Kankakee mayor battles RTA lawsuit

Kankakee’s mayor vowed Wednesday to fight lawsuits by the Regional Transportation Authority and the city of Chicago over a program that encourages businesses to come to her northeastern Illinois community to avoid higher sales taxes in other counties.

Mayor Nina Epstein traveled to Chicago to wage a public relations defense of the tax-incentive programs, which she credited with bringing companies and jobs to Illinois. Calling the lawsuits a “befuddlement,” she said the programs also are vital to the financial health of her city, which has about 27,000 residents and relies on the $3.5 million generated annually in sales taxes by the program to avoid making further budget cuts.

“Without those, we would not be able to balance our budget,” she said of the city’s $23 million budget.

But the lawsuits filed this week against Kankakee and the small village of Channahon allege that those tax-incentive programs are costing other government agencies money because they let companies avoid paying higher sales taxes by moving purchases through satellite offices in outlying communities where the sales tax rates are lower. The RTA relies heavily on sales tax revenue to oversee mass transit agencies in the Chicago area and it alleges it is owed at least $100 million in lost revenue.

The lawsuits were filed after the Chicago Tribune reported that dozens of businesses, including catalog houses, appliance companies and others were taking advantage of lower tax rates by opening locations in outlying communities. For example, the sales tax rate in Kankakee is 6.25 percent compared to 9.75 percent in Chicago.

The RTA is confident it will recover more than $100 million from Kankakee and Channahon with the lawsuit, RTA deputy executive director Jordan Matyas said.

“This is sales tax money that has been diverted from the RTA that CTA, Metra and Pace need to maintain our transit system,” Matyas said.

Epstein said the arrangements that started about 10 years ago are legal and that Kankakee has 48 companies participating in the program, which shares a portion of the sales tax with the companies through a rebate. She said the program has brought out-of-state companies to Illinois to open sales offices that otherwise would not have had a presence here and a majority of them are Internet-based. She said jeopardizing the sales tax agreements will cost the city and county of Kankakee money and the state of Illinois revenue during tough economic times.

“The state would never have this revenue if it weren’t for these agreements because these companies were never located here prior to us having these sales tax agreements,” said Epstein.

Gov. Pat Quinn said the situation needs to be reviewed.

“I’m skeptical of evasion or avoidance techniques,” Quinn said at an unrelated news conference in Chicago. He said there needs to be an “evenhanded” sales tax that doesn’t unfairly shortchange any community.

Kankakee has not released the names of the companies that participate in its program. Epstein says none of the companies participating in the city’s program have headquarters in Chicago.

Chicago Mayor Rahm Emanuel has blasted the sales tax programs as companies “gaming the system and cheating Chicago’s taxpayers.”

Epstein said she is hopeful “cooler heads would prevail” and that issues with the tax-incentive program can be handled through the legislative process instead of litigation because there is “very little revenue, if any” revenue for them to gain.

She said the places where the sales tax is higher, like in Chicago and Cook County, should look at themselves about why companies want to do business elsewhere.

“Companies, unlike government, have to balance their budget and make a profit so we are providing them with that ability,” she said.