How inflation affected suburban sales tax revenues and holiday shopping

Suburban shoppers haven't let rising costs slow their spending.

That's according to a Daily Herald analysis of Illinois Department of Revenue figures that show growth of municipal sales tax revenues in 92 suburbs collectively outpaced the inflation rate.

IDOR data shows that sales tax revenues for those suburbs climbed a combined 6.2% during the state's most recent fiscal year, which ran from July 2022 through June 2023. During that same period, the inflation rate rose by 3%, according to the U.S. Bureau of Labor Statistics. In 28 suburbs, sales tax revenues grew by more than 10%.

Winfield's sales tax receipts grew by 121.3% last year, but that was largely due to a quarter-cent hike in the village's sales tax rate and the addition of an Amazon distribution center to town.

"There's not a shortage of places we could use the additional sales tax dollars," said Curt Barrett, village manager. "That includes a new village hall. We just had a sewer line burst in the basement, so a lot of people were holding their noses while we worked."

Winfield is now generating more than $2.8 million in sales taxes, up 427.8% from a decade prior, records show. Barrett said the additional revenue has largely gone to police pensions and road work.

The village of Bartlett has also seen its sales tax fortunes climb, mostly due to the addition of a 1% non-home rule sales tax and commercial growth. Ten years ago, the village was generating just over $2 million a year in sales taxes; last year it cleared nearly $7 million.

"It goes into the general fund, which allows us to keep our property taxes down," said Todd Dowden, Bartlett's finance director.

Only seven suburbs - Antioch, Barrington, Barrington Hills, Fox River Grove, Hanover Park, Lindenhurst and Volo - saw a decline in sales tax revenue between the state's 2022 and 2023 fiscal years, according to the analysis.

Statewide, municipal sales tax revenues totaled more than $7.8 billion, up 6.6% from the previous fiscal year.

But some experts worry the continued growth isn't sustainable and could affect spending habits heading into the busy holiday shopping season.

"The Chicago area has some of the highest sales tax rates in the nation, and that's why you see some people travel to other states to make purchases," said Rob Karr, president and CEO of the Illinois Retail Merchants Association. "Clearly tax rates have an impact on shoppers, but it's not the only impact."

Inflation, along with an increase in post-pandemic shopping habits and online sales tax regulations, are some of the drivers increasing municipal sales tax revenues. But experts warn there is ultimately a limit to that growth.

"When sales tax gets added on, consumers will realize they have less money to buy other things," said Ralph Martire, executive director of the bipartisan Center for Tax and Budget Accountability. "They'll still spend the same amount of money, it just won't go quite as far in this economic environment."

That's troubling for many retailers who are still feeling the effects from the COVID-19 pandemic when spending plummeted initially. They are hopeful, Karr said, spending habits will remain above normal heading into the holiday shopping season when most retailers look to turn a profit for the year.

"We saw a lag in October, but over the recent weekend with Black Friday, Small Business Saturday and Cyber Monday, we saw a nice jump in traffic," Karr said.

Experts remain cautious about shoppers' holiday spending as analysts have lowered expectations for year-to-year growth, according to a report from retaildive.com, an industry website that cites investment firm TD Cowen and the National Retail Federation.

"We've seen slow downs in the purchasing of nonessentials," Karr said.

But shoppers are also returning to stores, he added.

"I think after COVID, people are craving that connection," Karr said. "The Midwest led the nation in brick and mortar store traffic, which was up 3% during Black Friday."

There's not as much impetus to hunt for items online as there once was, Martire explained.

"With the changes to the sales tax law that now requires retailers to add in sales tax where you live, there's less of a reason to buy things online, other than the convenience," he said. "I think it's a good time to be brick and mortar because people want to get out."

Still, Adobe Analytics reported $38 billion was spent online between Thanksgiving and the following Monday, an increase of 7.8% from the previous year.