Could taxing services like hair cuts, landscaping and pet grooming reduce other tax rates in Illinois?
Tucked into a recent three-year budget forecast report issued by the state legislature's Commission on Government Forecasting and Accountability is an acknowledgment that the state could expand its tax base by applying a sales tax to service-based businesses.
"Illinois really only taxes the sales of goods, but we're leaving out too much of the economic base by not taxing consumer services, which is a continually growing portion of the state's economy," said Ralph Martire, executive director of the bipartisan Center for Tax and Budget Accountability."This is a system that was introduced in the 1930s."
by signing up you agree to our terms of service Proponents argue taxing these consumer services would modernize and stabilize the state's sales tax base, potentially making it more recession-proof.
Various studies suggest the state could generate an additional $1.2 billion to $2.1 billion a year depending on how broadly a service sales tax is applied. And some of those estimates are nearly a decade old, when the legislature last seriously considered applying the sales tax to consumer services. According to U.S. Census Bureau figures, Illinois generated $1,282 in sales taxes for every resident in 2021, the 17th-highest amount among the 45 states that impose a sales tax.
The commission's three-year budget forecast lists the application of a sales tax on consumer services as one of several"opportunities" for the state to improve its financial footing. Among the other suggestions are balancing the budget, reducing or eliminating the nearly $3 billion bill backlog, lowering interest rates for late bills and taking advantage of the state's current $1.1 billion surplus.
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