Why don't some Illinois Businesses Pay Income Tax? Reasons will vary from company to company, but typically taxes are reduced or eliminated as a result of one or more of the following factors. Multi-national and multi-state businesses that are headquartered in Illinois or that have operating facilities here may not constitutionally be taxed on income earned in other states and other countries. Illinois may only include in the corporate income tax base income earned from sales of goods and services in Illinois. A company may be profitable in other states or countries, but still operate in Illinois at a loss. Income tax laws at the federal and state level allow businesses to deduct net operating losses over a period of years because business revenues don't always fall in the same tax year with related business expenditures. Substantial investment in capital equipment in one tax year can lead to increased profits in subsequent years and the tax code lets you subtract the cost of those earlier investments from the profit earned in the later years. That's why some businesses may have a profitable year but pay little or no corporate income tax. The corporate income tax allows deductions for costs of doing business before computing income to be taxed. As the cost to do business in Illinois increases through increased taxes, fees, workers compensation costs, unemployment insurance, increased minimum wage laws, increased costs of health insurance, etc. there is less profit to be taxed. The overall cost of doing business in Illinois is considered high as compared to other states. The state encourages investment in certain activities that promote economic development in the state by creating tax credits which reduce a company's income tax if they make capital investments or create jobs in under-developed areas. Businesses are more likely to locate in these under-developed areas if the extra development and wage costs are offset by tax credits. The state ultimately profits from the increased number of jobs and the profits earned when the companies are fully operational. Similarly, the state encourages activities that will help Illinois businesses grow and prosper in the future by providing tax credits for things like research and development of new products and services, and employee training to keep the Illinois workforce globally competitive. All “c corporations” pay the state’s franchise tax which is a maximum $2 million each year. Even if one were to accept the Governor’s flawed analysis of corporate taxpayers, the extent of the issue is roughly $550 million (37% of total $1.6 billion from corporate income tax receipts in 2006). Who pays the other $5.5 billion of the Governor’s GRT proposal? Consumers and their taxpaying employers.