By Scott Reeder, sreeder@qconline.com

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SPRINGFIELD -- Gov. Rod Blagojevich is reportedly considering a gross receipts tax on Illinois businesses to pay for a plan to provide state-subsidized health insurance to state residents without coverage.

Specifics on the proposal are few and far between, but already representatives of the Illinois business community are up in arms. Regardless of whether the gross receipts tax would be an additional levy or a replacement for the corporate income tax, they are expressing ardent opposition.

Administration spokeswoman Becky Carroll declined comment on the matter, saying Illinois could hear details of the state's finances when the governor makes his March 7 budget address.

Depending on its final form, a gross receipts tax could hit every business in the state, from barbers to manufacturers. The barber, for example, would pay the gross receipts tax on whatever he took in, likely apart from any income tax he might have to pay.

Even if the business was losing money, the gross receipts tax could apply.

"I'm hearing from many people who have dealings with the administration that this is being looked at," said Ralph Martire, executive director of the Center for Tax and Budget Accountability.

Other private sector individuals knowledgeable in the budgeting process also say they are hearing that the administration is seriously looking at this type of tax.

Business lobbyists contend a gross receipts would be passed to consumers, and in the case of manufactured products could add significantly to the cost of finished goods.

"You could go from your raw material to your final product and it could get taxed five times in-between." said Kim Maisch, Illinois director of the National Federation of Independent Businesses. "The concept of a gross-receipts tax is really anti-free enterprise."

Ms. Maisch's husband, Todd, a lobbyist for the Illinois Chamber of Commerce, added, "A 1 percent gross receipts tax would boost the price of a gallon of gasoline by 10 or 15 cents a gallon because the farmer with the oil well pays it, as does the refiner and the distributor and the gas station. One percent doesn't sound like much, but it adds up very quickly."

Consumers would avoid paying the higher prices caused by this tax by traveling out of state to make major purchases or using the internet more extensively when shopping," Kim Maisch said.

"When you are a border community it is just devastating. We aren't talking about driving across the river for a pack of cigarettes. We are talking about driving three miles over to Iowa to buy a $60,000 piece of equipment because Iowa doesn't have this tax and the buyer could save 5 percent on the purchase -- this is huge," Kim Maisch added.

During his inaugural address last month, Gov. Blagojevich said, "We can expand access to health care so that not just kids get coverage, but every family member has access to affordable, quality health care.

"Today in Illinois 20 percent of adults, 1.4 million people, are still uninsured. And those who have insurance, the other 80 percent, are forced to pay higher premiums to cover the costs. A family cannot build a better life if they are burdened by the constant rise in health-care costs."

While few would dispute the desirability of the goal, a state-subsidized program to provide health insurance would likely cost billions.

The governor has already ruled out raising personal income taxes or the state sales tax. Without those taxes in play, this leaves some sort of tax on the business community the most likely proposal, said Kim Maisch.

"Why should it fall on the Illinois business community to pay for the cost of insuring these people?" she said.

If the governor's proposal includes a gross receipts tax and leaves the corporate income tax on the books, the new tax's constitutionality is a bit of an open question.

Under the Illinois Constitution, the current income tax paid by businesses cannot be raised without increasing the income tax paid by individuals.

Politically it is always easier to raise taxes on businesses than individuals, so the framers of the constitution created a ratio to protect Illinois business, said Charles Wheeler III, who covered the drafting of the state constitution for the Chicago Sun-Times. He now teaches public affairs reporting at the University of Illinois at Springfield.

The state is currently at the mandated maximum ratio is 8 to 5 which now equates to a 4.8 corporate income tax and a 3 personal income tax.

"If they were to pass this gross receipts tax, I don't doubt that someone would immediately challenge the tax in court. The administration may call it something other than an income tax. But I think they would have a hard time making a case for this not being a backdoor tax that violates the spirit of the state constitution," Todd Maisch said.