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You’re gonna pay one way or another

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Illinois

* Eric Zorn reprints a fact sheet from the governor’s office…

While the corporate income tax in Illinois will rise to 7% on a temporary basis, companies that do business in the state of Illinois are taxed on profits from the location of their customers – not the physical location of the business. Moving across the state border will not affect a business’s Illinois income tax bill. For example:

· The only way for the company to avoid paying Illinois corporate tax is for the company to cease selling their product to Illinoisans; relocating out of Illinois will have no effect on the amount of money paid by a company to the State of Illinois.

· A company that has $1 million in profits from $10 million in sales – $4 million of which was generated by sales in Illinois – will pay the same amount in income taxes ($28,000 under the 7% rate) whether they are located in Illinois, Wisconsin, Indiana, or even Montana. [Emphasis added.]

So much for my secret plan to re-incorporate in South Beach.

posted by Rich Miller
Tuesday, Jan 18, 11 @ 1:05 pm

Comments

I guess it really is hopeless for Illinois businesses.

Comment by Living in Oklahoma Tuesday, Jan 18, 11 @ 1:13 pm
South Beach doesn’t really strike me as your scene anyway.

Comment by Obamarama Tuesday, Jan 18, 11 @ 1:15 pm
Obamarama - have you *met* Rich?

Comment by Anonymiss Tuesday, Jan 18, 11 @ 1:16 pm
Not sure of that one.
I think if you earn $ in IL you pay some IL tax.
like the basketball magoos who pay taxes all over the country

Comment by CircularFiringSquad Tuesday, Jan 18, 11 @ 1:20 pm
Obamarama, I don’t go in for the nightclubs, but the place has its charms.

Comment by Rich Miller Tuesday, Jan 18, 11 @ 1:20 pm
Semi-serious question: How much did Amazon pay in Illinois income taxes last year?

Comment by JN Tuesday, Jan 18, 11 @ 1:24 pm
JN, we went through this with GRT. It’s almost impossible to tell because those tax records are secret. Blagojevich wanted them opened to the public, which didn’t exactly go over well with the biz community.

Comment by Rich Miller Tuesday, Jan 18, 11 @ 1:28 pm
From a 2007 Scott Reeder column, found on the google:

–According to the governor’s Office of Management and Budget:
# In the 1970s, corporations paid about 20 percent of the state’s income tax. Today they pay 12 percent.
# On average since 1997, more than 21,000 corporations have filed an Illinois income tax return. More than 52 percent paid no income tax. Another 28 percent paid less than $5,000 in Illinois income taxes.
# Of the Fortune 100 companies, 99 had to file Illinois income tax returns for 2004. Of those 99, 37 paid no income taxes despite the fact they averaged $1.2 billion in sales in Illinois during 2004. Meanwhile, the average Illinois individual paid $1,500 in Illinois income taxes.–

Also:

–The Citizens for Tax Justice study found Boeing did not pay income taxes to any state during two of the three years studied, 2001 to 2003. During the two years in which Boeing did not pay state corporate income taxes, the company turned a combined profit of $3.1 billion.–

and..

–Other profitable Illinois-based corporations such as Caterpillar, Tribune Co., Sears and Sara Lee successfully avoided paying any state’s corporate income taxes during at least one year of the period studied by Citizens for Tax Justice.–

http://mywebtimes.com/archives/ottawa/display.php?id=292788

Comment by wordslinger Tuesday, Jan 18, 11 @ 1:46 pm
===Tribune Co===

Yeah. That came out during the GRT debacle as well. They used corporate SEC reports to discern taxes paid.

Comment by Rich Miller Tuesday, Jan 18, 11 @ 1:48 pm
“The only way for the company to avoid paying Illinois corporate tax is for the company to cease selling their product to Illinoisans”

So I guess Wisconsin’s next step will be a flat refusal to “negotiate with (Illinois) tourists?”

Comment by Secret Square Tuesday, Jan 18, 11 @ 2:16 pm
rich, may i suggest the Cayman Islands. Of course it would be hard to report on Springfield when you are at your corp offices. It may be harder to leave your corp. offices in January to go back to Springfield but it’s a thought. Also, you could have round table discussion with lawmakers, I am sure a few would love to visit.

Comment by frustrated GOP Tuesday, Jan 18, 11 @ 2:20 pm
I do not think that this is correct. I sell to IN and MO residents and only pay IL income tax. I am sure that my IN vendors do not pay IL tax on sales to my company.

Comment by Logical Tuesday, Jan 18, 11 @ 3:25 pm
sounds like you’re on to something there, frustratedGOP - Cayman Islands it is! Just get a few more interns to cover the pressers and you’re solid, Rich!

Better yet, just have them sit in place holding webcams and feeding you the live stream… “Intern!” “Yes sir, Mr. Miller?” “Ask Quinn…”

On a more serious note, does this mean companies like CouponCabin will no longer rumble about moving? Wasn’t this very thing at the nexus of their issues with the tax increase?

Comment by S Tuesday, Jan 18, 11 @ 3:28 pm
Rich

I’ve been folowing your blog for several years, but I have never commented before. If I made $4 million a year and only paid $28 thousand in taxes, well sign me up. I think the calculations should be $280,000/year.

Thanks and keep up the great work.

Comment by backwoods Tuesday, Jan 18, 11 @ 3:32 pm
backwoods, you misread it. That example was based on a ten percent profit on total Illinois sales.

Comment by Rich Miller Tuesday, Jan 18, 11 @ 3:33 pm
S, those guys were talking about sales tax collections, which is different.

Comment by Rich Miller Tuesday, Jan 18, 11 @ 3:40 pm
That will teach me to speak up again. Talk to you in another couple years!

Comment by backwoods Tuesday, Jan 18, 11 @ 3:43 pm
Got you - thanks, Rich!

Comment by S Tuesday, Jan 18, 11 @ 3:51 pm
Just to be clear, this was a blog post and not a column, of course, and posted for informational purposes. I’d called the Quinn folks to ask them why the near total radio silence these last five/six days when so many people were pounding the stuffings out of them over the tax hike. They sent this over and there’s more to come tomorrow.

Comment by Eric Zorn Tuesday, Jan 18, 11 @ 3:59 pm
{companies that do business in the state of Illinois are taxed on profits from the location of their customers – not the physical location of the business}

Profits? Gross income? Net sales? Lots of ways to skin a cat when it comes to profits; especially if profits can be made to look like losses due to the cost of sales.

Comment by Quinn T. Sential Tuesday, Jan 18, 11 @ 4:03 pm
Boy, wouldn’t that be a shocker. Move to crappy Wisconson, and STILL have to pay IL taxes.

Comment by How Ironic Tuesday, Jan 18, 11 @ 4:21 pm
Eric Zorn once again proves that he’s drowning in Kool-Aid. Sure, okay, it’s true that a company has to pay taxes to Illinois on items sold in Illinois. What Zorn seems to miss, however, is the fact that owners and employees of businesses who live outside of Illinois don’t have to pay Illinois personal income taxes or the Illinois state sales tax, etc. In addition, if a company relocates its physical plant to another state, it would pay property taxes to local authorities, not to Illinois, and so on and on. There are hundreds of taxes that one would pay at different levels in other states. Another plus to moving out of state is the less frequent exposure one would have to propaganda sheet reprints from Eric Zorn.

Comment by Tom Mannis Tuesday, Jan 18, 11 @ 4:26 pm
A quick amendment to my last comment: I should have said, “owners and employees of businesses who live AND WORK outside of Illinois don’t have to pay Illinois personal income taxes or the Illinois state sales tax, etc.”

Comment by Tom Mannis Tuesday, Jan 18, 11 @ 4:28 pm
I think the big bite on corporations after this downturn is the suspension of carrying losses forward in the tax bill.

Comment by Bill Baar Tuesday, Jan 18, 11 @ 4:30 pm
- What Zorn seems to miss, however, is the fact that owners and employees of businesses who live outside of Illinois don’t have to pay Illinois personal income taxes or the Illinois state sales tax, etc. -

Umm, maybe you should read the piece again, because he is very clear that he is only talking about the corporate income tax.

Comment by Small Town Liberal Tuesday, Jan 18, 11 @ 4:34 pm
“On a temporary basis.” Who believes that? Also, at least Illinoisans can take solace in their low sales tax rate and gasoline that is so much cheaper here. And of course the personal income tax rate, it’s not like it’s going to go up 67 percent, right?

Comment by John Ruberry Tuesday, Jan 18, 11 @ 4:43 pm
===Who believes that?===

Not many, but as I pointed out elsewhere, the tax is set to expire in 2015, right after the next gubernatorial election. The voters will have a say.

Comment by Rich Miller Tuesday, Jan 18, 11 @ 5:09 pm
@wordslinger.

As you know, statistics can be spun to suit your cause. The percentage of taxes paid by corporations because the majority if new businesses are not incorporated and therefore pay at the individual rate.

The actual tax dollars paid by corporations has INCREASED.

If you’re going to have an intellectual argument, at least try to provide all the facts.

Comment by 4 percent Tuesday, Jan 18, 11 @ 5:19 pm
I typed too quickly. The percentage paid by C corps decreased because we have thousands more small businesses meaning they comprise a much greater share of the business community and pay at individual level.

And I should havevreferred to Reeders facts.

Comment by 4 percent Tuesday, Jan 18, 11 @ 5:22 pm
==I sell to IN and MO residents and only pay IL income tax.==

Missouri and Indiana have source income rules. You might revisit this.

“The Missouri nonresident adjusted gross income shall be that part of the nonresident individual’s federal adjusted gross income derived from sources within Missouri, as modified in the same manner as set forth in section 143.121…”
http://law.justia.com/missouri/codes/2005/t10/1430000181.html

“Full-year nonresidents who received income from Indiana sources must file an Indiana individual income tax return (Form IT-40PNR). They are subject to tax on that part of their total federal income that is derived from or connected with Indiana sources.”
http://www.in.gov/dor/reference/files/ib28.pdf

Comment by Bigtwich Tuesday, Jan 18, 11 @ 6:03 pm
Rich, I see you more as a ‘Key West’ kind of guy - in the Hemmingway sense.

Comment by 312 Tuesday, Jan 18, 11 @ 6:29 pm
–The percentage paid by C corps decreased because we have thousands more small businesses meaning they comprise a much greater share of the business community and pay at individual level.–

Thousands more small businesses? You make that sound like a bad thing. Do you mean in the wonderlands of Indiana and Wisconsin? It couldn’t possibly be Illinois.

I didn’t “spin” anything. I quoted an article, that quoted the Bureau of the Budget, plus the Citizens for Tax Justice.

If you can knock down what they said, have at it.

Comment by wordslinger Tuesday, Jan 18, 11 @ 6:34 pm
312, I prefer a real beach (it does more to completely relax my brain than anything I’ve ever tried).

Also very important is the fact that Miami is a world class, international city (with some truly crazy politics of its own). And since I don’t live in Chicago any longer, it’s great having a big city like that right next door, with all the advantages it brings. To me, it’s the best of multiple worlds. If I wasn’t so firmly wedded to this state, I’d go there, but I’d probably be murdered (and never found) if I wrote like I do here.

Plus, Key West is full of fat bearded guys. Kinda creeps me out. lol

Comment by Rich Miller Tuesday, Jan 18, 11 @ 6:38 pm
‘You’re gonna pay one way or another”

and for four….long…..years.

Comment by park Tuesday, Jan 18, 11 @ 7:21 pm
“Plus, Key West is full of fat bearded guys. Kinda creeps me out.”

Me too. Chicago Bears are something completely different than Key West Bears!

Comment by Returning Dog Tuesday, Jan 18, 11 @ 7:30 pm
What absolute spin! When the gas tax goes up, does that gas station pay it? No! The consumer does. If it cost more in taxes for a company to sell tooth paste in Illinois, the cost of toothpaste increases. The corporate tax increase will merely increase the cost of goods and services in Illinois. The personal income tax increase will merely chase the small business job creators to friendlier states.

Comment by standonprinciple Tuesday, Jan 18, 11 @ 7:37 pm
Standon, I’m not following you: Do you mean people here are going to stop brushing their teeth because of this?

As far the “personal income tax increase will merely chase the small business job creators to friendlier states,” (?)I have to tell you — from my experience, the toothpaste market isn’t terribly robust in much of Wisconsin and Indiana.

Comment by wordslinger Tuesday, Jan 18, 11 @ 7:49 pm
StandonPrinc -

If taxes are passed on to consumers as higher prices, what reason does a business owner have to move?

Comment by Returning Dog Tuesday, Jan 18, 11 @ 8:07 pm
Wordslinger, Good line about the toothpaste in IN or WIS.

But, when the cost of selling/manufacturing ANY product increases, the cost to the consumer increases. The businesses don’t just eat the increased costs. They pass on those costs. Toothpaste was just an example. Here’s a better one. When towns charge builders impact fees, builders don’t pay the tax, they just increase the cost of the home. The tax is ultimately paid by the home buyer. Make sense?

Returning Dog, the cost of products sold in Illinois will increase. That is entirely different from where businesses chose to locate. Businesses owners will chose to locate in other states. For example, if I own an internet design firm, I can locate anywhere. I am not going to stay in Illinois to pay 5% personal tax. I can enjoy the warmth of FL or TX and pay nothing.

I would like to ask Quinn this, “If my internet design firm designs a website in FL for an IL company, did I earn my money in FL or IL?” My guess is that those types of companies don’t pay tax to other states.

Comment by standonprinciple Tuesday, Jan 18, 11 @ 8:58 pm
–Businesses owners will chose to locate in other states. For example, if I own an internet design firm, I can locate anywhere. I am not going to stay in Illinois to pay 5% personal tax. I can enjoy the warmth of FL or TX and pay nothing.–

You can locate anywhere — where you can drum up the most business and maximize the difference between income and cost of doing business. Local taxes, of course, are a factor, but not the only one and not, I’d suggest, the biggest one.

Lots of internet design firms in Midtown Manhattan. Their margins ain’t coming from low income taxes. They choose to be there for many reasons, including immediate access to an enormous potential client base.

Comment by wordslinger Tuesday, Jan 18, 11 @ 9:19 pm
Ah–taxes and death–the two things we, NObody, just can’t seem to evade. The bottom line–Illinois WILL reap more in corporate taxes, and that is on the whole GOOD, and the NY Times had that part right–ILLINOIS is the one State with the courage to know that cuttin’ your way out of this mess simply won’t (No pun intended) “cut it” anymore in these brutal times. Illinois should be proud that it’s being taken, finally, as the one “Straightshooter” State on this issue. Lastly, Rich, South Beach just doesn’t strike me as your kind of gig long-term, at least not NOW in your life (yikes! to have to watch LEBRON on TV all the time–ugh…) although it’d sure be a nice place to VISIT around now (I guess we all can dream a bit in the midst of our brutally cold (at least NORthern) Illinois January winter though….By the way, you’ve just GOT to let us get in some BEARS chatter some time this week before the big GB game on Sunday–it’s almost unbelievable, given what a whole LOTTA folks were spoutin’ about ‘em last August that this could actually be for real!

Comment by Just The Way It Is One Tuesday, Jan 18, 11 @ 9:19 pm
Yikes! I just read your QotD! Thanks! Unfortunately, I personally have like zilch time to comment except to say “The Pride and Joy of Illinois” WILL win–no matter what Walker sends us!

Comment by Just The Way It Is One Tuesday, Jan 18, 11 @ 9:24 pm
Wordslinger, People are voting with their feet. They aren’t voting for IL or NY. IL is losing 1 Congressional seat, NY is losing 2. Your argument does not work.

Comment by standonprinciple Tuesday, Jan 18, 11 @ 10:04 pm
@standonprinciple -

Illinois and New York are growing. Other states are just growing faster for various reasons and grabbing more of the pie. Missouri also lost a seat. What did they do wrong?

Comment by Peter Tuesday, Jan 18, 11 @ 10:08 pm
Now you’re really fudging numbers. People are voting with their feet simply because of local taxes? Last I checked the NYC metro was still rather robust, as in the largest economy in the country.

The trend south and west has been going on for decades for lots of reasons, many of them federally funded like the interstates and cheap water and electricity. They had lots of room to grow because, until those federally funded projects were undertaken, they couldn’t support larger populations.

Comment by wordslinger Tuesday, Jan 18, 11 @ 10:16 pm
Illinois, Iowa, Louisiana, Massachusetts, Michigan, Missouri, New Jersey, New York, Ohio and Pennsylvania lost seats. Louisiana is losing it bc of Katrina. See a pattern in the others?

If anything, Missouri is just the exception. It grew at DOUBLE the rate of Illinois yet is losing a seat. It must have just been close in 2000.

Comment by standonprinciple Tuesday, Jan 18, 11 @ 10:26 pm
“Businesses owners will chose to locate in other states. For example, if I own an internet design firm, I can locate anywhere. I am not going to stay in Illinois to pay 5% personal tax. I can enjoy the warmth of FL or TX and pay nothing.”

If you are already here, your CBA of moving is going to have to trump the 5%. It will have to trump whatever roots you have in the community - family, employees - and most importantly - clients. You may end up with different clients in Florida and be fine. But your former Illinois clients that jump when you move are going to take up with someone new they don’t have to fly to meet; and the net loss to Illinois will wash.

Comment by Returning Dog Tuesday, Jan 18, 11 @ 11:56 pm
Simple answer is to set up a management company in the state where you want to pay taxes, then have it bill the operating company a management fee essentially wiping out all operating profits in the state you do not want to pay taxes in. A very simple and often used technique.

Comment by Bond_player Wednesday, Jan 19, 11 @ 4:21 am
Bond_Player - good point plus there are many other ways for larger or more sophisticated corporations to avoid paying corporate taxes. This would lend credence to an argument that the increase in corporate income taxes is a larger burden to smaller, less sophisticated companies (the small guy). Closing corporate tax loopholes could be more effective and fair if you truly wanted to share the burden.

Comment by Nuance Wednesday, Jan 19, 11 @ 6:56 am
Returning Dog,

Some businesses are national, some are international. Some never see their clients. Does it matter where a company that sells junk on the internet resides?

This isn’t theory. This is the real world. I am in commercial real estate and deal with businesses making this decision everyday. Of course ALL businesses won’t leave, but some will. Others will choose not to expand here. Are you trying to say that not a single job or business will be lost b/c of these tax increases???

Comment by standonprinciple Wednesday, Jan 19, 11 @ 7:44 am
Serious question: do businesses located in say Indiana pay Illinois’ replacement tax as well?

Comment by nah Wednesday, Jan 19, 11 @ 7:55 am
–Illinois, Iowa, Louisiana, Massachusetts, Michigan, Missouri, New Jersey, New York, Ohio and Pennsylvania lost seats. Louisiana is losing it bc of Katrina. See a pattern in the others? –

Cold and snowy? Mature, diverse economies?

You’re familiar with the history of the United States, aren’t you? The migration west and south has been going on for decades, due to federal investments that opened up much of the area to economic development and large-scale settlement, plus Mr. Carrier’s nifty little invention that made living there bearable in the summer.

Comment by wordslinger Wednesday, Jan 19, 11 @ 7:59 am
–Some never see their clients. Does it matter where a company that sells junk on the internet resides?–

Is that your vision of the economy, everyone selling junk on the Internet? So you just set up shop anywhere, and the business comes running to you? Interesting theory, give it a shot some time.

How’s that work for commercial real estate?

Comment by wordslinger Wednesday, Jan 19, 11 @ 8:04 am
Wordslinger, By not answering my question you are admitting you are losing the argument.

Companies sell stuff on the internet. Get used to it. There are not the only type of businesses out there, but they are growing segment of the economy. No, business does not just coming running to you, but you often don’t have to reside near where you sell. Have you ever heard of Adwords???? And it is not just an interesting theory, I have clients that do just that.

How does it work for commercial real estate? Very well, when these companies stay in Illinois. They need an office and often a warehouse. I lease and/or sell them the space. But here is the reality. I lost an internet business to FL, and another client is deciding whether or not he should expand here or in another state.

My brother company moved to IN for lower property taxes and work comp rates.

I also have a client who transferred here from OH before he started his company. He organizes training rooms around the country for other companies who need temporary training space. He can do his job from anywhere. He just needs a phone and a computer.

All this was happening before the tax increase.

I will ask the question once more, “Are you telling me that Illinois will lose no businesses / jobs because of the tax increase?”

Comment by Anonymous Wednesday, Jan 19, 11 @ 9:08 am
forgive my typos

Comment by Anonymous Wednesday, Jan 19, 11 @ 9:28 am
“Are you trying to say that not a single job or business will be lost b/c of these tax increases???”

For someone so plugged in to the ‘real’ business world, you seem to have trouble with simple phrases like ‘the net loss to Illinois will wash.’

Comment by Returning Dog Wednesday, Jan 19, 11 @ 7:38 pm