How the state is taking local sales tax money
Many suburbs will find their coffers a little light this month.
That's because towns with local sales taxes are getting 2 percent less from the state than they're used to, beginning with monthly disbursements set to be issued this week. That's as much as $35,000 a month less in Schaumburg or as little as $30 a month less in Sleepy Hollow, according to a Daily Herald analysis of last year's local sales tax receipts.
The new fee the Illinois Department of Revenue is charging for collecting and distributing local sales and use taxes will take an estimated $47.7 million from 64 suburbs, Cook and the five collar counties, and the Regional Transportation Authority by the end of the state's next fiscal year in June 2018, according to the analysis.
That's roughly 75 percent of the nearly $64 million expected to be collected statewide.
Essentially, a week's worth of all local sales taxes collected each year by the state will be kept by the Illinois Department of Revenue under the policy that was included in the recently approved Illinois budget. The estimates are based on tax collection data reported on the IDOR website from July 2016 through June 2017 and distributed two months later.
Local leaders say the state's new fee leaves a hole in their budgets. Most didn't find out about the fee until well after the budget had passed in early July. Nearly 20 suburbs stand to lose more than $100,000 apiece because of the fee.
“It's unfortunate to see this loss of revenue,” said Molly Center, an Elgin spokeswoman who said the city council will be discussing ways to make up the anticipated loss of $225,000 during budget discussions in November.
The Department of Revenue had championed such fees for years. It pursued legislation to impose the fee several times in the past.
Terry Horstman, an IDOR spokesman, said the new revenue will go to modifying and maintaining the computer system, processing collections, coordinating refunds and distributing the taxes. Other states charge similar fees of between 0.5 percent and 3 percent, he said.
“If local governments choose to administer these taxes themselves, they would incur the costs associated with the administration,” he said.
The fee is expected to give the state more than $23 million from the RTA tax alone. Meanwhile, Cook County is anticipating a loss of more than $16.2 million in sales tax.
“We were somewhat taken aback that the budget deal would have a revenue impact on local governments such as Cook County,” said Frank Shuftan, Cook County Board President Toni Preckwinkle's spokesman. “Note that we collect property taxes for local governments ... but do not charge any service fee like the state is now imposing.”
Besides sales taxes, the fee hits suburban counties' share of the RTA tax as well. That means DuPage, Kane, Lake, McHenry and Will counties stand to lose an estimated $2.6 million this year combined. DuPage County's share alone is more than $1 million.
Many county officials are upset by the fee.
“I disagree with their definition of ‘fee,' because a fee has a corresponding cost, and we have seen nothing that it costs the state $1 million to collect and distribute this tax,” said Paul Fichtner, chairman of the DuPage County Board's finance committee. “It's really just their way of filling the state's budget gap.”
State Rep. David Harris, an Arlington Heights Republican who was one of the few to break ranks with the party and vote in favor of the budget, said such fees are “not uncommon.”
The department already charges similar fees on the collection of a variety of other local taxes like auto rentals, motor fuel and business district taxes. In fact, Harris noted, retailers get to keep 1.75 percent of all sales taxes as an administrative fee for collecting that tax for the state.
“The idea of covering the administrative costs of the collection of the fee is not unusual,” Harris said. “It's one of the elements of the budget I wasn't happy about, but I felt the overall budget was important enough to pass it.”
Local officials complained the new fee is another example of the state's reliance on siphoning money away from municipalities and counties. Fichtner said the fee is similar to how all of the new revenue generated from a 32 percent increase in the state's individual income tax is going to the state this year and possibly in the future as well.
“And our residents are taking a double hit because of it,” he said.
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