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updated: 7/22/2015 10:58 AM

What damage did Cook's sales tax hike do last time?

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  • Critics say car dealers like this one in Palatine could be hurt by a Cook County tax rate increase that will send buyers to Lake County, which is just across the street.

      Critics say car dealers like this one in Palatine could be hurt by a Cook County tax rate increase that will send buyers to Lake County, which is just across the street.
    Mark Welsh | Staff Photographer

  • Critics of the Cook County sales tax rate hike say businesses along the border, like these on Lake-Cook Road near Palatine, will be most affected.

      Critics of the Cook County sales tax rate hike say businesses along the border, like these on Lake-Cook Road near Palatine, will be most affected.
    Mark Welsh | Staff Photographer

  • With a sign in the window proclaiming "no Cook County tax," this business hopes to attract buyers to its location just over the border in Lake County.

      With a sign in the window proclaiming "no Cook County tax," this business hopes to attract buyers to its location just over the border in Lake County.
    Mark Welsh | Staff Photographer

  • County sales tax earnings

    Graphic: County sales tax earnings (click image to open)

  • County sales trends

    Graphic: County sales trends (click image to open)

 
 

Anyone looking for a lesson from the last time Cook County increased its sales tax rate might be surprised to learn businesses didn't see the drop in sales that their counterparts in the collar counties did.

Even when the sales tax rate spiked to 10.25 percent in some areas, shoppers didn't abandon Cook County because of the tax hike. Instead, the recession played a larger role in purchasing decisions, experts believe.

While Cook County sales dropped by 6.5 percent between April 2009 and March 2010 compared to the same 12-month span a year earlier, sales in the collar counties -- where there wasn't a sales tax increase -- dipped even lower, dropping between 6.9 percent and 8.1 percent, according to a Daily Herald analysis of Illinois Department of Revenue sales tax records.

The results run counter to an argument often used by opponents of the tax rate hike -- that buyers will jump to collar counties for their purchases, hurting Cook County sales.

But while sales in Cook County as a whole held up after the 2009 sales tax increase compared to sales in surrounding counties, Cook County sellers of big-ticket items like cars, furniture and appliances say they felt the pain.

"I would say there was significant consumer backlash the last time," said Scott Price, president of Tom's Price Furniture. "Consumers were very angry."

Between July 2008 and December 2012, goods purchased in Cook County cost as much as 1.75 percent more as a result of the county's home rule sales tax hike.

But Cook County Board President Toni Preckwinkle delivered on a campaign promise to reduce the rate back to pre-2008 levels at the start of 2013. However, the county board voted last week to increase the rate back to 1.75 percent starting in January to cover growing pension liabilities.

That will push the total sales tax to 9 percent in unincorporated areas, 10 percent in many Cook County suburbs and 10.25 percent in Chicago.

In comparison, rates in most collar county suburbs top out at 8.25 percent.

A 2 percentage point sales tax difference amounts to $10 on a $500 purchase.

Even with the drop in sales in Cook County and elsewhere in 2009 and 2010, Cook County's sales tax increase more than doubled sales tax revenue for the county.

While Cook County as a whole didn't appear to suffer, some retailers did.

Price said sales at his store in Skokie, in Cook County, dropped by 40 percent and purchases at his Lake County store in Lincolnshire rose by 25 percent at the height of the last Cook County sales tax hike.

"Nobody is going to drive 10 miles to Lake County to save one dollar, but they will to save $100," said Scott Price, president of Tom's Price Furniture. "I had customers who would shop in Skokie and drive up to Lincolnshire to buy."

Suburbs near the borders with other counties also fared worse than the county as a whole.

Sales of goods in Elk Grove Village and Palatine were down 13.8 percent and 8.3 percent, respectively, at the same time Cook County as a whole experienced the 6.5 percent sales decline.

Municipal leaders point out their towns won't see the revenue from the sales tax increase, only the potential loss in sales. That could lead to consumers getting hit with more tax increases.

"I'm just in the early stages of our 2016 budget and we're assuming what will be a 2.5 percent impact, which amounts to roughly $400,000," said Reid Ottesen, Palatine village manager. "We have gone four straight years lowering our property tax levy, but that may be one of the solutions."

Cook County Board member Tim Schneider said Cook County businesses in towns that abut the county line are at a particular disadvantage.

"What you're going to see is a whole progression that will take some time, but this wildly unpopular tax, over time, will drive customers out of the county and a real lack of increased economic growth of retail along the border," predicted Schneider, who was one of seven board members to vote against the rate hike.

But some remain skeptical that the rate hike will have much bearing on buying decisions.

Ralph Martire, executive director of the Chicago-based Center for Tax and Budget Accountability, a bipartisan government finance think tank, believes the affect of the sales tax hike is limited because consumers pay it only when they buy goods, which represent a small portion of the state's economy when compared to the purchase of services, which are not subject to the tax.

"There's a lot of foofaraw over the rate. Economic behaviors are not dramatically driven by tax policies unless it's really significant," Martire said. "Does it create a significant tax burden? No, because it doesn't apply to most of the economy."

Got a tip?

Contact Jake at jgriffin@dailyherald.com or (847) 427-4602.

Watchdog: Suburbs near county borders fared worse than county as a whole

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