SPRINGFIELD — Representatives of some of the state’s largest business associations are looking back at a historic legislative session as a “mixed bag” for businesses, which will see benefits from late legislative action.
“It depends a little bit on what sector you’re in,” said Rob Karr, president of the Illinois Retail Merchants Association. “For example, if you’re a convenience store, you’ve been absolutely hammered. But there were some clear wins as well.”
Karr said a minimum-wage increase to $15 an hour by 2025, a $1-per-pack raise in the cigarette tax and a 19-cent boost in the motor fuel tax would hurt businesses in general and small retailer convenience stores in particular.
The wins, according to Karr and representatives of the Illinois Chamber of Commerce and Illinois Manufacturers Association, include a phased-in repeal of the state’s franchise tax, added tax incentives for data centers and large-scale construction projects, protection of a retailer’s tax credit and a streamlining of a manufacturer’s purchase credit.
“The franchise tax has needed to be repealed for a long time,” said Illinois Chamber of Commerce President Todd Maisch. “It’s a very antiquated tax, and it’s a very difficult tax for businesses to understand.”
‘Terrible tax’ gone
The franchise tax is administered by the secretary of state, and it charges businesses “for the privilege of exercising its authority to transact such business in this state.”
Maisch said the tax could cost a business up to $2 million in one year.
“So that’s just punitive to Illinois-based businesses and just terrible tax policy,” he said, noting that few businesses actually pay the top rate.
The repeal will be phased in over a five-year period, starting with a $30 credit in 2020, a $1,000 credit in 2021, a $10,000 credit in 2022, a $100,000 credit in 2023 and a complete repeal of the act in 2024. According to the secretary of state’s office, the state collected $198 million via the tax in 2018.
For manufacturers association President Mark Denzler, the “modernization” of the manufacturer’s purchase credit was one of the big wins of the session. He described the credit as a sales tax exemption for consumable products such as coolant, solvent, fuels and oils, which are used in manufacturing.
The credit will take effect Monday, adding these products to machinery costs, which were already exempt.
‘Front of the pack’
Another pair of reforms will help attract large-scale data centers to the state, Maisch said. Data centers are facilities containing computers that process and distribute large amounts of information for a wide range of industries, storing images, emails, word documents and more.
The measure, included in a capital infrastructure funding bill, provides tax incentives for new and existing data centers that invest more than $250 million in construction and electronic hardware infrastructure costs and hire at least 20 full-time employees over a five-year period.
The measure includes an abatement of sales taxes for construction materials and data center hardware, which has to be cycled out every two to four years. The bill also contains protections for taxpayers that would allow the state to recoup funds from companies that do not meet certain requirements.
Maisch said the benefits of the data center act are compounded by the Blue Collar Jobs Act, another reform passed at the end of the legislative session that offsets some portion of labor costs of large-scale industrial projects.
“So I think, all of a sudden, Illinois went from being a laggard when it comes to attracting billion-dollar data centers, to now being close to the front of the pack in terms of what we can offer to lure that investment here to Illinois.”
Small businesses suffer
For Karr and IRMA, another win was maintaining a tax credit that lets retailers keep 1.75 percent of the sales tax they collect “for serving as the state’s sales tax collector.”
He also praised a pair of provisions to require remote retailers such as Amazon to collect state sales taxes on any purchase delivered to an Illinois address. Those measures “level the playing field” for online sellers and brick-and-mortar businesses, he said.
Karr and Maisch both agreed, however, big businesses benefited more from the various reforms than smaller ones.
“Really, the problem with the end of the session is that small businesses did not get their fair share of relief. And so we’ll be calling on the governor to make small business a priority for next year,” Maisch said.