Transit agencies fear ‘loophole’ in tax bill

Good for business but bad for transit and municipalities is where opposing sides stand regarding sales tax legislation pending in the Illinois House.

Regional Transportation Authority officials contend an amendment to the State Finance Act could cost Pace, Metra and the CTA millions in much-needed revenue while legitimizing tax shelters. It’s also an idea causing angst among local governments.

But Sen. Dan Kotowski is defending the proposal, which defines the location where sales taxes can be collected, as good for business.

And one House leader is working on legislation to neutralize the effects of the amendment on transit.

Critics predict the changes would allow companies headquartered in the metropolitan region to set up makeshift locations staffed with just a fax machine and part-time employee to handle sales in tax-friendly counties.

That could lead to multiple businesses shifting their sales offices downstate costing transit agencies more than $260 million a year, RTA Chairman John Gates said.

“It would be just a whirlpool sucking taxes out of the RTA district,” Gates said.

Kotowski, a Park Ridge Democrat, who is co-sponsoring the legislation, argues that it only codifies into law existing practices.

“I’ve heard from businesses in my district and across the state that they feel they’re being taxed unfairly despite multiple locations. This policy reduces the tax burden on businesses who have locations outside an area with a higher tax rate,” Kotowski said.

The Illinois Department of Revenue went after the Hartney Fuel Oil Co. for back taxes under the type of scenario feared by Gates. Hartney’s main location is in Cook County, but its point of sale is in the town of Mark in low-tax Putnam County. Hartney sued the state and a Putnam County judge sided with the oil company.

House Majority Leader Barbara Flynn Currie, a Chicago Democrat, called situations like Hartney Oil a “scam,” and said she is working on legislation that would spell out what’s been a gray area up until now. Her proposal would require a point of sale to be more than a rented office with a fax machine — that it be tied to property and employees.

“We don’t want a desire for clarity to turn into a huge opportunity for tax evasion,” Gates said. Addison Mayor Larry Hartwig is among numerous local mayors also concerned about losing revenues. Rival downstate counties are wooing suburban businesses with low taxes and promises of rebates, he said. And that’s unfair to towns that provide roads, police and fire protection and snowplowing to companies that send their tax dollars elsewhere.

“That town is doing nothing for it. They’re not providing any services, so anything they get is gravy,” Hartwig said. “It doesn’t make any sense to allow that kind of loophole.”