enhancing fiscal stability
* From the press release…
• Illinois’ sales tax structure is outdated. The current tax system primarily taxes goods, even though consumer spending has shifted significantly toward services over the past several decades. Illinois taxes only 29 out of 176 consumer services, far fewer than most neighboring states.
• Modernization would promote more tax fairness. High-income households spend five times more on untaxed services than low-income households, creating an unfair system. Illinois’ current system also gives preferential treatment to service-oriented business over retail firms. Expanding the tax base to include services would help correct this imbalance.
• New revenue would help support critical services. Expanding the sales tax to include consumer services could generate nearly $2 billion annually for the state, with additional funds flowing to local governments and public transit agencies.
* Exemptions and other items of concern…
▶ A service tax should be imposed on a broad set of consumer services to comply with the Illinois Constitution’s uniformity clause, which requires that taxes be consistently applied, with reasonable exemptions.
▶ Any economically efficient plan to tax consumer services should include two important exemptions to support the state’s households and businesses:
▷ Essential services like housing, healthcare, and childcare that are generally not classified as volitional consumption should be excluded from any tax on consumer services. Taxing these transactions could cause significant disruptions for households of all incomes and would be contrary to the state’s broader policy objectives.
▷ Services purchased by businesses as an input into products later offered for sale should also be excluded. These business-to-business (B2B) transactions, which include services like accounting and legal support, are considered intermediate inputs that help create products that will be taxed when sold to the final consumer. Taxing these transactions would lead to tax pyramiding — an economically inefficient approach that results in uneven and inconsistent effective tax rates. Taxing B2B services would also damage Illinois-based businesses’ ability to compete with peers in other states.
▶ To address existing taxes on services, the General Assembly should work with local governments to transition their existing service taxes (such as Chicago’s tax on streaming services) and avoid double-taxation by multiple units of government. The state can ensure local taxing jurisdictions, including communities with existing service taxes, benefit from sales tax modernization by guaranteeing that any expansion of the state sales tax base is fully reflected at the local level.
▶ As part of an expansion of the sales tax base, taxing jurisdictions should consider potential adjustments to their current rates, with the goal of maximizing revenue while decreasing overall tax burden on consumers.
* Where they’d like to see the new money go…
▷ Addressing the $770 million public transit funding deficit estimated by the RTA and total $1.5 billion needed annually to enable significant improvements to the transit system in northeastern Illinois;
▷ Paying down Illinois’ $144 billion in unfunded pension obligations;
▷ Fully funding the evidence-based K-12 education funding formula;
▷ Making additional contributions to the state’s rainy-day reserve fund; and
▷ Funding tax relief for low-income households by increasing resources allocated to programs like the Earned Income Tax Credit and Circuit Breaker Property Tax Relief program.
Before commenting, please click here and search the full report with any questions you may have.
Anyway, what are your thoughts on this?
…Adding… TFI…
Taxpayers’ Federation of Illinois President Maurice Scholten released today the following statement in response to a new report encouraging Illinois lawmakers expand state sales taxes to include more consumer services:
We appreciate the research teams for their recommendations and share their belief that funding education, mass transit, and public pension systems are vital to economic growth. Expanding Illinois’ historically narrow sales tax base could be one part of a long-term solution, but it is important to remember new sales tax revenues would take a significant amount of time before they are available to address these critical services.
In addition to ensuring their legislation would survive a constitutional challenge, lawmakers must work with local governments already relying on excise and service taxes to ensure these services are not subject to punishingly high tax rates. Moreover, all those affected by these changes must have sufficient time to prepare for such a seismic change to Illinois tax policy.
Illinois taxpayers deserve responsible sales tax policy - a modern system that treats goods and consumer services equally, thereby allowing lawmakers to lower the statewide sales tax rate to be more competitive with neighboring economies. We believe such a policy is within reach, and one that would help Illinois taxpayers realize a more sustainable future.
The report, “Modernizing Illinois’ Sales Tax: A pathway to a sustainable future,” was co-signed by the Civic Federation, the Chicago Metropolitan Agency for Planning, the Center for Tax and Budget Accountability and the Illinois Economic Policy Institute. Although the Taxpayers’ Federation of Illinois did not co-sign the report, Scholten, an attorney who has spent the past 15 years impacting Illinois state and local tax policy, was consulted by its authors and provided feedback incorporated into the final product.
- Politically_Illinois - Wednesday, Mar 19, 25 @ 11:54 am:
Glad to see some ideas being proposed, particularly to find a way to fund transit. Illinois needs a deep reform of its tax system and hopefully this is a first step in that process.
I would imagine that this will run into some tough opposition since it would raise taxes on wealthy people. Not to sound cynical, as IL Dems already tried the Fair Tax Amendment, but state-level democrats across the US love to attack their own constituencies than harm their rich donors. Massachusetts, Maryland, and New Jersey democrats already did the same: cut public services benefitting their own voters or cancel out the policies than ran on implementing to preserve tax breaks for wealthy people and their corporations. A good article on the phenomenon I am referring too: https://offtheline.beehiiv.com/p/why-do-democratic-governors-keep-budgeting-like-republicans
- ChicagoVinny - Wednesday, Mar 19, 25 @ 11:55 am:
A B2B service tax would have negatively impacted my business and made our chicago office less competitive with other states. I am glad they excluded it.
- JS Mill - Wednesday, Mar 19, 25 @ 11:56 am:
The CTBA and Ralph MArtire have been advocating for something like this since at least 2004. We would have been in far better financial condition and been well on our way to retiring the pension debt by now if the ILGA and governors had listened to Ralph more than two decades ago.
- 44 - Wednesday, Mar 19, 25 @ 12:01 pm:
“Modernize,” “reform,” “new ideas.” lol. Grab your wallet. All people do in this state are try and raise taxes taxes taxes. Yet we are a top 5% taxed state. Our infrastructure is rusting yet we don’t have the $ to fix it. Taxing isn’t the solution. Frustrating.
- City Zen - Wednesday, Mar 19, 25 @ 12:02 pm:
==The time has come to fundamentally modernize the sales tax in Illinois to better reflect a 21st century economy==
Good idea. And while you’re at it, lower the overall sales tax rate.
The state income tax rate is only as high as it is today because of these exclusions.It should should not be implemented as a budget gap filler.
- ChicagoBars - Wednesday, Mar 19, 25 @ 12:04 pm:
Is there any polling out there at all that supports raising taxes on anything to pay for public transit?
Expanding the sales tax to make the base look more like surrounding states is a decent argument but putting more $ for the RTA umbrella groups at top of spending priority list for new $ is a bold choice by these groups.
- Jack in Chatham - Wednesday, Mar 19, 25 @ 12:05 pm:
It would be better for Illinois families to raise the alcohol user fees. The minimum wage has been increased a lot in recent years but there has been no corresponding increase in alcohol beverage user fees. In Britain the tax on a bottle of liquor is $30, while in Illinois it is $1.71 plus the federal $2.50 for a $4.21 total. The difference between $27.50 and $1.71 is large and represents a lost opportunity.
- Blue Dog - Wednesday, Mar 19, 25 @ 12:05 pm:
I am ok with taxing certain services. But funding transit is off limits. raise the price to ride.
- TNR - Wednesday, Mar 19, 25 @ 12:13 pm:
An extremely heavy lift politically. Maybe lowering the existing rate and applying it to across the board to pick up services makes it sellable — as long as it’s revenue neutral. That would mean no new cash for transit or anything else, but it would allow revenue to grow naturally over the years because the part of the economy that is growing would be taxed.
- Dupage - Wednesday, Mar 19, 25 @ 12:14 pm:
No on expanding the sales tax base. It adds extra complexity to the small service providers, in addition to the lack of accountability as to where this extra money is going to go. Bail-out of the CTA, City of Chicago unpaid police and fire pension payments, and other such items are what this money would likely be used for. This is a state-wide increase, and the very first thing they mention is public transit systems. The rest of the state should be bailing out Mayor Johnson’s self-inflicted budget problems.
- ALIGNI - Wednesday, Mar 19, 25 @ 12:16 pm:
I find the conversations about modernizing both sales taxes, as outlined here, and property taxes to be valuable and overdue. I am glad to see these conversations happening at this level.
I agree that a lot of these services are overdue for being taxed.
Blue Dog, I also agree with you that we need to increase the cost of ridership on public transit, especially the systems serving Chicago. Many people in my circle would welcome an increased cost of ridership if that meant the services were improved and many of the other issues plaguing public transit were addressed. In fact, solving those issues would drive even more ridership. My spouse and I included.
- Rich Miller - Wednesday, Mar 19, 25 @ 12:18 pm:
===Our infrastructure is rusting yet we don’t have the $ to fix it===
Do you not drive? Have you not seen all the road and bridge repairs?
- Dupage - Wednesday, Mar 19, 25 @ 12:18 pm:
Typo, ===should NOT be bailing out Mayor Johnson’s self-inflicted budget problems.===
- Demoralized - Wednesday, Mar 19, 25 @ 12:42 pm:
==But funding transit is off limits==
Numerous countries around the world have solid mass transit systems. To simply say no mass transit funding is absurd. Robust mass transit should be a necessity in urban areas.
- RNUG - Wednesday, Mar 19, 25 @ 12:43 pm:
Thoughts …
CTA needs fully reformed before it gets one more cent …
Education … at the elementary and secondary level we pay more per student than just about anyone, for results that are abysmal. More than half the k-12 students read and do math below their grade level. We’ve been throwing money (some, admittedly not all they claim is needed) at the problem without a lot of improvement. I’d want to see more reform there before throwing more money down the drain. Maybe even mandated consolidation and school closings, Chicago included, as a condition of continued funding.
I’m in favor of more home schooling or small parent organized schooling / academies. I’m convinced the whole reason the education organization wants to start regulating gone schooling is they want to figure out how many federal & state dollars they are missing out on (a lot of the payments are based on attendance), and then try to figure out how to grab some of that lost attendance money for the districts by ginning up some minimal cost support services they will mandate for the home schoolers.
Pensions, yes, more money would be nice but the pension systems are already on track to fix their problems. And yes, more pension money now could mean less later.
But there are more pressing problems than pensions that could use the money now. I get the feeling this bill’s proposed funding list was a political one created to garner as much broad support as possible.
- 44 - Wednesday, Mar 19, 25 @ 12:53 pm:
Do you drive anywhere besides the Kennedy? Airport is a dump. Bridges rusted all over. You should see the loop L trains. Skyway road is a joke. Take highway through Joliet? 55 minutes s like a country road for large sections.
- Frida’s boss - Wednesday, Mar 19, 25 @ 1:13 pm:
Are any of these groups funded by the Government?
- Anyone Remember - Wednesday, Mar 19, 25 @ 1:18 pm:
Sadly waiting for serious discussion to be replaced with “Sales tax on haircuts?” Happened in MO recently. Happened under Blago.
- thechampaignlife - Wednesday, Mar 19, 25 @ 1:25 pm:
I am all for broadening the base, but it should be revenue neutral. Put the extra dollars into education and have the schools lower their property taxes. It looks like $24B in property taxes go to schools each year and another $27B goes to everything else, so $2B in service taxes would cut your property tax bill by about 4%.
Source: https://tax.illinois.gov/content/dam/soi/en/web/tax/research/taxstats/propertytaxstatistics/documents/y2023tbl12.xlsx
- Rich Miller - Wednesday, Mar 19, 25 @ 1:28 pm:
===but it should be revenue neutral. Put the extra dollars into===
Which is it? lol
- Carbo Load - Wednesday, Mar 19, 25 @ 1:35 pm:
Should have been done a long time ago. Also an income tax on pensions. The answers are out there, but the political will has not been.
- cover - Wednesday, Mar 19, 25 @ 1:57 pm:
= Sadly waiting for serious discussion to be replaced with “Sales tax on haircuts?” Happened in MO recently. Happened under Blago. =
A sales tax on Blago’s hairstyling services would have raised real money /s
- thechampaignlife - Wednesday, Mar 19, 25 @ 2:13 pm:
===Which is it? lol===
Sorry if that was confusing. I simply meant that the funds raised by expanding the base should be used to lower property taxes. Revenue neutral from the average taxpayer’s perspective, not specifically from the State’s perspective.
- Thomas Paine - Wednesday, Mar 19, 25 @ 2:33 pm:
I tend to agree with thechampaignlife, except that you cannot force schools and municipalities to lower property taxes and provide some sort of guaranteed local tax relief.
The smart think to do is implement a sales taxes on services and offset that additional revenue by cutting the sales tax rate for goods.
People who mow their own lawn will save money, and that’s the kind of thing that a lot of Democrats and Republicans can get behind.
Also, being against cutting sales taxes on goods is very hard to defend, and the retailers will love you for it.
Ralph Martire will not love it, but he knows that service revenue is going to grow overtime so that the budget will grow, and a relatively low tax rate spread more evenly is best tax policy.
- Juice - Wednesday, Mar 19, 25 @ 4:32 pm:
@thechampaignlife.
Just an FYI, but I think you’re overcounting the property taxes collected by the non-schools. (Which is largely the fault of the way that the data is available in the spreadsheet.)
But for example, on the fire protection district tab, it has a column for all special districts (not just fire protection) as the first column. Then the second column is what the fire protection districts actually get.
The school districts typically receive about 2/3rds of all property taxes collected statewide.