Job saving is focus of brewing Illinois tax deal

[November 05, 2011]  SPRINGFIELD -- Illinois lawmakers will have the weekend to review the framework of a tax incentive package that tries to balance help for a handful of big companies in the state with broad relief for small and family businesses.

Gov. Pat Quinn and four legislative leaders Friday agreed on a deal, which lawmakers say they hope will keep the CME Group and Sears from leaving the state.

Details of the tax incentive package were first reported by Rich Miller on his nonpartisan political blog Capitol Fax, and include a proposal to "decouple Illinois" from the federal bonus depreciation law. That law allows Illinois companies to write off 100 percent of the cost of equipment in one year, as opposed to over a number of years, not yet determined. The 100 percent write-off lowers the taxable dollars from a company and, in turn, lowers the amount that Illinois can collect.

Other key factors of the framework now heading to lawmakers include:

• A reinstatement of the net operating loss provision, which would allow companies to receive a tax deduction for money lost.

• A five-year extension for the research and development tax credit. Companies, ranging from pharmaceutical makers to equipment manufacturers can apply for the credit as they work to bring new products to the market.
  

• An increase in the estate tax deduction from $2 million to $5 million over two years. Family farms and other family-run businesses would benefit from the increase, as they pass their businesses to the next generation.
  

• A $650 reduction in filing fees to form limited liability companies, from $750 to $100.
  

The package is expected to translate into about $100 million in tax savings for CME. The Chicago-based trading firm has been threatening to leave Illinois if its tax bills weren't lowered. CME officials said Illinois' recent 47 percent corporate income tax increase resulted in a $150 million tax bill.

Sears also has talked publicly about moving its corporate headquarters from suburban Chicago if it did not receive some help from state lawmakers. However, Sears does not want a tax cut.

Rather, Sears wants to receive breaks that would the lower taxes it must pay for its 4,000 employees in the Chicago area.

Neither CME or Sears returned requests for comment.

Mark Denzler, vice president of the Illinois Manufacturer's Association, which represents and lobbies for 4,000 businesses in the state, said the tax incentive package acknowledges that Illinois has to keep as many jobs as it can.

"There's a realization, with unemployment raising to 10 percent in September, that something has to be done for the job creators in the state of Illinois," said Denzler. "The only way we're going to get out of this deficit is private-sector jobs employing more people and putting money back into the economy."

The national jobless rate was at 9 percent for October. Illinois' numbers for October are not yet available.

Even though the tax incentive package may be aimed at CME and Sears, Denzler said thousands of other businesses also will benefit.

"The research and development credit is particularly valuable for manufacturers who are looking to develop new products. Increasing the estate tax deduction is critical for farmers and for small businesses," Denzler said. "And the net operating loss provision reinstatement is absolutely imperative. Companies have been struggling in this recession. Allowing them to write off their losses helps struggling companies and startups."

State Sen. Toi W. Hutchinson, D-Olympia Fields, said Friday that she has not seen the entire plan, but she could support some changes to Illinois' tax code.

"I don't like having conversations about individual companies. No one likes to be held hostage. No one likes that," said Hutchinson, who was co-chairwoman of the Joint Committee on Revenue, tasked with examining Illinois' business climate and tax structure.

She was quick to say that whatever lawmakers do for CME and Sears during the fall veto session, more work on the state's tax code must be done next year.

"I'm hopeful that this is not all were going to see," Hutchinson said. "This package is not going to do anything to address the pressing matters with the state's tax code."

Hutchinson said Illinois' current tax structure is not fair. She said 60 percent of companies in the state do not pay corporate income taxes, leaving the companies that do pay holding a big bag.

"The tax code is not in sync with the 2011 economy," Hutchinson said.

Making the code fair, however, is not going to happen anytime soon.

"If you're going to see broad-based changes, it's going to take a lot of work and a lot of time," said Todd Maisch, vice president of government affairs for the business representative group, the Illinois Chamber of Commerce.

Maisch said lawmakers are expected to vote on the CME tax package next week during the final week of the fall veto session, but he said he doesn't believe the legislators will begin working on major tax reform until 2013.

Until then, Maisch said, Illinois businesses are going to have to live with the reality that the state's tax code does play favorites.

"If you're a dry cleaner and a third of your customers work at Sears, you are happy with this (package)," Maid said. "If you have a cleaning contract with CME, then you are happy about this. But if you're a small business that is not directly tied in, then you are feeling jilted. No doubt about it."

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Note: Illinois Statehouse News has a working relationship with the Capitol Fax blog, where details of the tax incentive package were reported.

[Illinois Statehouse News; By BENJAMIN YOUNT]