Legislative Action By GARY ADKINS Corporate personal property tax THE General Assembly received two demands from voters in the November 7 general election: put a lid on spending and taxes, and find a replacement for the corporate personal property tax. The spending and tax controls were requested by 82 per cent of the electorate in the nonbinding referendum, the "Thompson proposition." The replacement tax for business, however, is required by the Illinois Constitution in Article IX, section 5(c). The proposed amendment to repeal the January 1, 1979 deadline for replacement of the tax, apparently failed to be ratified by the necessary three-fifths of those voting on the question or a majority of those voting in the general election. The unofficial tabulation of the vote on the proposed amendment showed it narrowly missing ratification. If the official canvass shows the proposed amendment has failed, the General Assembly will be under immediate pressure to replace the corporate personal property tax with some type or types of replacement taxes on business. The General Assembly has been unable to solve this replacement tax problem since the 1970 Constitution went into effect. The legislature put the proposed amendment on the ballot in hopes it would pass and in effect let the personal property tax on business remain as it is. The Constitution calls for the personal property tax which is applied to corporations, partnerships, estates and trusts, to be removed by January 1, 1979, and for the General Assembly to replace the tax with a different statewide tax on "those classes relieved of paying ad valorem personal property taxes." The section also clearly states that no replacement taxes are to be imposed on real estate or on individuals. Yet the business community and the political establishment could not devise a workable replacement for the admittedly unfair and unevenly administered personal property tax. Some said the tax took unfair and unrealistic advantage of businesses and corporations that needed to maintain large inventories — whether or not their profits were large. Others charged that statewide collection of the tax varied widely from county to county. Some counties in fact managed to collect only half of the revenues the tax was supposed to produce. Meanwhile, the tax was difficult to administer. Some corporations ignored it or filed legal challenges on the assessment rates. Some ended up evading it or paying only a portion of their full amount each year. According to critics, the tax "is subject to pressures, manipulations, corruption and evasion. This places an undue burden on taxpayers who pay their taxes and fosters disrespect for the entire system."
Those in favor of repealing the January 1, 1979 deadline for replacement were, in effect, in favor of retaining the tax, preferring a known business expense to nebulous alternatives. The Illinois Chamber of Commerce arguing in support of retention said that "any increased taxes which might result from a replacement tax scheme would ultimately be passed on to consumers." Other Illinois groups in favor of retaining the tax included the Agriculture Association, the Association of School Boards, the Coal Association, the Manufacturers' Association, the State Medical Society, the Society of Professional Engineers and the Township Officials of Illinois. These groups formed a Committee Against Replacement Taxes, which ran a $46,000 campaign to pass the proposed amendment. Committee Coordinator Richard Lockhart said in October, "If we win it'll be a minor miracle, because of the form of the ballot gibberish, and the requirement that three-fifths of those voting on the issue or a majority of those voting in the election must approve." The Illinois Retail Merchants Association, however, fought against the constitutional amendment. Association President Hugh Muncy said retail merchants rely on high inventories which are especially hard hit by the personal property tax. He said, "Everyone has agreed through the years that this is a bad tax. All major business groups asked during the Constitutional Convention that personal property taxes be finally eliminated." The Retail Merchants Association has supported a replacement income tax as defined in H.B. 2418, sponsored by the House Committee on Revenue. It would set a 2 1/2 per cent income tax on corporations other than railroads, a 1 1/2 per cent income tax on partnerships, associations, estates and trusts (other than those presently exempt) and a 1 1/2 per cent tax on gas retailers and suppliers of electricity and businesses transmitting messages. The plan passed the House 117-9 last May, but it was, seen by many as only a tool for possible compromise. But a solution must be found now, or $400 million in revenues to local governments will be lost. Experts say that despite the January 1 deadline, lawmakers actually have until June 30,1979 to find a replacement tax since the taxes, assessed in 1978 are payable in 1979 and any new tax won't be assessed until
28/December 1978/Illinois Issues 1979. But others predict that lawsuits are inevitable from businesses protesting the tax. The court has not been absolutely specific on whether the abolition of the tax and the replacement of the tax must be concurrent. Businesses may contend that the tax is abolished as of January 1, 1979, even if no replacement tax is in effect. If lawsuits tie up the tax because the General Assembly has not replaced it, school districts, city and county governments and other taxing districts will be left woefully short of funds. Fortunately, 1978 property tax assessments are payable in 1979. "If they [the legislators] don't replace it by then, the Illinois Supreme Court will probably extend the personal property tax another year," according to Douglas L. Whitley, president of the Taxpayers Federation of Illinois. Finally, a blockbuster class action suit is now pending in the Chancery Division of the Cook County Circuit Court, seeking to require collection of millions of dollars in personal property taxes on pension and profit sharing trust funds. Such funds have been exempt from the tax since 1965 under a section of the state revenue act (Ill. Rev. Stat., 1977, Ch. 120, sec. 500.22). However, plaintiffs in Helson v. Rosewell claim that the section is in conflict with both the state and federal constitutions. It exempts "intangible personal property belonging to trusts or funds created and maintained for the purpose of paying pensions or retirement, disability, illness, death or unemployment benefits to the employees of one or more employers, to employees and self-employed persons or to their families or beneficiaries." Plaintiffs want such trusts to pay back taxes on billions of dollars kept in trustee banks in Cook County. The case will likely be appealed whatever the outcome, thereby setting a precedent for the entire statewide system of township and county tax assessment. The suit could provide tens of millions in revenue, to local taxing districts, could cost hundreds of bank trust officers their jobs and force billions of dollars in trust investments out of the state. It could also upset the income of untold numbers of pension recipients. Many believe, however, that the suit was filed for political reasons and may eventually be dropped. December 1978/Illinois Issues/29
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