Dan Rutherford

SPRINGFIELD - Moviegoers at places like Kerasotes Naperville Showplace 16 and other multiplexes across the suburbs don't get hit with the state's sales tax when catching a flick, just one of the myriad services Illinois chooses not to tax.

But a new report issued Friday from state economic officials illustrates how the service industry has increasingly become the economic engine of Illinois and suggests there's perhaps more than $7 billion a year to be had if it were taxed the same as other purchases.

Currently, Illinois does not apply its 6.25 percent sales tax to the vast majority of services purchased. For instance, someone getting a muffler replaced pays sales tax on the muffler but not the labor to install it.

At the same time, Illinois' economy has become far more service-oriented. Service industries accounted for $167 billion or 41.3 percent of the state's $404 billion economy in 1997. By 2007, it had grown to 43.9 percent of the state's $617 billion economy, tops among Great Lakes states. Ohio's second at 39.1 percent.

Officials at the General Assembly's Commission on Government Forecasting and Accountability chalk the difference up to the increased importance of the financial, insurance, technical and information service industries here and note that Illinois' service sector continues to grow.

But unlike most other states, Illinois has refrained from taxing those services.

The report came as the commission also published its monthly economic update, showing personal income tax collections in August were down 8.4 percent - or $58 million - compared to August 2008. Corporate income taxes were down 20 percent from last August and sales tax collections were off 11.5 percent.

For years, tax advocates have warned that Illinois' tax system is antiquated and no longer reflects the modern economy. They've urged the sales tax be applied to services.

"It's the only way you design a tax system to work in a modern capitalistic economy," said Ralph Martire, executive director of the Chicago-based Center for Tax and Budget Accountability. "If you tax where your economy is declining, it won't work. You really need it to respond to where the growth is."

Martire's take is Illinois has a high tax on a very narrow base. If it expanded the tax base it could reduce the rates and still bring in more money.

That's easier said than done.

Proposals to tax services have gained little support in recent years and have proven to be easy political targets. This spring, the Illinois Senate proposed a sweeping new tax structure to help balance the state budget, including taxing numerous services like bowling, dog grooming, Cubs, Sox and Bears tickets, and even getting a date.

The plan narrowly passed the Senate in May on the strength of Democratic votes, but it was never called for a vote in the House, presumably because it lacked support.

Gov. Pat Quinn supported the idea and his intraparty rival, state Comptroller Dan Hynes, recently proposed his own budget plan that includes taxing some "luxury" services including elective cosmetic surgery, tanning, memberships in private clubs and limo service.

Still, as the state's economic forecasters point out, it's pretty easy to build opposition to these types of taxes, because each has its own industry and it's usually not too hard for them to find a sympathetic public when it comes to talk of making haircuts, bowling, funerals and trips to the vet more expensive.

No Republicans voted for the tax plans put forth during lawmakers' spring session and the GOP contenders for governor have assailed continued talk of higher taxes.

Democratic leaders have said they expect tax policy to be a top priority when a new session starts up in January, but political observers say a February primary and looming 2010 election season are likely to make tax increases increasingly untouchable.

"Politically," said Mike Lawrence, former top media aide to Republican Gov. Jim Edgar, "there's never a good time to raise taxes."

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