Naperville sales tax talk turns to internet sales

As Naperville officials consider raising the local sales tax in their city, they also turned their attention Tuesday night to the way sales tax is charged - or not charged - on sales made over the internet.

The city council could vote Sept. 19 to raise the home-rule sales tax to 1 percent from 0.5 percent beginning Jan. 1. The move could help the city raise roughly $8.5 million next year to deal with known cost increases in pensions and road maintenance as well as a decrease in income-tax distribution received from the state.

But some asked whether the increase is truly necessary and lamented the loss of revenue the city could be receiving if more sales taxes were collected on online purchases made by residents. City Manager Doug Krieger said the city loses about $2 million a year from sales made online that aren't charged at the city's 7.5 percent sales tax rate because the seller doesn't have a physical location in Illinois.

"We need to level the playing field for local brick-and-mortar stores that are collecting sales tax," city council member Becky Anderson said.

Mayor Steve Chirico said the council supports the Marketplace Fairness Act, which could allow states to require internet sellers with more than $1 million in sales each year to charge sales taxes when customers make purchases, even if they don't operate a physical location in the state. U.S. Sen. Dick Durbin came to Anderson's Bookshop in Naperville, which Anderson co-owns, in 2012 to support the act, which has not yet passed but could be reintroduced in Congress.

Another problem with online sales is they skew the city's process of comparing its tax rates to rates in nearby towns to ensure Naperville remains competitive, council member Patty Gustin said.

"The reality is that's no longer a good framework to work by because we do have that internet presence that is a competition for our brick and mortar," Gustin said.

Members of the Naperville Area Chamber of Commerce, which represents about 1,200 businesses, have expressed "significant concerns" about dealing with a 1 percent home-rule sales tax, which would push the total sales tax rate in Naperville to 8 percent.

"Any sales tax increase makes Naperville less competitive," said Colin Dalough, director of government affairs and business development for the chamber.

To start charging the increased tax Jan. 1, the city needs to notify the state by Oct. 1. But Dalough and former city council member Dick Furstenau said the city first should look to lower expenses in its 2018 budget.

"We all agree that the cost side needs to be looked at simultaneously," Chirico said, but there won't be time to complete a full budget review by Oct. 1. "We are in a little bit of a time-sensitive matter."

If the city doesn't increase the sales tax by Oct. 1, Finance Director Rachel Mayer said the panel has until April 1 to approve an increase that would take effect July 1, 2018.

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