Question of the day
Wednesday, Aug 13, 2025 - Posted by Rich Miller
* As noted in this Sun-Times article, the debate over expanding the sales tax to cover services has played out ad nauseum for many, many decades. But the devil is always in the details…
For decades, Chicago mayors and their finance teams have been lobbying the Illinois General Assembly to broaden the sales tax umbrella to professional services.
The idea has gone nowhere in Springfield — even though it has a potential annual yield of $305 million for the city alone.
But that legislative losing streak didn’t stop [Chicago’s Chief Financial Officer Jill Jaworski] from making a renewed pitch to a luncheon crowd filled with powerful movers and shakers. She said the biggest reason Chicago has such a high sales tax rate is because the sales tax base is so narrow and does not include professional services.
During the 1950s, 70% of consumer spending was on goods. Now, it’s down to 50% on goods and the other half on services, she said. And that’s not including health care and housing services.
“I have a gym membership. I get a massage every month. I get my nails done. I get my hair done. I consume a lot of services. … I’m going to pay an interior decorator to help me with a couple of rooms in my house I want to redo. I pay no taxes on any of that,” she said.
“Like most people sitting in this room, I can afford to pay taxes on the activities that I engage in that are, frankly, luxury activities. And I should be paying taxes on them. I should be paying a higher percentage of my income on the … activities that I enjoy. They are a major part of our economy. … Whereas somebody who is living paycheck-to-paycheck is paying taxes on most everything they do. That is regressive, and it’s unfair.”
Taxing interior decorator services is one thing (and likely wouldn’t raise much money), but a tax on haircuts is in no way a “luxury tax” and has always been a tough one because barbers and stylists have their clients’ undivided attention for maybe a half an hour or more. And they can use that time to rail against a new tax. That sort of politicking is very effective - particularly if you’re a legislator at the mercy of someone with a pair of scissors in their hand. Same goes for car repairs, etc.
* The Question: What services would you tax and what services would you not tax? Explain.
- Jack in Chatham - Wednesday, Aug 13, 25 @ 10:55 am:
Legal, medical and real estate rentals.
- Three Dimensional Checkers - Wednesday, Aug 13, 25 @ 11:00 am:
I mean, Mayor Johnson’s campaign has $30,000 on haircuts and makeup. They never paid any sales tax on that $30,000. Think of all the money we’re leaving on the table.
- Rich Miller - Wednesday, Aug 13, 25 @ 11:07 am:
Explain and stick to the question, please. I didn’t ask for snark.
- CA-HOON - Wednesday, Aug 13, 25 @ 11:09 am:
Just to limit myself to one type of service: legal services I want taxed, but it should be progressively applied. By that I meant there should be a scale of taxation which only kicks in at, say, ~$20k spent on lawyer fees, and every ~$10k-$15k spent above that kicks in a higher level of tax, maxing out somewhere between $50k-$100k.
I would also want exceptions for specific types of cases, such as class-actions against polluters and such.
My thinking behind this is that the legal profession is serves primarily those who can afford it, and those people who can afford can also afford to pay taxes. However, the profession is also already woefully inaccessible to those with little resources, so a progressive framework of taxation should be applied so as not to keep those people out when they are already hard-pressed to find affordable representation in the legal system in the first place.
- Sue - Wednesday, Aug 13, 25 @ 11:12 am:
Jack- tenants already pay pass thru RE taxes which as you know are the highest on the planet-a sales tax on rentals would be the most regressive tax I can think of
- Give Me Break - Wednesday, Aug 13, 25 @ 11:14 am:
Tax: Haircuts, Hair Styling, Nail Salons, Lawn Services to start
Dont tax, medical dental, rehab services or adoption or background checks.
- Blue to the Bone - Wednesday, Aug 13, 25 @ 11:17 am:
I know it’s probably a non-starter, but why not have a conversation to increase the state income tax from 4.95% to something like 5.25%? Seems like it may be more feasible than trying to nickle and dime everyone with all these crazy ideas with taxing services and trying to figure out who gets taxed and who doesn’t.
- Just Me 2 - Wednesday, Aug 13, 25 @ 11:17 am:
I’d tax ads on social media platforms. Those platforms make a ton of money on those ads, and they permeate my daily life. It’s also easy for the platforms to figure out which jurisdiction to pay the tax because the ads are usually designed for a specific geographic location.
- Remember the Alamo II - Wednesday, Aug 13, 25 @ 11:22 am:
=== I know it’s probably a non-starter, but why not have a conversation ===
Legislators should have the conversation with their constituents first to see what they have to say about it. lol
- Friendly Bob Adams - Wednesday, Aug 13, 25 @ 11:34 am:
Easiest would be business-to-business services. Toughest are people-to-people services (e.g., haircuts).
I think a service tax is a great idea in principle but I don’t have confidence Illinois could make it work.
- Steve - Wednesday, Aug 13, 25 @ 11:48 am:
I wouldn’t tax services because it’s too late in the game for Illinois on this one (without a lot of negative side effects).
- 47th Ward - Wednesday, Aug 13, 25 @ 11:55 am:
Auto repair and car washes, dry cleaning, tax prep, greens fees, lawn care would be the first things I can think of that aren’t already being taxed already (although I’m not sure that is 100% true).
Not sure how much money could be made for state/locals, but some. If you buy a washer and dryer, you pay sales tax. If you send your clothes out to be cleaned, zip. Given the changing nature of work, not likely to be a windfall there, but combined with other things, it might help.
Auto repair is tricky because it impacts low-income people a bit more than people like me. If you need your car to get to work, you have to get it fixed. So that one is more regressive in some ways. Car washes and detailing, easier to add in a sales tax.
Greens fees is one I’d have to pay, and again, it’s not the end of the world. Lawn care is like dry cleaning: buy a mower, pay the tax. Hire a company, no tax. That seems fair to me.
But even if all of these items were taxed, I have no idea how much (or how little) would be generated. Would it be enough to keep complaints to a manageable level? Hard to say. But with the exception of auto repair services, these seem politically doable to me.
- Johnny B - Wednesday, Aug 13, 25 @ 11:55 am:
Lawyers
Just kidding
that is one special interest that truly gets whatever they want
- ChicagoBars - Wednesday, Aug 13, 25 @ 12:16 pm:
Not to hijack comments but seems like good place for my question: Did COGFA, LRB, or Martire ever do a chart like this old one from South Carolina but for Midwest States showing which ones tax which services and at what rate?
https://www.scstatehouse.gov/Archives/CitizensInterestPage/TRAC/ServicesandIntangiblesSubcommittee/TableofTaxableServicesandIntangiblesbyState.pdf
I’ve poked around a bit but never found one for Midwest.
- Benjamin - Wednesday, Aug 13, 25 @ 12:24 pm:
Restaurant delivery services. DoorDash, Uber Eats, and the like are all luxuries. You could carve out an exception for deliveries fulfilled by store employees, though.
OK, I admit, this is less about the money and more personal. I’ve been burned multiple times by third-party delivery services where the delivery person just absconded with my food and the restaurant couldn’t do anything about it except refund my money, to the point where I just don’t order for delivery any more. I would hope that encouraging restaurants to move delivery back in-house would increase the quality of service.
Oh, and also raise money for the city.
- Tax And Spend - Wednesday, Aug 13, 25 @ 12:43 pm:
Let the CITY OF CHICAGO tax any and all services they deem appropriate, plus allow the CITY OF CHICAGO to install any and all taxes within the CITY of Chicago boundaries they deem appropriate.
- Dan Johnson - Wednesday, Aug 13, 25 @ 12:45 pm:
We should just do what Iowa does. (I don’t remember what Iowa does but…hard to rail against ruby red Iowa sales tax policies and I think they have 50 or so of the 80 or so possible services taxed).
- Arock - Wednesday, Aug 13, 25 @ 12:48 pm:
You are already paying a tax on services. Everyone that provides a service is paying income tax(state and federal), Social Security tax and Medicare tax on every dollar of income. If they have a place of business they are paying property tax and a tax on every utility that they use to be in business. A percentage of every dollar you spend on services goes to pay the taxes of those that provide the service. We already have a tax on tax that is ridiculous(sales tax on taxes for fuel) lets not do it again.
- JSI - Wednesday, Aug 13, 25 @ 12:54 pm:
New Mexico has a Gross Receipts Tax and pretty much taxes everything, including staffing from an employment agency. It’s the wildest thing I’ve ever encountered.
- Central Ill - Wednesday, Aug 13, 25 @ 12:55 pm:
C’mon- we are taxed to death in this state. I don’t support taxes on services.
- 47th Ward - Wednesday, Aug 13, 25 @ 12:57 pm:
===Let the CITY OF CHICAGO tax any and all services they deem appropriate===
Brandon Johnson has entered the chat.
- Anyone Remember - Wednesday, Aug 13, 25 @ 1:02 pm:
Would start with “tax everything” & then start on exclusions (health care, for example) & discuss them (some things hadn’t considered have been mentioned). Someone mentioned auto repair - sales tax is already charged on parts, why not labor?
- 8657 - Wednesday, Aug 13, 25 @ 1:55 pm:
There is some legal precedent suggesting that if the state decides to tax services, it may be required to tax all services in a non-discriminatory manner, or risk judicial scrutiny.
Fiorito v. Jones (1968)
In 1967, Illinois amended its Service Occupation Tax Act and Service Use Tax Act in two significant ways:
• The tax base was broadened to encompass all gross receipts from the sale of services.
• However, the application of the tax was limited to “sales of service” by four defined categories of service providers:
1. Those selling specially made machines or tools.
2. Providers in graphic arts and related fields not already taxed under existing acts.
3. Those repairing, renovating, or reconditioning tangible personal property.
4. Sellers of prescription drugs or medicines.
The trial court found these amendments violated several provisions of both the Illinois and U.S. Constitutions, particularly the requirements for uniform taxation, due process, the prohibition against special legislation, and equal protection.
The Illinois Supreme Court affirmed this decision, holding the amendments unconstitutional and void. The court emphasized the absence of a rational or reasonable distinction between the services that were taxed and those that were exempt, which created arbitrary and unjustifiable categories. Expanding the tax base to all “sale of service” receipts, while taxing only a few specific classes, resulted in unconstitutional discrimination.
Commercial National Bank of Chicago v. City of Chicago (1982)
Chicago enacted a service tax ordinance, which was promptly challenged in court. The Illinois Supreme Court ruled that the ordinance was unconstitutional for two major reasons:
1. It constituted an occupation tax imposed without express authorization from the Illinois General Assembly, contrary to constitutional requirements.
2. It violated the uniformity clause of the state constitution by arbitrarily imposing taxes on some businesses and transactions while exempting others, lacking a reasonable basis for these distinctions.
- JS Mill - Wednesday, Aug 13, 25 @ 2:08 pm:
Tax everything but medical (including mental health) services and products.
- JS Mill - Wednesday, Aug 13, 25 @ 2:21 pm:
=C’mon- we are taxed to death in this state.+
And yet, I am alive.
- Juice - Wednesday, Aug 13, 25 @ 2:22 pm:
@ChicagoBars,
The Federation of Tax Administrators has done surveys of states on sales tax on services. The most recent appears to be 2018 though.
https://taxadmin.org/sales-taxation-of-services/
- Boone's is Back - Wednesday, Aug 13, 25 @ 2:58 pm:
One of the few things propping up what is left of the loop are professional services. Post COVID you have shuttered restaurants and vacancy up and down state street. If the city extends their highest sales tax in the country to accountants, lawyers, dentists, PTs, etc. that will be the death nell for what’s left.
- levivoted4judy - Wednesday, Aug 13, 25 @ 3:00 pm:
I exempt anything that improves health, like gym memberships. But if something is cosmetic (i.e. hair/nail salons, cosmetic surgey including dental), tax it.
- Ridgelander - Wednesday, Aug 13, 25 @ 3:04 pm:
To the question:
Tax every service, and work back from there to weed out areas of taxation deemed to be punitive or harshly regressive. I would exempt haircuts, but not nail salons; car repair services could be exempt, but not car washes; small engine repair services could be exempt, but not lawn services. But that’s just me.
And make sure home rule entities get to play. Oak Park and several other suburbs recently decided to adopt the 1% grocery tax that the state let expire next year, and I’m good with that.
The tricky part is the process - how to get it done, obviously?
Here is an example of what could be done from our neighbors across the Mississippi, with thanks to the Civic Federation, who have done the heavy lifting for us already…
Since first imposing a sales tax in 1934, Iowa has taxed a select number of services including utilities (metered gas, electricity, water, and communication services) and amusement and athletic event admissions. Iowa first expanded its base in 1967 to include additional services,28 then further broadened its service tax base and increased its state sales tax rate several times, most recently in 2008.29,g Currently, Iowa imposes a 6 percent sales tax rate and local jurisdictions are permitted to impose a local option sales tax up to an additional 1 percent. As a result of these expansions, Iowa now maintains one of the most comprehensive lists of taxable services. Many of Iowa’s taxable services are subject to specific exemptions noted on the Iowa Department of Revenue website, such as construction- and agriculture-related services. Iowa also regularly updates its tax code to account for emerging services and the broader economic shift toward an increased consumption of services. For example, Iowa revised its tax code to incorporate software as a service into the tax base in 2019.30 The Iowa Department of Revenue also regularly issues informal guidance about the taxability of specific services that have not yet been defined by existing laws.
https://civicfed.org/ModernizingILSalesTax
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- Dan Johnson - Wednesday, Aug 13, 25 @ 12:45 pm:
We should just do what Iowa does. (I don’t remember what Iowa does but…hard to rail against ruby red Iowa sales tax policies and I think they have 50 or so of the 80 or so possible services taxed).
- Three Dimensional Checkers - Wednesday, Aug 13, 25 @ 3:22 pm:
I found this online. It looks ok to me.
https://www.avalara.com/us/en/learn/whitepapers/service-taxability-by-state.html
- Yellow Dog Democrat - Wednesday, Aug 13, 25 @ 10:29 pm:
I see the internet is giving out law degrees again.
Psychologically, you want to propose taxes on services that people do not think about using or do not use on a regular schedule.
For example, there is no reason not to tax the labor portion of your car repair bill. And who is going to complain because no one is like “My car is going to break down in three months and it will cost $400.”
I am for taxing realtor commissions until those guys stop complaining about the transfer tax.
Ralph Martire and Amanda Kass put together a pretty solid list of 70 or so, I thought.
https://www.ctbaonline.org/file/551/download?token=d0VkuP2H
- Dan Johnson - Wednesday, Aug 13, 25 @ 10:43 pm:
This line made me chuckle from Yellow Dog Democrat
I am for taxing realtor commissions until those guys stop complaining about the transfer tax.