Close Corporate Tax Loopholes, Restore Illinois’ Fiscal Health

Invest in Illinois – Put People and the Planet First!
Close corporate tax loopholes! – HB4004

Stop big corporations from lining their pockets at the expense of Illinois taxpayers. Close corporate tax loopholes and invest in a budget that puts people and the planet first with high quality public education, human services and a renewable energy infrastructure.

  1. Stop corporations from hiding profits in offshore tax havens

$343,000,000

  1. Eliminate Single Sales Factor

$216,000,000

  1. Decouple from a federal deduction for business activity not necessarily occurring in IL

$65,000,000

  1. Stop corporations from shifting profits out of state, while only reporting expenses in IL

$25,000,000

  1. Tax profits from off-shore oil drilling in US territory

$25,000,000

  1. Reform the archaic Retailers Discount that generates a windfall for merchants in collecting sales tax for the state

$125,000,000

  1. Reform other Collection Discounts (same as above)

$31,000,000

  1. Treat online hotel booking same as telephone

$9,000,000

  1. Repeal the CME-CBOE Special Tax Break

$85,000,000

Total

$924,000,000

ENDORSING ORGANIZATIONS

Barat Education Foundation * Chicago Metropolitan Battered Women’s Network * Common Cause – Illinois * Community Renewal Society * Good Shepherd Center * Illinois Coalition Against Domestic Violence * Illinois People’s Action * Jane Addams Senior Caucus * Jewish Alliance for Economic Justice * League of Women Voters of Illinois * LIFE Center for Independent Living * Logan Square Neighborhood Association * National Nurses United * ONE Northside * Project IRENE * The First Step Day Care * The People’s Lobby *
Reclaim Chicago * Sargent Shriver National Center on Poverty Law

EXPLANATION OF LOOPHOLES

1. Require water’s edge combined reporting with full inclusion of foreign dividends in base income and foreign tax havens in the water’s edge group OR allow corporations to elect worldwide combined reporting instead $343 M

Because Illinois is a “water’s edge” combined reporting state, corporations can easily shift profits that are actually earned in Illinois onto the books of their non-U.S. parents and subsidiaries – especially those formed in foreign tax haven countries like Bermuda and the Cayman Islands. To mitigate the revenue impact of this income shifting, Illinois should broaden its tax base to include those foreign profits when they are paid back to U.S. parents in the form of dividends, and require the inclusion in combined reports of subsidiaries doing business in those foreign tax havens as several other states have done. But because the best way to tax the profits of multinational corporations is to require them to include all related foreign corporations in their combined reports, this option should also be provided. These changes can be achieved by enacting the Multistate Tax Commission’s model combined reporting law (http://bit.ly/1FXfMUy ) and eliminating an existing deduction for foreign dividends when the dividend recipient chooses to use water’s edge combined reporting.

2. Eliminate Single Sales Factor $150 – 216M

When a corporation produces and/or sells goods and services in more than one state, each state requires the business to pay tax on just a portion of its profit. The tax laws of the large majority of states determine the portion of the corporation’s profit that is subject to tax in relation to the shares of the corporation’s total property, payroll, and sales located in each state. Under a single sales factor formula, the share of a corporation’s total profit that a particular state would tax would be based solely on the share of the corporation’s nationwide sales occurring in the state.

3. Decouple from the Federal Qualified Production Deduction $65M – $139M

A 2004 change in federal law allows companies to claim a 9% tax deduction based on profits from “qualified production activities.” Since Illinois bases its tax code on the federal tax code, this deduction carries over. Illinois subsidizes production in other states, with no guarantee of increased production locally. Wisconsin and Indiana have taken action to disallow the deduction.

4. Repeal the non-combination rule $20-25M

The Non-Combination Rule allows big corporations to shift their income to locations outside Illinois. It exempts airlines, financial and insurance firms from filing a single combined tax return, allowing them to hide profits in out-of-state subsidiaries.

5. Eliminate the continental shelf exemption $20 – 75M

A loophole in Illinois’ tax code allows profits from oil production activities in the outer continental shelf to go untaxed. Other states, including Iowa, do consider profits from such activities in their calculations of tax liabilities for in-state companies.

6. Reform the Retailers Discount to the KY Model $90 – 131M

The Retailer’s Discount allows Illinois retailers to keep 1.75% of the sales taxes they collect from consumers, designed to compensate them for costs associated with collecting and reporting the tax. This “discount” dates back to the 1930s when the process for record keeping and transferring the sales tax receipts was much more labor intensive than it is now, given technological advances. Based on the research from Good Jobs First, we recommend using the Kentucky model: 1.75% on first $1,000 collected; 1.00% above that. Cap the discount at $1,500 per month.

7. Reform other Collection Discounts $31M

Like the Retailer’s Discount, retailers that collect certain selective sales taxes (Cigarette Tax, Motor Fuel) are allowed to keep a percentage of the receipts as reimbursement for expenses for record keeping, billing, filing, and remitting the taxes. These should be capped similar to the proposed changes for the Retailers Discount.

8. Treat online hotel booking same as telephone $9M

Illinois loses an estimated $6 million to $9 million a year by allowing online travel companies (like Orbitz and Priceline) to pay less in lodging taxes on bookings than the hotels themselves must pay when the same room is booked directly with them or through a travel agent.

9. Repeal the CME-CBOE Special Tax Break $85M

This special tax breaks lowers the share of electronic trading income apportioned to the state to 27.54%.

For more information on our revenue estimates, contact Hannah Gelder at 773-769-3232 x19 or hgelder@onenorthside.org.

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