While agreeing they have no concrete information to go on, business organizations said they can't wait until the rumor becomes reality before responding.

"It is so bad (of an idea), even if it is only a possibility, we have to be on top of it," said Todd Maisch of the Illinois Chamber of Commerce. "We can't wait until we are certain. Everything we are hearing points to that direction."

Business groups believe Blagojevich might call for a gross- receipts tax when he delivers his budget message to the legislature March 7. Becky Carroll, spokeswoman for Blagojevich's budget office, declined to comment Thursday.

"It's too early in the process to say what we may be doing in any area of the budget," Carroll said.

A gross-receipts tax is applied to all sales made by a business, regardless of whether the company is making a profit. Income taxes, on the other hand, are applied to a company's income after deductions are made.

"A gross-receipts tax is imposed upon every dollar that comes in the door, whether the money is spent on payroll, research and development or the cost of goods," Maisch said. "Even in years a company has tremendous losses, it will still owe the state a considerable amount of money."

"It's the worst form of taxation possible," said David Vite, president of the Illinois Retail Merchants Association. "Every dollar they take in, they will have to give some percentage to the government. It's not a tax they can pass through to customers. It will run business out of the state."

However, Ralph Martire of the Center for Tax and Budget Accountability, said consumers probably will end up paying more if the state taxes gross receipts.

"It (the cost) will be passed on to consumers, and without targeting tax relief, we're going to make a very regressive tax system even more regressive," he said.

Martire and some lawmakers are pushing their own revenue plan this spring. It calls for a 66 percent increase in the state income tax and expanding the sales tax base. It is coupled with property tax relief and other tax breaks. Martire said his plan would result in the bottom 60 percent of income taxpayers paying no additional tax.

He said a gross-receipts tax would disproportionately hurt smaller businesses, which would have to pay the same rate as large corporations.

Another problem with a gross-receipts approach, he said, is its "pyramid" effect. The tax would be applied on each sale, meaning a raw material could be taxed several times before it becomes a finished product, adding to the cost along the way.

"Whatever the stated rate is, the actual effective rate is usually six to eight times greater," Martire said.

A December report from the Tax Foundation lists eight states with what it called "significant gross receipts type taxes": Delaware, Kentucky, Michigan, New Jersey, New Mexico, Ohio, Texas and Washington. The structure of those taxes, including exemptions, varies widely from state to state.

Although no firm figure exists for a gross-receipts tax rate in Illinois, business groups are using 1 percent in their discussions. It's estimated a 1 percent rate would generate at least $9 billion for the state.

Business groups assume much of the money would be used to pay for Blagojevich's plan to provide universal health-care coverage in Illinois. During his inauguration speech in January, the Democratic governor said that was his top priority.

With Blagojevich having ruled out any increase in the income or sales taxes, options are limited for producing a large increase in state revenues.

"There's only a couple of taxes you can raise that will bring in what you'd need for universal health care and education," said Kim Maisch of the National Federation of Independent Business. "Politicians like this tax because it is small (as a tax rate) and broad-based and doesn't hit consumers in the face right away. But it will ultimately show up in the price of goods that consumers buy."

Sen. Mike Jacobs, D-East Moline, said he'd heard rumors of the gross-receipts tax being proposed and called it "not good public policy."

"My business community is going to be irate," Jacobs said. "I'm on a border community. I compete with the people in Iowa. Business in Illinois has had it up to here with fee increases."

Sen. John Sullivan, D-Rushville, said parts of his district border both Iowa and Missouri.

"If we have taxes in Illinois that those states do not have, it puts those businesses in Illinois at a disadvantage," Sullivan said. "You can't just raise your prices ... because then you are at a disadvantage with businesses in other states."

Doug Finke can be reached at 788-1527 or doug.finke@sj-r.com.

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Reader Comments - 15 comments

Veteran wrote at 2/9/2007 7:36:39 AM

More taxes and less small bussines owners leaving the State. This sounds like the Springfield city council.

Taxes are Taxes! ! ! wrote at 2/9/2007 7:53:43 AM

So what's the real difference? Independent of HOW they're imposed, taxes eventually cost the consumer (spell that y-o-u and m-e)pays the increased cost; the corporations don't pay them and lose profits! -- So, is the Governor actually in favor of raising taxes or not? ?

Dave wrote at 2/9/2007 8:11:14 AM

I can't believe a gross receipt tax would even merit consideration. Local govermenments are forced to create enterprise zones and provide tax concessions just to get businesses to locate in their area as it is. This would be about as anti-business and anti-growth as you can possibly get.

yeah right wrote at 2/9/2007 8:12:26 AM

"It's not a tax they can pass through to customers." Ultimately only people pay taxes.

anonymous wrote at 2/9/2007 8:19:56 AM

Big Business picked the wrong horse in the Govs race and they are going to pay for it. They shouldnt have been out there in front so much for Topinka. On a side note, what is up with the Illinois Chamber? If I freaked out and did press releases for every RUMOR I heard that affected my group at the capitol I'd never sleep! Geez, amateurs.

Paul H wrote at 2/9/2007 8:19:58 AM

If Blago wants to increase revenue he should lower income taxes. Put more money in the hands of the consumer and stand back. Lower the taxes on big and small business alike and see how many move to the state or hire new employees. Make Illinois competitive.

Ashrak wrote at 2/9/2007 8:31:22 AM

KISS applies here. Keep It Simple Stupid. One tax. Every dollar spent could draw a total tax of 15%. That is 10% for the Federal Government and 5% for State and Local government. No tax filings/returns (or cost associated with compliance), no tax liability to pass on to customers driving prices up and everyone would pay their fair share to this nation. We could eliminate the 45 thousand page tax code and bring off shore monies back into this country. This would also encourage savings/investment. Employers provide a paycheck and people have to live within the means they provide. If an employee goes deep into debt, then do they go their employer and mandate a raise to pay for it? No, of course not. Government is our employee and it is time we tell them how much money we will pay and force them to operate within those means.

Two cents (if i can afford it) wrote at 2/9/2007 8:34:24 AM

The Governor is in favor of anything that makes money for himself. He has shown time and time again that he is not in this job to serve the people. He continues to give money away left and right to keep certain businesses and try and lure others into the state, but businesses are closing down or leaving the state at an alarming rate. How many who voted for this man would reconsider their vote if they'd have known this was a possibility? Was this discussed during his campaign? I think not, what a devious man. You aint seen nothin' yet.

TRIBUNE IS IN FAVOR wrote at 2/9/2007 8:45:07 AM

No wonder the big business is flipping out. The Chicago Tribune, who is usually married to the big business, said it was in favor of this proposal. With the Tribune in favor, it is sure to pass.

New small business owner wrote at 2/9/2007 8:56:05 AM

I will take my small business out of state. Period. This puts an enormous burden on my profit margin if I want to compete with larger companies. Take for example the consumer who will pay more but the increase will result in a higher tax revenue to the state for that increase. These guys are blood sucking leaches that can't understand why I also will not purchase any of my raw materials in Illinois because of the increase in price by my suppliers. Fools practice foolishly.

Since when wrote at 2/9/2007 9:05:33 AM

Since when was the Chicago Tribune a good manager of money? They have had layoffs and are now attempting to sell off many of their assets because they are losing money. Look at what they have done with the Cubs? Please, if anything, the Tribune's stance on this issue is a true indication that it should NOT go forth.

dh wrote at 2/9/2007 9:10:59 AM

How can they say that the consumer would not be affected by this? WE are the ones who eventually pay the price of the shenanigans of the big politicians, WE are the ones who will be hurt the most by this. When a business is forced to pay out more money, whether in taxes or payroll(the minimum wage hike), or whatever, they have to raise the prices on their products in order to make a profit. If the governor and the rest of his cronies REALLY want to help balance the state budget, they themselves will take substantial pay cuts, so that those monies can go toward the state deficit. After all, it is not the fault of the consumer, nor small business owners, that he has not paid anything toward all his lawsuits. I agree with Ashrak, he has the right idea.

FSW wrote at 2/9/2007 9:24:04 AM

I'm sure the individuals we have carefully elected to run our government will make the wise and ethical decisions necessary and in the best interest of those governed. Have a great weekend everyone!

Springfield retailer wrote at 2/9/2007 9:36:12 AM

Businesses operating on small net margins like retailers will get killed under this tax scheme. Grocers, for example, have large gross sales but have net profits in the 1 to 3% range. High margin, low gross sales businesses like jewelers will make out like bandits. This is a huge shift in tax burden from low margin businesses to high margin operators.

business owner wrote at 2/9/2007 10:21:10 AM

I have 2 small business's here in Srpingfield. If this law passed it will be 2 less for the state of Illnois and with out the business to tie me here I will opt to move to a warmer climate. So there go all my tax dollars and if I go some family members are sure to follow

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