Business Taxes

Part of the federal economic stimulus created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, involved increasing the tax relief businesses could claim under the existing net operating loss and excess business loss tax breaks. Among other things, the Cares Act made these tax cuts retroactive, meaning businesses can claim losses and reduce their tax liability for years in which the pandemic had no impact on their profitability.

Because the Illinois income tax code is predicated on federal law, whenever Congress increases existing tax relief already received by businesses at the federal level, that tax relief automatically applies under Illinois law, resulting in a concomitant reduction in tax revenue for the state. According to State Representative Mike Zalewski, this change in federal law could result in Illinois losing anywhere from $500 million to $1 billion in tax revenue this year, unless Illinois “decouples” from the federal change, as requested by the Pritzker Administration.  The following Issue Brief provides CTBA’s reasoning for supporting decoupling from Federal CARES Act Tax Breaks.

Given the sluggish job growth during the recovery that has followed the Great Recession, decision makers both nationally and here in Illinois have indicated an interest in pursuing policy initiatives that will help spur the economy. Many have identified supporting small businesses and entrepreneurship as key to this effort. While various regulatory, spending and other policies (e.g. grants, technical assistance, incubators, and technology transfers) can directly and/or indirectly impact small businesses, the primary policy tools available fall into two distinct categories. On the one hand, policymakers can opt to reduce business and/or individual taxes in the hope that the tax relief will incentivize hiring and business expansion. Indeed, the Speaker of the House recently introduced a bill to reduce the state’s corporate income tax to stimulate job growth.

On the other hand, policymakers can make adequate investments in core public services and goods that businesses need to thrive, like education and infrastructure. Of the two primary policy tools available, the evidence overwhelmingly indicates that the latter approach is the best choice for supporting small businesses.

Knowing that the evidence shows business tax relief is not the best approach to stimulating the economy is one thing. What is crucial is that policymakers actually use this knowledge to craft effective, long-term solutions to one of the most challenging problems facing Illinois today—effectively stimulating the economy while dealing with the state’s fiscal shortcomings. After all, the state has an accumulated deficit of at least $7.6 billion in its General Fund budget for FY2014, the current fiscal year. This accumulated deficit is a very real problem that constrains the state’s ability to make the very investments in education and infrastructure that are so crucial to small businesses.

This Report highlights the best practices and policy initiatives decision makers could take to support small businesses in Illinois.  

A list of the corporate income tax rates in all 50 states and the District of Columbia in 2006.

A list of annual losses in Illinois' state revenue from corporate tax expenditures for FY2001-FY2004.

An overview of House Bill 4908 of the 92nd General Assembly, which would have limited the Net Operating Loss Deduction for businesses.

An overview of Public Act 93-0552, the Corporate Accountability in Tax Expenditures Act.

A Fact Sheet on the Gross Receipts Tax, which in general is a broad-based, low rate tax imposed on all income received by a business without any deductions for costs of doing business.

Written supplement to oral testimony provided to the House Revenue Committee during its April 2007 subject matter hearing on tax fairness.

State and local government often provide special tax cuts to corporations to promote economic development. These tax breaks are called tax expenditures because they are basically a government spending program. For example, the only difference between a tax expenditure and the Department of Human Services budget is the government does not appropriate money to the corporation, the corporation simply pays less tax, thus the government receives less tax revenue. Essentially, a tax expenditure is a special tax incentive for business that reduces the amount of taxes the corporation pays to state or local government. Corporate tax expenditures in Illinois add up to over $1.5 billion annually. This Issue Brief provides an overview of the tax expenditures available to corporations in Illinois.  

The written summary of Ralph Martire's testimony on corporate income tax expenditures to the joint House and Senate revenue committee in August 2011.