Illinois Gov. Pat Quinn said Wednesday he would immediately sign the personal income and business tax increases approved by the state’s General Assembly in the early morning the same day.
Democrats in control of the state legislature voted to temporarily increase personal income taxes from 3 percent to 5 percent, a 66-percent increase. Business taxes would go from 4.8 percent to 7 percent after Quinn, also a Democrat, signs the bill.
Illinois has one of the country’s lowest flat tax rates and according to the Illinois Policy Institute; job losses from the tax rate increase could exceed 100,000. The increase will make the state one of the highest tax burdened states by capita.
Also on the docket was a cigarette tax that would have raised cigarette prices by $1.01 per pack. The bill was not passed by the House of Representatives, but is still alive for later consideration.
“The reason we had to do this is because we had a fiscal emergency. Our house was burning. Our fiscal house was burning,” Quinn said.
Seeing the tax increase through the General Assembly was probably Quinn’s biggest legislative success since taking office 24 months ago, but the public outcry was immediate and loud with Republican governors from surrounding states soon began to efforts to attract businesses away from Illinois.
“It’s like living next door to `The Simpsons’ — you know, the dysfunctional family down the block,” Indiana Gov. Mitch Daniels said in a radio interview.
Republicans within Illinois were equally dismayed.
“It defies common sense that when faced with high unemployment and a distressed economy, our state would pass a tax hike that will keep companies from locating here and encouraging existing employers to consider a move across our borders,” Republican state Comptroller Judy Baar Topinka said.
Chicago Mayor Richard Daley said while the state is indeed in desperate need of revenue, fellow Democrats should have made budget cuts before passing the tax increase.
“Some way, they really believe that the taxpayers of Illinois have a lot of money in their pockets, and they’re gonna spend it,” Daley said.
The National Taxpayers Union, NTU, State Government Affairs Manager John Stephenson describes the personal and business income tax hike as reckless and self-defeating. Increased tax hikes reduce spending and cost employee’s jobs.
Last week, lawmakers in the state of Illinois voted and passed Internet Tax Bill HB 3659. It is currently waiting for Quinn’s signature. Under the new Illinois online tax websites engaged in the business of “affiliate marketing”, the practice of promoting another website’s products under a referral agreement states that an out-of-state online retailer will have to begin collecting sales and use taxes on purchases.
Under a 1992 U.S. Supreme Court precedent, internet sales tax is only subject to local residents purchasing from business with physical presence within the given state. Illinois is circumventing the decision. As the precedent states, an internet purchase made from an in-state business by a local resident, the consumer is subject to the state’s sales tax. If a company physically located outside of the state, such as Amazon sells a book to the out-of-state resident, the sales tax would not apply.
Leading online retailer, Amazon has closed its affiliate marketing relations with Colorado, Rhode Island, and North Carolina states after internet tax laws passed in those states. A company directly affected is Fatwallet, one of the largest affiliate marketing companies in Illinois and has donated more than $250,000 to local communities.