My accountant, Linda Forman, sent me this note on the Illinois Gross Receipts Tax proposed by Gov. Blagojevich. Now, I voted for the man twice, and I voted for my state senator (who also supports the proposal) twice, but if they go ahead with this proposal I'm not sure I will continue to support them:
The Gross Receipts Tax Proposal
There are thoughtful people in the political arena mulling over the proposal of a gross receipts tax and the prospect of health care coverage for the uninsured employees in Illinois.
While debate goes on, I would like you to visit with a company or two that could be a composite of many small business clients.
The Service Company
Currently, a service company employs 40 people and provides health care and life insurance, fringe benefits and a generous profit sharing plan.
It funds the fringe benefits and profit sharing with some of the $300,000 in profits it realizes on its $6,000,000 in service sales.
Oh, did I mention that the business owners would like some income each year from their capital investment in the company. That usually is a 9% return, or $90,000.
So the $300,000 in yearly profits is put to good use – excellent employee benefits and a reasonable rate of return on capital invested. This is a growing company. It pays taxes on its net income, pays various business taxes to the state and community and keeps 40 people on the tax rolls. It also uses the services of other Illinois businesses, contributing to a vital economy.
Under the gross receipts tax proposal, the $6,000,000 gross income will be taxed to the tune of $300,000. So there goes the profit that funded employee retirement plans and kept investors happy. BUT now, other businesses that provide service to this company have also raised their rates to cover the gross receipts tax, so this company is now operating at a LOSS. And it has lost its competitive pricing edge.
When companies operate at a loss, their usual options are:
- Lay off employees
- Cut benefits
- Move to a more business friendly area
And this helps Illinois’s economy HOW??
- More unemployment compensation payments.
- More uninsured workers? Loss of tax revenue from income taxes.
- Loss of a productive business if it moves out of state.
Raising “prices” may work for government, but in this global economy, it is often NOT an option.
The Widget Company
The Widget Company competes with other widget makers, striving to make a good quality product at a competitive price. It has made a commitment to stay in Illinois, even though the state has hiked fees in the past. The corporate income tax is 7.3% of net income, certainly a significant tax but bearable, since net profit is only 4% of gross receipts of $6,000,000; the tax is approximately $17,000.
The company’s margins on its product lines cover the administrative and sales overhead. If it had to raise prices 5% to cover the gross receipts tax, it would lose business in a market where customers are swayed by even the slightest rise in price.
If the company has to pay a gross receipts tax of 5%, it would have to pay $300,000!! But its net profit is only $240,000 so it would be $60,000 in the hole. This is a company that is going to MOVE out of Illinois to a warmer climate in a state where business is appreciated. What other choice does it have – it can’t pass along the costs to consumers while dealing in a global marketplace.
The gross receipts tax idea is just that - GROSS. It will repel new business and seriously impede current business growth. There has to be an analysis of WHY some large corporations are not paying tax, since the formula for paying Illinois taxes is based on a factor of Illinois sales to total sales. And there has to be a corollary analysis of what other taxes big business is paying to Illinois, since other fees on businesses have risen sharply in this administration.
I have clients who will be severely impacted by a gross income tax - and attempts to remain in Illinois and deal with the tax will only result in loss of jobs and benefits for their employees.
There has to be an intelligent game plan - and we need more information from the governor before we can assess where the issues are.
AND, with regards to an expanded Illinois health care plan, I think a good health plan needs to be national in scope and administered like Medicare - and that the state of Illinois, in its precarious financial position, can't take on health care while it has to correct huge pension and other funding deficits. And given the historically poor reimbursement payment rate and lateness of payment, where will Illinois find the health care providers to accept families covered by the proposed health insurance plan?
Linda Forman, CPA
By the way, no, Inner Drive Technology is not the service company she mentioned, as much as I might wish for $6 million in revenues.
Update, 8:49 am: Linda adds the following:
The gross receipts tax rate may have lowered in discussions since this was first written, but the concept is still there, along with the health insurance issue. Actually many companies are toying with the idea of dropping their coverage and only paying the state's 3% rate, which will cause a larger population to be in the state's insurance fund - another negative result of this proposal.
Yesterday, Parker and I were walking to his afternoon play group meeting when we encountered a beagle-basset-looking dog wandering the streets. I tethered Parker and followed the other dog until she tired of the "keep away" game we had been playing. She had county rabies tags, and a current city license tag, but no other identification.
She most likely lived nearby. She was sweet and friendly, got along with Parker just fine, and waited with us patiently for Animal Control to arrive. But then she had to go to the animal shelter, probably for the night, and her owners probably went crazy looking for her until they (one hopes) got a call from the shelter this morning. The county has no record of what dogs go with what tags; they can do nothing more than confirm the tags are authentic. The city does keep identity records, but the police do not have access to them. Only the animal shelter does, but I'm not sure how, and if they need to talk to someone at City Hall then they're going to be S.O.L. at 5:30 on a Saturday afternoon.
Look, if you own dogs, put ID tags on them. Had this little dog had a phone number on her collar, she would have gotten home probably within ten minutes. It's great that the owners had her rabies shots and city tags up to date, but come on, spend $5 at Petco or Petsmart and get a name tag made. Even microchipping isn't enough, because the shelter may not use the same system that your dog's chip uses.
Think, people: your dog does not know your phone number, and couldn't tell someone even if she knew it.
Parker is jumping for joy at the weather:
Today's temperature has already hit 21°C and it's still rising. Also of note, last night was the first night since January 12th that Chicago's temperature did not go below freezing.
In related news, Ravinia Festival has decided to reconfigure its schedule because of the 17-year cicadas that start singing at the end of May this year. The Daily Parker anxiously awaits Parker's reaction to the bugs.
The overnight low temperature in Chicago has dropped below freezing every night since January 12th. This is the longest stretch of below-freezing nights in at least seven years. It's getting really quite old.
That is all.
It seems the weather forecast was correct: The 10 am (1600 UTC) temperature at O'Hare was 2°C, the first time it's been above freezing in Chicago since January 27th, and only the third time since January 15th.
I'm going to go outside and bask in the warmth right now...
It's possible that the temperature in Chicago could go above freezing this afternoon for the first time since January 27th. This is the longest stretch of below-freezing weather we've had since I returned home in 2000. Hey, I like records as well as the next athlete, but I'm pretty tired of this one.
So I'm walking home at 8:15 pm, and I hear Civil Defense sirens. I'm just old enough to find the sound chilling. When I was a kid, CD sirens meant "tornado" or "Soviet missile attack." They sounded for about two full minutes, which I thought was gratuitious.
See, Evanston, Ill., sounded their CD sirens tonight to tell everyone to move their cars, just in case people missed the 20 cm of snow on the ground (parking restrictions take effect after 5 cm of snow).
I also found out, this storm has dropped more snow on Chicago than any other since I returned here in March 2000. As I walked home in my long underwear, thich Irish sweater, ski gloves, fleece scarf, snow boots, and heavy jacket, I thought, "you know, it's not so bad..." Not to mention, Parker is having a grand old time, though it did pain me to see him try to do his business with snow all the way to his chin.
This weather builds character, after all.
Late update: The Chicago Tribune has picked up the story.
The Bears going to the Superbowl has caused a ripple effect through Chicago karma.
I first noticed it on the train this morning. Ordinarily, an express train picks up almost a full load of people at the stop right before mine, then whisks them to the Loop, allowing the local train that follows three minutes later to pick all of us up without making us sit on each others' laps. Today, the express train apparently followed the local train, so by the time the local got to me, we were sitting on each others' laps. (It's not as fun as it sounds, actually.)
Then, it turns out I am in total agreement with a well-written statement by—wait for it—Pam Anderson:
Anderson, a staunch animal-rights activist and a vocal member of PETA, has blasted KFC for its treatment of chickens and has been part of a long-standing campaign on behalf of the feathered critters. “Honoring a man whose legacy involves breaking animals’ bones and scalding animals to death in defeathering tanks is contrary to the values of most compassionate citizens, and I hope that you’ll deny KFC’s request,” Anderson wrote in a letter to Postmaster General John E. Potter. “How about another Elvis stamp instead?”
I hope the Postmaster General agrees as well.
I'll be looking for other karmic re-balancing today, which means I'll probably find it. And I'm wondering what will happen if the Bears win on February 4th?
That's the 10th St. Beach in Miami Beach, Fla. As I write this the sun is coming up over Lake Michigan. It's just 20°C (36°F) colder there, is all.
Today's Chicago Tribune asks, "Who needs Florida?":
Balmier days are forecast to continue in Illinois over the next few days, a result of warmer air masses flowing in from the west and southwest and the effects of an El Nino year.
While no records are being broken—back in 1876 it was 65°F (18°C) on Jan. 2—temperatures in coming days are expected to remain mercifully above the historic average high of about 30°F (-1°C).
I find this funny because I'm sitting in shorts and a polo shirt by a pool surrounded by palm trees, a light 24°C (75°F) breeze cooling my sandal-clad feet, looking at Chicago's weather report, which tells me it's 1°C (33°F) back home—with a wind chill of -4°C (25°F).
I really can't answer the question "who needs Florida," but I can say the weather's a lot better here than in Chicago.