Mt. Vernon Register-News

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March 11, 2013

Closer Look: Business decries Quinn loophole plan

(Continued)

It's a philosophy that Quinn has espoused previously. Just over a year ago, he signed legislation providing $100 million in incentives to prevent Sears and the corporation that runs the Chicago Mercantile Exchange and the Chicago Board of Trade from leaving the state.

On Sunday, he told The Associated Press that those breaks were different, because they saved thousands of jobs. But suspending tax breaks now is "the way to go," he said.

How temporary the proposed tax-break suspension would be also is a question, given the enormity of the state's financial problem.

Incentives can be a blessing or a curse, said Josh Goodman, a senior associate focusing on state tax incentives for the Pew Charitable Trusts. He said it's crucial for states to conduct a "rigorous analysis" of their economic-development tax breaks to see if they're doing what they're supposed to.

The biggest chunk of money from Quinn's plan — $320 million — would come from an Illinois tax on foreign profits paid as dividends to U.S. parent companies of multinational corporations. But it would also tax dividends paid by U.S. subsidiaries of companies doing business in Illinois and business leaders say it would be a penalty because the companion companies would pay tax on profits twice.

In 1992, the U.S. Supreme Court invalidated taxing foreign dividends by ruling that Iowa was not taxing domestic dividends the same way. But Quinn's plan would put a tax on domestic dividends, too — even from subsidiaries within Illinois. Maisch said that is even worse, because an Illinois subsidiary would pay tax on its profits, then pay tax again when it turns over some of that profit in dividends to the parent company.

In a second measure, Quinn would raise $100 million by eliminating a link between the state tax code and a federal law that allows tax deductions for "production activities" that Illinois-based companies move to other states. The business community argues the law encourages job creation in the U.S.; Quinn administration officials ask why Illinois tax revenue should suffer for production that occurs elsewhere.

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