Illinois collects 2 percent fee on local sales taxes
When people pay sales tax for local uses such as flood protection and public transportation, a cut of the revenue is now staying with the state.
Local municipalities have been losing out on sales tax revenue because of a state administrative fee that went into place in August of last year.
The Illinois Department of Revenue is withholding a 2 percent fee on sales taxes that have been put in place by local governments. If a town has the base rate of 6.25 percent, then the state’s administrative fee is not charged.
The new fee was instituted as part of the state budget adopted by the General Assembly in July in order to help the Department of Revenue pay for the costs associated with collecting and distributing local government taxes.
Department of Revenue officials said when taxes have been enacted or modified, the General Assembly has included administrative fees that ranged from 2 to 5 percent of tax collections. However, the administrative fees were not imposed.
The 2 percent administrative fee is being charged to areas that charge sales taxes to pay for flood protection, public transportation, school facilities and park districts, as well as sales taxes levied in special business districts, sales taxes levied with voter approval, or a sales tax put in place by a home-rule community.
"The people who are paying this additional fee are really in the areas that are more urbanized," said Jerry Kane, the managing director of the Madison County Transit District. "Here in Madison and St. Clair County, transit districts have a local sales tax that they depend on for their local support so they could leverage state operating assistance."
Kane said the fee serves to only help the state's budget issues and wishes the fee was administered statewide.
"In the more rural areas where they don’t have the population densities to support sales tax revenues, those taxpayers are not paying that fee. It’s only in the areas where the taxpayers have voted to tax themselves to provide a service are now paying an additional burden of the state’s budget," Kane said. "Everyone believes there should have a balanced budget, and I think everyone in the state is hoping for that. And there might have been a better way to assess this fee. In other words, if it was assessed to all sales tax ... it would have been spread across the state, but I think that would have been a harder sell."
In February legislation was filed in the House to remove the 2 percent fee. It has been assigned to the Revenue and Finance Committee.
Money from the fee goes toward maintaining the department of revenue’s computer system, collections processes, refund coordination and tax distribution, according to the Daily Herald.
The state budgeted the fee to bring in $5.3 million a month, according to reports. State records show the fee has brought in about $6.2 million a month since August.
Collinsville, which has some of the highest sales tax rates in the area, has lost nearly $83,000.
Fairview Heights, which has a large retail base with its location right off of Interstate 64, has lost more than $90,000 since the administrative fee went into place eight months ago.
Mayor Mark Kupsky said there was some warning from the Illinois Municipal League about the legislation that was considered and ultimately put into place. The city’s budget year is from May 1 through April 30, so three months in, the sales tax figures started to see the reduced sales tax revenue.
“There was not a lot of advance notice,” Kupsky said.
The $90,000 so far is a small percentage of the city’s $30 million budget, however it does make the margin a little smaller, as the city does not levy a property tax.
“Like every other community, every dollar counts,” Kupsky said. “We use every dollar for community service for the public. That could be a few less sidewalks, that could be a salary of an employee, that could be a reduction of a road project that we do. So it certainly has an impact on us.”
Fairview Heights relies heavily on revenue from sales tax, which ranges from 8.35 percent to 8.85 percent in the city, and could miss out on more revenue because of Amazon and online sales, said Gina Rader, the city's finance director.
“To lose even more revenue, it potentially could be a big hit,” Rader said.
In the metro east local public transit has lost the most money to the fee. Since the fee went into place, the state has kept almost $427,000 worth of public transit sales tax dollars that was originally set to go to the metro east.
Ken Sharkey, the managing director of the St. Clair County Transit District, estimates his transit district would lose about $429,000 a year with the administrative fee.
So far the St. Clair County Transit District has lost about $295,000 through the first eight months of the fee.
“We do get some other operating assistance that comes through IDOT,” Sharkey said. “We feel we’re OK.”
He did say that the administrative fee was an example of the state pushing their financial burden on to local entities.
“We’re hoping this gets reversed,” Sharkey said.