State's fee on local sales taxes generating more than expected

A new administrative fee the Illinois Department of Revenue is charging municipalities, counties and regional government agencies to process local sales taxes has generated nearly $50 million for the state during its first eight months of collection.

The fee is outpacing budget expectations and could garner the state millions more than anticipated by the end of the fiscal year in June.

The state budgeted the fee to generate about $64 million, or an average of $5.3 million a month. However, during the first eight months, the fee has generated a monthly average of almost $6.2 million.

That's according to data released by the state showing the new 2 percent administrative fee's effect on sales tax disbursements from August 2017 through the current month. An overall increase in sales taxes statewide has boosted the fee's haul by nearly $2 million more than what the state would have received during the same eight months a year before, according to IDOR reports.

The increase in revenue may not be fueled by increased spending on goods, but rather an increase in tax rates to combat the loss of revenue.

Suburbs like Naperville and Glen Ellyn have recently joined other towns that have increased local sales tax rates to make up for the shortfall created by the fee as well as other revenue losses caused by the state.

"The impact of the Local Government Distributive Fund reduction coupled with the sales tax administrative fee caused significant stress on our budget, which we dealt with by cutting services and adding certain tax rate increases," said Naperville City Councilman Kevin Coyne.

"It was a tough vote to make, but it's still better than a property tax increase, and up until we think there's going to be a competitive impact on our local businesses, I think we'd keep making that vote."

Critics have called the fee a "pass-through tax" on consumers and suggested eliminating the fee or capping how much the state can collect in a year as well. State Rep. Anthony DeLuca, a Chicago Heights Democrat, has proposed legislation to cut the fee in half, but that has not been well-received so far.

"The reason I'm not suggesting a cap on it is because ultimately I want to eliminate it," DeLuca said. "My goal is to have this as part of the upcoming budget-making process and not as a separate bill, because I can't get a hearing on it now."

While the fee is costing most municipalities thousands individually and millions collectively, the Regional Transportation Authority is taking the biggest hit. The agency has already lost nearly $14.2 million in just eight months and originally estimated it would lose about $23 million for the year. The loss is coupled with another $40 million the state is withholding from the RTA, officials from the transit agency said. The RTA coordinates and oversees financial and planning operations for the Chicago area's transit agencies like Metra, Chicago Transit Authority and Pace.

"These cuts were a major contributing factor in the need for fare increases and service reductions as they were implemented, in order for the service boards to present balanced budgets," said RTA spokeswoman Susan Massel.

Officials at the state revenue department said the fee has been championed for years and is similar to fees already imposed on other tax collections. The money generated from the fee is intended to cover modifying and maintaining the department's computer system, processing collections, coordinating refunds and distributing the taxes.

However, legislators opposed to the fee complain that they've never seen any studies or reports that show a need for the state agency to impose it.

"They've never proven how much it's costing them to administer and process the taxes to begin with," said state Rep. Jeanne Ives, a Wheaton Republican.

"If they can prove it, I would agree to all of it, but they should prove out what it's costing them, period."

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