Background on Illinois Corporate Tax Loopholes

From the We Are One Coalition of Illinois

Special tax loopholes for corporations squeeze the Illinois budget, forcing irresponsible choices like habitually shorting the pension funds. Closing just six of the most egregious loopholes (below) would yield some $900 million dollars this year alone. If those revenues were, instead, earmarked each year to pay off the state’s accrued liabilities to its five pension systems and they were invested under the systems’ current assumptions (asset allocation, assumed investment return of 8%, and assumed inflation rate of 3%), the net present value accumulated by these funds over the next 34 years would be $80.7 billion.

[Consider]

•    CME Income Tax Reduction ($85 million): After vigorous lobbying by CME Group, the “sales factor” used in the formula to set its corporate income tax rate was arbitrarily lowered (by 1/3rd for FY2013 and to just 27.5% thereafter), significantly reducing its tax liability; 



•    Foreign Dividends ($386 million): Currently, foreign dividends are considered taxable income under federal law but are exempt from taxation in the State of Illinois. This would allow Illinois to tax dividends that are earned by foreign companies and are transferred to companies that have taxable income in the State of Illinois to also be subject to the Illinois income tax;



•    Domestic Production Credit ($200 million): The Domestic Production Credit is a tax credit that is awarded by the Federal Government with which the State of Illinois is coupled. What this means is that companies that have taxable income in Illinois are receiving a tax credit for activity that is taking place outside of Illinois along with their Illinois activity…  



•    Newsprint and Ink Exemption ($39 million): Corporations that publish newspapers and magazines are currently able to write off the cost of their paper and ink. Closing this loophole would increase state revenues by $39 million annually;

•    Offshore Oil Drilling ($75 million): Oil production activities that take place in the outer continental shelf are not taxed by Illinois, although many other states now tax this income that can be apportioned to their state;



•    Retailer’s Discount ($109 million): Originally intended to compensate Illinois shop owners for the costs of collecting state sales taxes in the pre-computer era, the biggest beneficiaries are now the largest out-of-state retail chains like Wal-Mart (which receives over $8 million annually).  Unlike many other states, Illinois does not cap the amount a retailer can receive for transmitting sales tax funds.