It’s been a bad month for Illinois small business owners. After two years without a budget, the state finally has one, but it came without any of the reforms Gov. Rauner was pushing for, plus a 32 percent ($5 billion annual) tax increase. Although the governor vetoed the budget bill and tax increase, lawmakers overrode his veto.
Effective July 1, the personal income tax rate rose to 4.95 percent from 3.75 percent, and the corporate rate increased to 7 percent from 5.25 percent. However, the Chicago Tribune reported, the effective corporate tax rate will actually be 9.5 percent because of the additional 2.5 percent personal property replacement tax, which generates revenue for local governments. This rate earns Illinois the fourth-highest corporate tax rate in the U.S. Limited liability companies and sole proprietorships, meanwhile, will effectively pay 6.45 percent—the new personal income tax rate plus a 1.5 percent personal property replacement tax.
Additionally, the budget plan may not even prevent a credit downgrade to junk status—after Illinois already received the lowest bond rating on record for a state from Moody’s Investors Services—because it doesn’t adequately address the state’s foundational financial problems, such as the underfunded pension system and $15 billion in unpaid bills.
For a silver lining, there is no new sales tax on services, as previously proposed; the research and development tax credit is restored; the graphic arts machinery and equipment sales tax exemption is restored, and all state construction projects will be restarted.
NFIB/IL State Director Mark Grant’s reaction to the veto override was carried in the State Journal-Register: “Our members are livid,” he said. “Senate Bill 9 is bad legislation that’s going to make it even harder for small businesses and other employers not only to succeed but to stay in Illinois. The tax increase is going to drive up the cost of living, working, and doing business in Illinois. Worst of all, it doesn’t even get at the underlying issues, such as soaring property tax rates, runaway workers’ comp costs, and a busted state pension system.”
SB9, Grant also noted, was an NFIB key vote, so all members will be notified about how legislators voted.
Meanwhile, businesses in Cook County have also gotten hit with new mandates that went into effect on July 1: five sick days per year and an $11 minimum wage.
