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Thursday, Dec. 6, 2012 08:03 pm

Tax transparency or competition killer?

Senate passes corporate tax disclosure bill

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Illinois Senate President John Cullerton, D-Chicago, said two-thirds of businesses in Illinois don’t pay income taxes. His chamber narrowly passed a bill to disclose tax information of publicly traded corporation in Illinois.
PHOTO BY PATRICK YEAGLE

Illinois would make public the tax data of publicly traded companies under a bill passed by the state Senate last week, but business interests say the move would put some companies at a competitive disadvantage.

Prompted by the state’s budget crisis, the bill could be used as justification to revise Illinois’ corporate tax code if too many companies are deemed to have not paid enough in taxes.

Senate Bill 282 narrowly passed the Senate by a vote of 30-27 on Nov. 28, but it must still face a House vote and obtain the signature of Gov. Pat Quinn before becoming law. The Senate vote was mostly along party lines, with every Republican senator opposing the bill and all but a handful of Democrats supporting it.

The bill would disclose a qualifying company’s tax liability before and after deductions, what deductions are claimed, and more, though that information would not become public until two years after filing.

Citing data from the Illinois Department of Revenue, Senate President John Cullerton, D-Chicago, said in a public hearing on Nov. 27 that two-thirds of Illinois businesses don’t pay any state income taxes. While he acknowledged that certain companies are legally exempt from income taxes, he said the state needs more information about how much in taxes companies pay and whether businesses are exploiting loopholes.

“We don’t know why it is that two-thirds of (corporations) don’t pay anything,” Cullerton said. “So what we’re asking for is really pretty sensible.”

Cullerton noted that the state gave away lucrative tax incentives last year to companies like the Chicago-based CME Group without verifiable data regarding the companies’ tax liability. CME claimed to pay the most taxes of any company in Illinois, Cullerton said, but lawmakers had no legal way of verifying that claim or understanding whether the incentive package CME requested was actually necessary to keep the company from moving to another state.

“The legislators who are going to make decisions about our taxes have to have this information,” Cullerton said.

Todd Maisch, vice president of government affairs for the Illinois Chamber of Commerce, said it’s not surprising that many companies don’t currently pay income tax because of falling revenues during the economic recession. He said releasing corporate tax records could lead to incorrect conclusions because corporations can be structured in many different ways.

“You do have complex corporate structures in which one corporation takes on a whole lot of debt but a related corporation is more profitable,” Maisch says. “You’re not going to go ahead and understand the interaction between these complex corporate structures, and there’s potential for there to be an inflated number of corporations reporting zero tax liability.”

Rev. Tony Pierce, board president of the Bloomington-based Illinois People’s Action, said some businesses don’t pay their fair share of taxes. Pierce spoke in favor of the bill at the hearing on Nov. 27.

“The ordinary people bear a disproportionate burden for investments in the common good,” Pierce said. “The poor, the sick and the elderly are required to make sacrifices they simply cannot afford.”

Mark Denzler, vice president and COO of the Illinois Manufacturers’ Association, said IMA opposes the bill because it would disclose sensitive information and give certain companies an unfair advantage, despite a two-year disclosure delay built into the legislation.

“The overwhelming problem is that tax information is proprietary and confidential information,” Denzler said. “Companies are planning more than two years down the road. Someone may look at a cash position, they may look at (tax) credits, and it may be indicative of which way a company is moving, if they’re making investments or not making investments.”

Cullerton discounted the notion that disclosing tax information would harm businesses.

“I do not view this as being business-unfriendly,” Cullerton said. “I view this as being transparent; informing the legislature about what businesses are doing. Nobody’s going to leave the state because we pass this law. If they did that, they wouldn’t be doing any business here. We’re not going to, in any way, unduly burden them.”

Denzler questioned whether the legislature is truly interested in transparency, saving that accounting firms and law firms are exempt from disclosure.

Correction: A previous version of this story stated that  the bill does not appear to specifically exempt those businesses. That was incorrect. The bill exempts "personal service corporations," which include accounting firms and law firms.

“If they’re publicly traded corporations, why aren’t (lawmakers) seeking that information,” Denzler said. “If transparency is a good idea, why isn’t it required for all businesses and why isn’t it required for every taxpayer in Illinois? Start with the legislators. Legislators are voting on public policy. Shouldn’t the public then have the right to know their tax information and what they’re voting on?”

Rep. Barbara Flynn Currie, D-Chicago, who sponsors the bill in the House, says it’s a precursor to tax reform in Illinois.

“Right now we’re having the same discussion at the federal level,” Currie said. “Is it a loophole? Is it a legitimate deduction? … I think when we get information about who is taking what exemptions and so forth and how it affects their bottom line, we’ll be in a better position to make tax policy.”

Contact Patrick Yeagle at pyeagle@illinoistimes.com.

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