Black business and the gross receipts tax

Last week we saw the Governor rally support amongst black religious leadership. It seems obvious that at said press conference the ministers are for this tax-fairness plan and the Governor's programs for affordable health care and education. We see one segment of this population what about those blacks who owns businesses.

Well for the most part I saw opposition. Unfortunately no group is totally monolithic since I see that the governor has the support of another group of black business owners...

“The Illinois State Black Chamber of Commerce and its membership embraces the ideas of the Governor's plan to invest in Illinois families by providing access to affordable healthcare for small businesses and all Illinois residents, increasing funding for our schools, and creating a tax system that is fair for businesses and families alike. The State Black Chamber of Commerce agrees with the Governor that ‘the need is clear and the time is now,’ and that is why we are committed to working with the Governor's office to get the General Assembly's support so that we may create a fair and equitable system that levels the playing field, reduces the burden on middle class families, helps small and mid-size businesses become more competitive and lessens the tax burden on all Illinois residents,” Illinois State Black Chamber of Commerce President/CEO Larry Ivory said.

OK but what are those opposed to the tax fairness plan are saying anyway? From Crain's...

While ABLE formally decided to further review the matter and to examine a possible “alternative solution” to the state’s financial needs, President Hermene Hartman says the organization in fact opposes the proposal.

“We appreciate the governor’s desire to close corporate loopholes” in the existing tax structure, said Ms. Hartman, CEO and publisher of the Hartman Publishing Group, which produces N’Digo and Savoy magazines. “But making all business pay for the loopholes when we didn’t benefit from them is a mistake.”

Ms. Hartman is even more direct in a column posted on N’Digo’s Web site, which says passage of Gov. Blagojevich’s proposal as written will mean “the end of the entrepreneur” in Illinois.

Hmmm, what about this column by Hermene Hartman? Well here's a little taste of what she said in the aformentioned column...

The thought is that there are corporate tax loopholes favoring big business, so much to the point that some of the largest companies in that state are tax-exempt. The gross receipts bill is an attempt to correct that, and indeed it should. The tax excludes small business with revenues of $1 million or less. This sector represents the cottage industry, personality businesses, and ma and pa shops. These types of businesses usually do not employ more than three people. Everybody else pays.

The state has redefined “small business.” What happens to federal regulations that define small business? For the most part, small business is under $50 million or has “size standards.” Most businesses under a million in revenues do not hire, and are very small operations. The governor’s bill hurts small business enterprises that hire most employees and represent the fastest growing business sector.

For every million dollar for a professional service business, the proposal asks for 1.8 percent of gross receipts. That represents $18,000 per million. This is unfair. Essentially some companies will pay taxes on monies that might be passed through.
...
The entrepreneur is a special case, and I should hope along the way there is a separation between the entrepreneur business and the corporate business. There is a drastic dynamic distinction to be made. The entrepreneur is a small business working on his own steam, and is usually a niche type business with limited resources, bootstrap strategies, and in the case of the minority, limited access to working capital.

The comparisons are limiting. Why should the local neighborhood grocery store pay the same taxes as Jewel and Dominick’s? The small grocery will probably never grow to the heights of the Jewel. Why should the small boutique business be charged the same tax as the Michigan Avenue super store?

The point is, they shouldn’t. It is an unfair business comparison and an unfair business tax.

If this tax is passed in its present state, it is the end of the entrepreneur. The concept of small business needs to be reconsidered. A consideration should be given to grading business — small business, entrepreneur, corporate, and mega businesses. The margins of these businesses are drastically different. It is one thing for the Wal-Marts of the world to have a 5 percent margin, and another for the small grocer to have a 5 percent margin.

Entrepreneurs, as they exist in the State of Illinois, are on the way to extinction if this tax is enforced as it is currently stated. By the time you pay income tax, state tax, federal tax and payroll taxes, it just isn’t worth it. The entrepreneur’s operation is stifled, and literally the various governments become hidden business partners that most do not want.

Entrepreneurs are literally going to be penalized for being in business. It is unfair for the government to place the schools and health industry on one sector of society — the business community.

So she is going to bat for the entrepreneur here. And these are good points, but take a look at her recommendation and that includes raising the income tax. An income tax that she says hasn't been raised in 40 years...

Bite the bullet. Increase income taxes 1 percent for all citizens. This is the fairest tax of them all.

People who have children in school should be taxed differently than those who
have no children.

Tax businesses based on size.

Graduate the taxes by considering size of standards. Tax big businesses differently than entrepreneurs, different than small businesses, different than professional services.

Eliminate taxes. If you are paying gross receipts taxes, eliminate other taxes.

Equalize state business. Minority businesses receive a fraction of state business and should be taxed accordingly.

Minority businesses should be taxed based on opportunity in the market place, and with a formula access to capital.

Small businesses should be exempt from taxes for the first five years of existence.

Have business people assess government waste to improve efficiency, and perhaps there would be a need to increase taxes.

Have the gross tax receipt deductible from federal taxes.

I think these points right here are some good points for discussion. I hear a lot of bellyaching perhaps we can look at some alternatives.

Addendum: More information from that Crain's article...

But business groups generally have charged that the governor’s proposal instead will hurt them by raising costs too high, and many comments at the March 15 ABLE meeting were in that vein.

For instance, according to a copy of meeting minutes, Leon Finney of the Woodlawn Organization said his and many other black-owned companies would be directly affected by the new levy and that the state perhaps should look for another way to raise money.

“The tax provokes a certain amount of concern,” Mr. Finney confirmed in a subsequent interview. “It’s small companies that provide most of the jobs that drive our economy. . . .We agree with the goals that the governor set (for schools and health insurance). The question is, how do you get there.”

Becky Carroll, Gov. Blagojevich’s deputy chief of staff and spokeswoman on budget matters, conceded that ABLE gave the governor’s plan a “mixed reaction,” but said that it indicates “a willingness to learn more about the plan before making any rash decisions.”