Illinois' state budget calls for high taxes

SPRINGFIELD, Ill. (AP) — The $53.1 billion state budget that Illinois Gov. JB Pritzker signed into law this month features increased spending, something Republican critics were quick to point out.

But Pritzker and the Democrats in the House who presented him with the budget for the year that begins July 1 say it is balanced and responsible. While it will add about $1.2 billion in new taxes, supporters say the taxes will not put a big dent in private pocketbooks.

“There were no tax increases or revenue increases at the expense of ordinary taxpayers,” said Democratic Sen. Elgie Sims of Chicago, one of the budget negotiators. “What you saw was a recognition of the explosion of the industry and a certain parity, particularly with regard to the sports betting industry.”

Sims also pointed to the budget's tax breaks. The personal income tax exemption will increase from $2,425 to $2,775 for 2024. The 1% sales tax on groceries will be eliminated in 2026. And there is a new child tax credit for low-income families. People with at least one child under the age of 12 are eligible for the tax credit, which is 20% of the Earned Income Tax Credit, and 40% next year.

Here are the most important tax changes:

Sports betting tax – $200 million

Sports betting taxes are increasing from a flat 15% to a graduated scale. There are now five different tiers, ranging from 20% on adjusted gross revenues of less than $30 million to 40% on gross revenues of over $200 million.

Representatives of sports betting operators have raised the possibility of leaving the state rather than accept the increased fees, but Pritzker cast doubt on that possibility when questioned in Chicago. The tax in New York, he said, is a maximum of 51%.

“They're not leaving New York and they're not leaving the other states,” Pritzker said. “We had a much lower tax rate than many of the largest of those markets. And we're kind of adjusting more, but at a lower rate.”

The operating loss is limited to $526 million

Businesses can only deduct up to $500,000 in business losses in a given year. However, they can deduct these losses over a 15-year period.

The plan expires in three years, but that is little consolation for the economy. Budget writers launched the plan six years ago, but with a $100,000 cap. That plan, too, was designed to last three years, as was the three-year plan that replaced it.

“It's $500,000. That's better than $100,000. But we wish it was unlimited,” said Mark Denzler, president and CEO of the Illinois Manufacturers' Association. “We wish we could go back to where we were.”

Video game tax increase – $35 million

Revenue from video gaming terminals was taxed at 34%, with 29% going to the state for construction projects and 5% going to municipalities. The new law increases the tax to 35%, with the difference of 1% going to state construction projects.

Sales tax for remote sellers – $400 million

This is a boon for local cities and counties that collect their own sales taxes.

If a retailer fulfilling a remote order (typically online) must ship the merchandise from an out-of-state location, the retailer must now collect not only the 6.25% state sales tax, but also any local option taxes that apply at the shipment's destination.

“You pay for it on Main Street; you might as well pay for it when you click 'shop' from home,” said Brad Cole, CEO of the Illinois Municipal League.

Almost 500 municipalities levy a local sales tax, which averages about 2%.

Retail discounts limited to $101 million

In addition to local taxes, retailers must also collect the 6.25% state sales tax on their purchases. They are allowed to keep 1.75% to cover administrative costs. The new law caps this rebate at $1,000 per month starting January 1, 2025.

In return, lawmakers have limited the amount of fees credit card companies can charge on the sales tax portion of a transaction – which most stores pay for customers – and expanded the types of treatments and vaccinations that pharmacists can administer.

Hotel tax for re-renters – $25 million

Online hotel providers who buy hotel room blocks, sometimes at a discount, and resell them at a markup must now collect state hotel tax on the difference. Previously, they only paid tax on the price the hotel originally charged.

Leasing stream – $20 million

Sales tax will now be charged on the rental of real estate. Under the old law, these taxes were paid when the person purchased the property they wanted to rent. The new provision exempts some cases in Chicago that are subject to a local rental tax enacted before 2023.

Anna Harden

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