* 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• Illinois’ sales tax structure is outdated.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.

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Anyway, what are your thoughts on this?