Dan Rutherford

SPRINGFIELD – A new study says taxing services such as haircuts, plumbing repairs and storage facilities could generate more than $7 billion for Illinois’ depleted budget.

The Commission on Government Forecasting and Accountability, which provides revenue forecasts for the General Assembly, estimates that up to 100,000 businesses could be affected by adding such a tax, which are used in other states, but are sparingly deployed in Illinois.

The study, released a day after Gov. Pat Quinn began moving to lay off 2,600 state workers to help close a budget gap, acknowledges there are major hurdles standing in the way of taxing services.

“Groups such as the United States Chamber of Commerce would most likely be against this type of tax,” the study notes.

The idea of imposing taxes on services has gained some traction in Springfield in recent months as Quinn and lawmakers have scrambled to close a major budget gap.

In May, the Democrat-controlled Senate approved a plan to boost the state income tax rate by 67 percent – from 3 percent to 5 percent – as well as impose a 6.25 percent tax on a number of services.

The measure did not advance in the House.

Earlier this week, Comptroller Dan Hynes proposed adding a service tax for items he says are luxuries, including pet grooming, limousine services and health clubs.

Hynes, who is seeking the Democratic gubernatorial nomination in the 2010 election, estimates his limited approach could generate $360 million.

The report puts the potential jackpot at a much higher level.

A broad-based analysis pegs the potential income at $7.3 billion. Taxing a more limited number of services at a 6.25 percent rate would bring in about $3.6 billion, the report found.

The study cites dozens of potential services that could be taxed, including pinball machines, parking garages, downloaded books, bowling alleys, dentists and movie tickets.

Supporters of service taxes argue that the state has a more service-oriented economy than it did when current tax policies were adopted. The state mainly relies on income and sales taxes to operate.

According to the report, the service sector accounted for about 32 percent of the Illinois economy in 1977, compared to about 44 percent of the economy two decades later.

Illinois also lags other states when it comes to imposing taxes on services. For instance, the report notes that Illinois taxes 17 services, compared to 160 in Hawaii and 158 in Washington and New Mexico.

Lawmakers, who are now in the midst of launching their re-election campaigns, aren’t scheduled to return to the Capitol until October.

The report notes that opponents believe any additional tax “is still onerous on the taxpayer, especially during periods of recession.”

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