Bill introduced to close wasteful loopholes
A dozen lawmakers in the General Assembly announced their support today for legislation that would begin to close wasteful corporate tax loopholes.
The legislation (SB 1159) would eliminate three loopholes that cost the state $445 million annually – money that could be spent improving public services or shoring up pension funds.
"We need to view tax expenditures like all other state spending," said Senator Toi Hutchinson, lead sponsor of SB 159. "What is their purpose? Do they work? Can we afford them? If not, we need to end them."
Closing wasteful tax loopholes is a key component of the We Are One Illinois coalition’s plan to fix the state’s underfunded pension system while protecting benefits for retired workers. That plan would eliminate $2 billion in loopholes, including the three in SB 1159.
The legislation, as amended, would eliminate three major loopholes that allow corporations to avoid state income taxes:
- Taxing Foreign Dividends. Illinois doesn’t currently tax profits produced by corporate subsidiaries located in other countries, even when the company is headquartered in Illinois. Companies that aren’t generating business and creating jobs in the state shouldn’t be able to deduct these profits from their tax liability. Closing this loophole would generate $320 million annually.
- Decoupling from Federal Domestic Activities Production Credit. Currently, Illinois allows a deduction for companies that are engaging in production activities that benefit other states. The reason this loophole persists is because Illinois is simply following the federal tax model – this is not something the state is required to do. It’s not fair for taxpayers to have to subsidize activities in other states that are trying to steal business away from Illinois. Put simply, just because a corporation is headquartered in Illinois does not necessarily mean that they are creating jobs here. 22 other states have decoupled and closing this loophole would generate $100 million annually.
- Repealing the Noncombination Rule. While companies are required to file their taxes in a single combined return, large corporations have been able to set up complex tax avoidance structures by utilizing a loophole that exempts financial, transportation and insurance corporations. A number of large corporate institutions use this loophole to create a subsidiary in one of these categories and shift profits to avoid paying Illinois taxes. 23 states already have repealed this rule and closing this loophole would generate $25 million annually.
"Tax expenditures drain billions from the state coffers every year," said William McNary, co-director of Citizen Action/Illinois and legislative chair of the Responsible Budget Coalition. "They include loopholes that allow large profitable corporations to avoid state income taxes entirely, making it harder to fund our budget priorities and pay our back bills."
Any revenue captured through the closings would be dedicated towards paying down the state's $9 billion in past-due bills.
"Our state's key priorities, like education and human services, are being seriously underfunded because we don't have adequate revenue," said Rep. Will Davis, House sponsor of SB 1159. "This bill is a step towards setting our priorities right by cutting handouts to corporations rather than payments for schools and services."
Other lawmakers backing SB 1159 include Senators Melinda Bush, William Delgado, Michael Noland and Heather Steans, and Representatives Kelly Cassidy, Ken Dunkin, Marcus Evans, Greg Harris, Naomi Jakobsson, Bob Martwick, Brandon Phelps, Art Turner, Mike Smiddy, Chris Welch and Ann Williams.
If your representative or senator isn’t on this list, call them today and tell them it’s time to close wasteful loopholes and support SB 1159 – you can call toll-free at (888) 912-5959 or use our click-to-call tool.