In Search for New Taxes, Illinois Picks Wisconsin’s Brain

The state of Illinois is nearly $12 billion in debt, which has forced lawmakers to scramble for whatever sources of tax revenue they can. Republican Illinois Governor Bruce Launer has been portrayed in the media as Illinois’ Scott Walker: a GOP reformer trying to bring big state government down to size. Yet, if the latest proposal goes through, it will be due to taxing opportunities the Illinois borrows from the Badger State, put in place during the pre-Walker era.

When former Wisconsin Governor Jim Doyle first proposed his “iPod Tax” in 2005; where the state’s sales tax would be applied to digital downloads, some wondered if we were entering a new tax frontier. Since then, half the states in the union have some form of a digital download tax. One of the few which doesn’t is Illinois.

That’s about to change as the Land of Lincoln borrows from Wisconsin’s tax code to incorporate what’s now being called a “Netflix Tax” on digital streaming services.

An amendment filed March 2 would apply a 6.25 percent sales tax to cable and satellite TV, as well as internet streaming services such as Netflix, Spotify and Xbox Live. For Chicagoans, this means an additional tax on top of a 9 percent citywide “amusement tax” they’re already paying for those services.

State Sen. Toi Hutchinson, D-Chicago Heights, filed the amendment to Senate Bill 9, part of the package of bills that make up the Senate’s “grand bargain. In addition to TV and streaming services, SB 9 would expand the 6.25 percent statewide sales tax to an array of other services, including repairs, landscaping, laundry, tattoos, body piercings, tanning and much more.

Chicago’s “Amusement Tax” went into effect in 2015.

Before Badger State residents wonder who in Madison might copy this idea from Springfield and run with it; that’s not likely to happen. This time, it is Springfield who is copying from Madison.

Democratic Sen. Toi Hutchinson of Olympia Fields, the bill’s sponsor, said lawmakers selected only services taxed elsewhere in the Midwest to ensure Illinois remains competitive.

She said Wisconsin — a Republican-led state that applies a sales tax to 16 service categories — served as a model to help build bipartisan support. Republican Gov. Bruce Rauner has said he is open to mirroring Wisconsin’s model.

Hutchinson contends rolling out service taxes will allow Illinois to catch up with a modern, service-based economy.

Like most states, Illinois and Wisconsin incorporate a sales tax for both goods and services; 6.25 percent and 5 percent respectively. Yet when it comes to the number of services currently taxed, Illinois only taxes 17 different services. Wisconsin adds sales taxes to 76 different kinds of services according to the state Department of Revenue. The average state taxes 56 different kinds of services according to the Federation of Tax Administrators.

All this shows is how both states have severe problems when comes to their taxing and spending. States should be borrowing ideas on how best to draw businesses in, now how best to tax them into oblivion. That’s not the case with either of them.

Illinois is a state where the term “Fiscal Basketcase” might not go far enough to describe what’s going on there. Gov. Bruce Rauner, who at one time tried to be “Scott Walker 2.0,” now looks to have resigned himself into believing he can tax his way out of a situation where unfunded obligations to public employees have ensured Illinois could be facing bankruptcy any year now.

While here in Wisconsin, we suddenly find ourselves being touted as “The Gold Standard of Taxation” from that very fiscal basketcase. If that’s not a wake-up call to changing the state’s business tax climate, one wonders what truly will be?