St. Charles to repay South Elgin after sales tax mix-up
After erroneously collecting sales tax revenue from a South Elgin retailer for more than six years, St. Charles will repay the neighboring town hundreds of thousands of dollars to correct the mistake.
The business, which has not been named, relocated from St. Charles to South Elgin in 2011 without reporting its change of address to the Illinois Department of Revenue, St. Charles Finance Director Chris Minick said. As a result, the state had been distributing the municipal share of sales tax dollars to the wrong town until earlier this year, when South Elgin officials realized the mistake.
From October 2011 to this past February, St. Charles received $634,033 in sales tax revenue generated by the retailer. Leaders of both municipalities refused to disclose the name of the establishment, citing a confidentiality agreement with the Department of Revenue.
South Elgin Administrative Director Megan Golden said she noticed the error while "double checking one list against another." She declined to answer additional questions about the business.
After being notified of the mistake, the state adjusted the misallocated payments for up to six months prior, per state statute, St. Charles Administrator Mark Koenen said in a memo. South Elgin then requested that St. Charles reimburse the village for the remaining balance of $568,144.
In a sales tax distribution agreement approved this week by St. Charles aldermen, the city will dole out the money over a five-year period. The first payment of $113,629 is due June 15, 2019, according to city documents.
"Because it was accrued and the error persisted for a period of years, we're also trying to correct it over a period of years so that the city, quite frankly, isn't too adversely affected in any one year," Minick said. "Obviously it will have a bit of an impact on (the budget), but I don't anticipate that it'll cause a tremendous hardship."
Upon receiving the annual payments, South Elgin will put one-third of the revenue toward capital projects, while the rest will go into the general fund, Golden said.
There is no statutory penalty for either the business or municipality if a change of taxpayer address goes unreported. However, the Department of Revenue warns that such an oversight could result in the reallocation of thousands of dollars.
A taxpayer location address list, sent out annually to each local government, details the businesses registered to conduct retail sales within a certain jurisdiction, according to the department. The state also sends notifications when a business registers, changes its registration or stops operating within their taxing area.
The municipality or county is supposed to review all notifications and report any discrepancies to the state, according to the department's website.
The business in question was not among the major retailers for which St. Charles typically tracks sales tax receipts, Minick said, noting the city's lack of a business licensing program makes the verification process more difficult. City officials now intend to more thoroughly cross-check their list of businesses with the data they receive from the state.
"We do try to make sure that we are obviously receiving the proper payment for the proper entity," Minick said. "We have instituted a couple additional steps in our process to try and avoid this type of a situation from happening again."