Only 4 states tax services by default, but Illinois may join them

Adding sales taxes to services is limited in the U.S., with 46 states not generally taxing services. Illinois may break from the pack and start adding sales taxes to haircuts, lawn care, car repair and a long list of other service expected to cost $2.7 billion.

Sales taxes are usually applied to goods, not services, but Illinois state lawmakers are currently considering joining the four states that do tax services – a move that could cost Illinoisans $2.7 billion.

Five states charge no sales tax, 41 charge sales taxes on goods and just four tax services by default. Illinois is among the states taxing specific services, 29 of them in Illinois such as software downloads, vehicle leases and photo finishing.

That’s far fewer than most large peer states and the third fewest in the Midwest, granting Illinois a competitive edge when attracting employers. But that could soon change with lawmakers considering extending sales taxes on up to 83 new services – or all services, if given the chance.

Illinoisans already pay the nation’s 7th highest combined state and local sales taxes. If sales taxes are applied to the 83 services being targeted, or all services with specific exemptions, Illinoisans would pay taxes on:

• Netflix and streaming services.
• Rideshare services such as Uber and Lyft.
• Gym memberships.
• Barbershops and beauty salons.
• Car washes and car repair.
• Plumbing, electrical and other repair.
• Lawn care and landscaping.

Members of the Illinois General Assembly said their Democratic peers are in stealth mode trying to pass the massive tax increase before adjournment May 31. They are claiming the money is needed to solve Chicago’s Regional Transit Authority fiscal crisis.

The RTA includes the Chicago Transit Authority, Metra and Pace mass transit systems serving Chicago and the suburbs.

The money generated would mean nearly $2 billion for the state, $50 million for county governments, $390 million for municipal governments and $315 million for the RTA at current baseline tax rates. Other proposals would raise the RTA sales tax rate or cut the statewide rate.

“We want you to be on alert. It is time for taxpayers to guard your wallet in the state of Illinois. We are already taxed to the max,” said state Rep. Ryan Spain, R-Peoria.

Spain said a longer list of the taxable services is found at StopILServiceTax.com.

Attracting more residents to the state would help expand the tax base and increasing taxes will have the opposite effect. Springfield continues to treat taxpayers like an unlimited ATM by figuring out creative ways to increase taxes while refusing to make the tough decisions necessary to fix state finances or Chicago mass transit.

Contact your state lawmakers and tell them to oppose the $2.7 billion sales tax expansion.