The Illinois General Assembly Commission on Government Forecasting and Accountability has released a REPORT discussing sales tax on services.
The report suggests, based on several factors, that Illinois should broaden its sales tax to apply to more services. Currently, Illinois taxes 17 services, while the average state taxes 56.
The Executive Summary states:
"This report represents an update to the 2006 report by the Commission on the topic of service taxes. Recent interest in the topic has led the Commission to revisit the estimate it made in the 2006 report along with updating the summary of what services other States tax. Similar to the previous report, this examination is meant to be an initial analysis and a discussion of the topic that broadly outlines the history and issues related to service taxes. Further investigation and more detailed analysis would be warranted in going forward with any new initiatives concerning tax services."
The 29 page report concludes with:
"In conclusion, service taxes have repeatedly been brought up as a potential stream of revenue for the State. The service sector has become a greater portion of the economy in both the nation and Illinois. Services are taxed differently throughout the country but not very broadly in Illinois. Potential revenue from the taxation of services was estimated between $3.6 billion and $7.3 billion. The growth in the service tax estimates from the 2006 report are mainly due to changes in revenue estimate methodology, natural growth in the service sector, and methodology changes related to the final use percentages of certain sectors. Volatility, equity, cascading taxes, and opposition to the taxation of services are all topics that must be considered when considering imposing such new taxation."
Whether or not the Illinois legislature will actually enact legislation to tax more services is unclear. The budget crisis of the state would make it a more viable option; however, proposals to tax services have consistently faced strong opposition from taxpayers and industry groups when such proposals have been considered in the past.
If you operate in Illinois, be on the lookout for developments in this area over the next six months.
Questions? Contact me at [email protected].