Editorial: Municipalities deserve more of online tax revenue
There might be a half-dozen ways to split the small pot of online sales tax money that is left for Illinois communities after the state takes its 80 percent off the top and other agencies take their shares.
A recent U.S. Supreme Court ruling that subjects all online purchases to sales taxes brought Illinois governments an anticipated $140 million windfall this year. All internet purchases shipped to Illinois from elsewhere will now be subject to the same 6.25 percent tax that has been in place since 2015 for goods shipped to Illinoisans from within the state.
As Tax Watchdog columnist Jake Griffin reported Wednesday, the local share of this $140 million breaks down to $1.76 per suburban resident this year. After the state takes the first 80 percent, nearly 36.2 percent of what's left goes to Chicago, the RTA, the Metro East Transit District and a state capital improvement fund. The state's 1,297 towns and 102 counties divvy what is left.
There is some disagreement over the fairest way to divide it. You could allot money based on population, which is the current model. You could allot money based on where the packages are being delivered, which is a proposal on the table.
You could give more money to towns with a lot of retail, less to communities with less retail. You could allot money based on their percentage of local sales taxes (leaving non-home rule towns even further behind.)
But all this inter-town squabbling misses the point. The cities and counties in Illinois should be getting a bigger share of the overall online sales pie, instead of having to fight over the scraps.
We know the state's fiscal condition is woeful, and we also know that for the most part, the money is coming out of the same pockets.
But think for a minute about who is feeling the brunt of this culture shift, as Americans move from shopping in stores to shopping in virtual stores.
If Illinois has a healthy retail life, it is due in large part to individual communities whose officials work hard to keep shops and industries in their towns and to keep them happy.
When brick-and-mortar stores crumble under the pressure of online sales, it has a very direct effect on communities. You probably see empty Best Buy or Borders or Applebees on your way to work each day.
Illinois towns and cities spend time and treasure enticing business. They invest in utilities and roads and tax breaks. They take substantial risk to build shopping centers and industrial parks. They do it because a healthy local economy means a better life for their residents -- better streets, better schools, stronger neighborhoods, more jobs.
The other payoff, sales taxes, is a significant source of income for municipalities.
For a community to watch its retail base shrink is bad enough.
To be denied a chance to make up a significant part of that loss through taxes on online sales, is a bitter pill indeed.