Michelle Davis does not want to relive the drop-off in business she saw in 2008, but she fears she will if Illinois imposes a tax on services done by her dry cleaning business.
“Oh my goodness, did we take a hit in 2008,” Davis said. “I hope we don’t ever have business drop off the way it did. That was a scary time.”
Davis, who owns three dry cleaning stores in Springfield, said when the market crashed. people were money conscious and stopped using her dry cleaning services.
With the Illinois state budget being a topic of discussion, consumer service business owners, like Davis, are aware of the impact Senate Bill 3449, which includes service tax, could have if it were to become a law.
“We don’t sell any goods; we’re all labor,” Davis said. “So that tax will really impact us because those are services everybody uses. How much extra money can you find to do those things on a regular basis?”
Davis said this tax, which would apply to consumer services such as haircuts, massages, gym memberships and dry cleaning, would be noticed by customers.
Richard Heltzel, valuation service manager for The Accurate Group, said he and his colleagues get their clothes dry cleaned monthly at Kenny the Kleener in Chicago’s Rogers Park neighborhood and would notice if the cost rose.
“If they raise the cost we’re going to look at the value of [the service],” Heltzel said. “I would probably be less inclined to buy dry clean only clothes.”
Ralph Martire, executive director of the Center for Tax and Budget Accountability, said consumers would not notice the service tax because it would be an expansion on the sales tax — a detail nobody looks at on a receipt.
Illinois taxes 17 of 173 service categories — the narrowest base of all but four other states in the nation, according to the Center for Tax and Budget Accountability.
Martire, who has worked toward “sales tax base expansion” for seven years, said taxing these services would be a revenue source Illinois has been missing.
“Consumer services are the largest and fastest growing part of the economy,” Martire said. “[Service tax] needs to be done from a good public policy standpoint.”
Martire said consumer services make up about 70 percent of the state’s revenue growth and could generate around $2 to $3.5 billion.
“The primary reason is bad tax policy, not over spending,” Martire said about Illinois’ bad financial conditions.
While Martire said this tax would not apply to business-to-business, medical or financial services, Mark Grant, assistant state director of the Illinois National Federation of Independent Business, said it would affect small businesses.
“Our members are opposed, so we are extraordinarily opposed to it,” Grant said about the “tax on a tax” issue.
Todd Maisch, executive vice president of the Illinois Chamber of Commerce, agreed.
“If you tax business services you create a pyramid effect because you have a tax on the product and on the service,” Maisch said. “But ultimately if you don’t return to better economic growth we’re going to be in this situation for a long, long time.”
While Gov. Pat Quinn’s office did not comment on whether service tax would be expanded, Quinn’s budget address is set for March 26.