Ramifications of a tax increase

Landscape companies in the state of Illinois are at risk for a tax increase, thanks to bill amendments filed in January by State Senator Toi W. Hutchinson (D).

The amendments propose an excise tax on landscaping services in articles 20, found here and here.

“It’s just going to crush us,” says Tom Lupfer, president of Lupfer Landscaping. “Our industry makes a 5 to 10 percent profit margin. If they start adding a 5 to 10 percent tax, it’ll kill us. You just can’t compete anymore by following the rules.”

In the past, the landscape industry in Illinois has been grouped together with an unusual collection of service industries, ranging from marinas to storage facilities. However, this time the industry has been singled out in what is being called Senate Bill 9.

“It’s an amendment to Senate Bill 9 that really pulled landscaping out and says this is going to be a trade that’s going to receive an excise tax and that excise tax will be 5 percent on basically all landscape services, from maintenance to construction to snow removal to tree care to design and all points in between,” says Scott Grams, executive director with the Illinois Landscape Contractors Association. “Really everything that we do.”

Excise taxes are taxes paid when purchases are made on a specific good, and the taxes are often included in the price of the product. This means if a landscaper does a maintenance job for a specific amount, 5 percent of that amount will be taken by the state. Landscapers can either choose to keep their price the same and lose that 5 percent, or raise prices 5 percent to offset it.

These amendments came because the state of Illinois is looking for a way to bring in more revenue.

“We’ve been dancing around for half the governor’s term with these stopgap budgets that will fund the state for a few months and then all of a sudden we’re right back to where we started from,” says Grams.

Being called a grand bargain, the amendments are a package of 13 senate bills that all have to pass as one. The Republican leadership and Democrat leadership got together and decided to come up with a revenue generation model along with spending cuts to pass in bulk.

“If we do that, we all get a hit – both Democrats and Republicans alike – we get the state cooking again and the governor would sign it because obviously it would have bipartisan support and off we would go,” says Grams, explaining the reasoning behind the choice.

Senate Bill 9 is similar to service taxes found in other states, however Grams says it takes it a bit further and puts a tax on every landscape service, no matter what the size.

“The state is just simply wrong in saying other states have comparable taxes. They only charge a service tax typically on the labor and markup for maintenance,” Grams says.

According to Grams, New York gives a sales tax credit so they’re not double taxing contractors by putting a service tax on the sales tax. Wisconsin and Iowa are similar, where anything dealing with construction is not taxable other than the sales tax on the items contractors are purchasing. There’s no tax on labor and markup.

Senate Bill 9 will make contractors pay the sales tax, and also pay the service tax.

In what Grams calls “horrible ramifications” the tax will be required on all landscape services, whether it’s a $2,000 job or a $2 million-dollar job, resulting in many companies needing to raise their prices in a competitive market. Lupfer says this increased tax rate could end up costing landscapers their customers, because it will create a push to the black market.

He says companies will have to rise their costs in order to meet that tax requirement. Companies that don’t pay taxes, workers’ compensation and unemployment are going to keep their prices artificially low, and customers are going to choose those proposals instead.

“If you’re making 7 percent, the government wants five of that,” Lupfer says. “It’s going to encourage legitimate businesses to go illegal.”

For landscapers in the area concerned about the bill, ILCA is urging them to be as politically active as possible.

“This is a shaky deal, it just needs a couple industries to push it over the edge,” Grams says.

ILCA is asking companies to call their representatives and tell them stories of how the tax will affect their business.

“I think sometimes people think Washington doesn’t listen, so therefore Springfield doesn’t listen,” says Grams. “Sending a contribution check, writing a letter, showing up to a public meeting… those things go a long way. Landscape contractors should not assume their voice will not be heard in Illinois.”