Illinois considers repealing business tax responsible for big headaches, little revenue
A new bill would repeal an outdated Illinois business tax. The franchise tax is tough to calculate, most businesses don’t owe it and it generates little revenue in a state that already hits businesses hard with other taxes.
Illinois businesses could be spared from a tax that is difficult to calculate, most won’t owe and yields little for the state if a bill to repeal the franchise tax succeeds.
Illinois’ franchise tax raised about $200 million last fiscal year in a state planning to spend $55.2 billion in the coming fiscal year. It forced hundreds of thousands of businesses to calculate their tax burden, even if no tax liability was due – which was the case for most businesses.
House Bill 2846, if passed, eliminates the state’s franchise tax, which is a tax for the privilege of doing business in Illinois. It’s a misleading name because the tax doesn’t just apply to business franchises, it applies to businesses of all sizes.
The archaic tax, which requires all businesses to determine their tax liability through a convoluted and often expensive process of calculating the value of their “paid-in capital,” was set to be repealed through legislation passed in 2019. The bill would have completely eliminated the tax in 2024, but legislation passed during the COVID-19 pandemic effectively ended the phase-out in 2021.
Businesses already have to pay the second-highest corporate income tax rate in the country and the second-highest property tax rate, which seems like more than enough.
Eliminating the tax would also cut compliance time and costs. State Rep. Jeff Keicher, R-Sycamore, filed the bill and said it will streamline the process for businesses.
“Illinois already puts more hurdles than most other states in front of job creators that want to explore the American Dream,” he said.
The state has seen too many businesses choose to pack up and leave.
“This is an outdated tax on businesses that are already contributing to our economy, and we need to [eliminate] it to streamline Illinois,” Keicher said.
In 2021, the latest year for which data is available, Illinois lost 208 single-establishment firms to other states, according to the U.S. Bureau of Labor Statistics. The New York Stock Exchange just announced it’s closing its Chicago office after 143 years and leaving for Dallas.
The franchise tax is small compared to other costs businesses face, but killing it would mean one less headache and expense for Illinois’ job creators.