By Monica Stabile
The Home Builders Association of Illinois spoke out Tuesday against service tax legislation which they say would cause a loss of more than 500 jobs and almost $8 million in state revenue. Meanwhile, the bill’s sponsor says she would change the proposal if other lawmakers would agree.
The proposal being considered by the Illinois General Assembly aims to apply a 6.25-percent sales tax to home remodeling and other services in an attempt to raise revenue to end the state budget impasse.
Bill Ward, executive vice president and director of governmental affairs for the Home Builders Association of Illinois, says the proposed service tax wouldn’t affect home products being installed, but would cover the same items being repaired. Ward calls the situation confusing.
“Homes hit by storms or fire damage are going to be the hardest hit by this tax,” Ward said. “On a $20,000 damage to a home, the tax would amount to $1,250 in repair work — a substantial increase.”
The costs would either be paid by the homeowner or by their insurance. If the insurance company is responsible for paying the costs, the homeowner could see an increase in premiums.
The 6.25-percent tax may also cause home repair workers to operate illegally, Ward said. Repair workers may start working under the table instead of with a legitimate business by forgoing the tax in exchange for cash payments from customers.
“It will increase home repair fraud in the state of Illinois,” Ward said.
HBAI estimates the bill would lead to a $47-million loss of work for the home repair industry, 521 fewer jobs, and local and state tax revenues falling by $8 million if workers begin operating illegally to avoid the tax.
Out of 168 types of services that could be taxed, only eight are listed in the proposed legislation. Opponents say that creates a burdensome cost on a handful of services with potentially less revenue than if more services were taxed at a lower rate. Other service sectors included in the legislation are warehouse storage, landscaping, laundry and dry cleaning, cable television, private alarm services, pest control and personal care services.
According to Ward, the proposed service tax on home repairs would raise between $45 million and $60 million in state revenue. By comparison, a shelved proposal to create a soda pop tax would have generated an estimated $400 million to $600 million. Coupled with federal funding, he says, the revenue could hit $1 billion.
“It’ll do very little to help the state of Illinois, but it’ll be a tremendous burden on this particular industry,” Ward said, referring to the more narrow service tax proposal.
Democratic Sen. Toi Hutchinson of Chicago Heights, who sponsors the service tax legislation, said the goal was to not tax anything that any of Illinois’ surrounding states don’t already tax. She says the bill focuses on service sectors that lawmakers from both sides of the aisle could agree on, Hutchinson said.
“It was done in conjunction with negotiations through the grand bargain,” Hutchinson said. “This bill only contemplates adding eight different services, which is hard enough to do… Imagine 168 [different services].”
Ward and Hutchinson both agreed that using a broad-based tax to cover all or the majority of the 168 service areas while lowering the tax rate would be ideal for businesses and the state.
“I’m definitely in favor of broadening the base and lowering the [tax] rate,” Hutchinson said.
Despite opposition to the proposed service taxes, Hutchinson said the state needs to find a new revenue source to pay off a budget deficit nearing $13 billion.
“We’re in this unending cycle of arguing about taxes without acknowledging what taxes pay for, and no one wants to lose what taxes pay for,” Hutchinson said. “I could fill the Capitol with the amount of people who are opposed to a lot of different parts to the grand bargain, but we’re in a crisis right now.”