Bill Analysis: Illinois Statewide School Management Alliance
House Bill 750
Senate Sponsor: Senator James Meeks (I-Chicago)

LINK

HB 750 passed the House of Representatives as a "shell bill"(legislation that contains no substantive language) on April 3, 2004. Senate amendments #1 and #2 (filed later in April) contain a comprehensive tax policy proposal with a school funding component. The amendments have never been released from the Rules Committee. If no action is taken on HB 750 in the November legislative session, the proposal will have to be re-introduced next January when the new General Assembly convenes. The bill was authored by the Center for Tax and Budget Accountability.

Click Here to access the complete bill.

Analysis of Senate Amendment #1:

Creates the "School District Property Tax Relief Fund" (pages 1-3, 101-106)

The General Assembly shall appropriate $2.4 billion to this special fund created in the State Treasury in the first year after enactment (this amount will increase each year by the increase in the Employment Price Index [EPI]). Between November 15 and 17 of each year, the Department of Revenue must certify the total amount of property tax relief each school district will receive from the fund, generally an amount equal to 20% of the property taxes payable to the school district. The bill does not state when the school districts would receive the property tax relief payment. A supplemental property tax relief grant would be distributed each year to "all high property tax effort school districts". The County Clerk must abate the extension for educational purposes for each school district by the amount of the property tax relief grant. The amount of the property tax abatement will appear on taxpayer's property tax bill.

Increases the income tax rate for individuals from 3% to 5% (page 4)
Estimated to raise approximately $5 billion.

Increases the income tax rate for corporations from 4.8% to 8% (page 5)
Estimated to raise approximately $491 million.

Includes retirement income in taxable income for individuals with an adjusted gross income over $75,000 (page 29)
Applies if a taxpayer reports an adjusted gross income of $75,000 or more if the income is derived from "all amounts included" from:

Section 402(a) of the Internal Revenue Code (Taxability of beneficiary of employees' trust – exempt trust)

Section 402(c) of the Internal Revenue Code (Taxability of beneficiary of employees' trust – rollovers from exempt trusts)

Section 403(a) of the Internal Revenue Code (Taxation of employee annuities – taxability of beneficiary under a qualified annuity plan)

Section 403(b) of the Internal Revenue Code (Taxation of employee annuities – taxability of beneficiary under annuity purchased by Section 501(c)(3) organization or public school)

Section 406(a) of the Internal Revenue Code (Employees of foreign affiliates – Treatment as employees of American employer)

*Section 407(a) of the Internal Revenue Code (Certain employees of domestic subsidiaries engaged in business outside of the U.S. – treatment as employees of domestic parent corporation)

Section 408 of the Internal Revenue Code (Individual Retirement Accounts [IRA])

*Distributions from retirement or disability plans for employees of any governmental agency or unit
The $75,000 threshold in the first year will increase each year thereafter by the percentage increase in the CPI. This provision is estimated to raise approximately $359 million.


Deletes the deduction from taxable income for dividends from Enterprise Zones and eliminates the deduction for dividends from Foreign Trade Zone companies (page 39)

Creates a Family Tax Credit for families that have an annual income of $47,000 or less (pages 59-60)
The credit is set on a sliding scale that increases annually based on the CPI. If the amount of the tax credit exceeds the income tax liability, the taxpayer receives a refund. Estimated cost of the credit is $900 million.

Deletes the tax exemption for newsprint and ink under the Use Tax Act (pages 63, 75)
Note: See Minneapolis Star and Tribune Company v. Minnesota Commissioner of Revenue, 460 U.S. 575, 103 S.Ct. 1365, 75 L.Ed.2d 295 (1983) U.S. Supreme Court case which held it was a violation of the First Amendment for Minnesota to levy a use tax on newsprint and ink.

Deletes a Sales Tax exemption for machinery used to work on other exempt machinery (pages 73, 81)

Expands the Sales Tax to certain services (page 85)
This provision is modified by Senate Amendment #2 (detailed later in this document)

Eliminates the sales tax exemption on the sale of campers and recreational vehicles (page 92)

Deletes the motor fuel tax retailer's discount (page 107)

Increases the foundation level in the school funding formula to $5,952 in the first year of the law's enactment (page 111)
In subsequent years, the foundation level would increase by the rate of the Employment Cost Index (ECI). The estimated cost of this provision is $1.8 billion.

Increases annually the amount of the Poverty Grant by the percent increase in the ECI (page 126)

Adds supplemental state aid for rapidly expanding school districts (page 138)
Such districts are defined as those that have an increase in student population over two consecutive schools years of: 1) 1.5% in districts greater than 10,000 ADA; OR 2) over 10% for all others. Same as the provision in HB 766, now Public Act 93-1042.

Requires a minimum continuing appropriation to cover the costs of the foundation level and the property tax relief provisions (page 139)

Analysis of Senate Amendment #2:

The amendment would expand the Sales Tax to include: Warehousing and Storage Marinas Travel Agents
Electronics repair Carpet Cleaning Dating Services
Hair, Nail & Skin Care Dry cleaning & laundry Consumer Goods Rental
Diet & Weight Reducing Services Investigation Services Bail Bonding
Telephone Answering Services Photography Studios Linen Supply
Interior Design Services Computer Systems Design Credit Bureaus
Collection Agencies Copy Shops Automotive Repair
Parking Lots & Garages Motor Vehicle Towing Racetracks
Amusement Parks & Arcades Bowling Centers Cable TV Distribution
Circuses Coin Operated Amusements Golf Courses & Country Clubs
Fitness Centers Sports Teams & Clubs Performing Arts Companies
Miniature Golf Courses Scenic & Sightseeing Trans. Limousine Services
Chartered Air Trans. Services Motion Picture Theaters Drive-In Theaters


Financial Analysis from the Center for Tax and Budget Accountability:

Cost:

$2.4 Billion in property tax relief: 25% of property taxes currently used to fund education
$1.8 Billion to increase foundation level as proposed
$2.0 Billion to eliminate structural deficit
$900 Million refundable credit to bottom 60% of all taxpayers
Total Cost: $7.10 billion

Revenue Enhancements:

$5.0 Billion from increasing the personal income tax rate
$359 Million by taxing retirement income
$491 Million from increasing the corporate income tax rate
$900 Million by expanding sales tax base
$500 Million by eliminating certain Corporate Tax Exemptions*
Total Receipts: $7.25 Billion

*Elimination of Corporate Tax Exemptions and Deductions -- The Center for Tax and Budget Accountability includes the elimination of certain "corporate tax loopholes" in the revenue projections for HB 750. Generally, the dollar figure above assumes loophole closures recommended in the Governor's Fiscal Year 2005 budget proposal. Those include:

Tax all corporate income as business income
Eliminate the foreign tax haven
End exception to unitary reporting by domestic subsidiaries
Adopt measures to prevent corporations from engaging in abusive shelters
Strengthen the rules for apportionment of business in Illinois
Make interest deduction on U.S. bonds net of expenses taxable
Partnership or Subchapter S corporate withholdings
Require corporations to pay tax on discharged debt
Use straight line instead of accelerated depreciation
Tax the increase in value on company-owned life insurance policies
Means test the farm chemicals exception (farms with $1 million in revenue)
Collect sales tax on canned software
Eliminate watercraft use tax loophole
Elimination of motor fuel tax exemption for non-farm non-highway vehicles
Airport transportation tax

Bill Text/Status: Illinois General Assembly www.legis.state.il.us/legislation/default.asp


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