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Doug Finke

Cities want a reduction in sales tax collection fee

State lawmaker says it should be cut in half

State lawmaker says it should be cut in half

SPRINGFIELD – Just weeks after lawmakers approved the spending and tax package that ended the state’s budget impasse, an effort got underway to undo part of the agreement.

State Rep. Anthony DeLuca, D-Chicago Heights, who voted for the revenue and spending bills, filed legislation to cut one of the fees in the package that affects local governments throughout Illinois.

Specifically, DeLuca’s House Bill 4101 would cut in half a state fee imposed on municipalities for collecting a number of locally imposed taxes, particularly for communities that collect a higher sales tax than the standard state rate of 6.25 percent.

As part of the budget agreement, a 2 percent collection fee was applied to sales taxes imposed above the 6.25 percent rate. The fee generates $60 million a year for the state.

DeLuca said the hurried nature of the budget agreement didn’t leave sufficient time to fully examine the effect of the fee, particularly since it went into effect immediately, even though local governments were in the middle of their fiscal years.

“I’ve heard from [communities] that it does have a very big impact on them,” DeLuca said. “Where they have a lot of retail in their community, they have a mall, it’s been a very big impact on them.”

Springfield is one of the cities affected by the fee. The city has an 8.5 percent sales tax rate. City budget director Bill McCarty said the newly imposed fee is costing the city $840,000 in sales tax revenue that would normally go into city coffers. About $560,000 is coming from the city’s corporate fund and $280,000 from the city’s infrastructure fund.

“We’re working hard advocating to get this reduced,” McCarty said. “The bottom line is, I think we can all agree that there’s no way that it takes $60 million for the Department of Revenue to collect city sales tax. Not when they’re already collecting state sales tax anyway. It’s a surtax on communities to help the state balance its books.”

The Department of Revenue said it did not provide numbers to state lawmakers about its costs for collecting locally imposed taxes. It said Gov. Bruce Rauner has suggested a fee of 0.5 percent to offset the collection costs, far below the 2 percent rate that was part of the budget agreement.

State Rep. Mike Zalewski, D-Riverside, was part of the working group that helped craft the final budget deal. He said Revenue floated the idea of a collection fee for locally imposed taxes in January and did not recall mention of a 0.5 percent rate.

“The Department of Revenue is of the opinion that this is what would help them alleviate the budget pressures on their department,” Zalewski said. “To the extent the mayors can come forth with information that shows us it doesn’t cost as much as this does, I think we’d be all ears.”

Zalewski also chairs the House Revenue Committee, which held a hearing on DeLuca’s bill but did not take any action. Zalewski said lawmakers will have to act cautiously about reducing the collection fee or adjusting any of the unpopular revenue measures.

“The governor still says there’s a $1.2 billion deficit, there’s still financial challenges, there’s still a pile of unpaid bills,” Zalewski said.

Brad Cole, executive director of the Illinois Municipal League, said the collection fee comes on top of hits local governments have taken for their share of the state income tax and the personal property replacement tax.

“The nose is far under the tent as far as the state extracting funds from local units of government while still putting more demands on them,” he said.

No choice

Cole also said state law prohibits local governments from collecting the sales tax themselves, leaving them with no choice but to let the state do it.

McCarty said the lost sales taxes from the fee is a factor as the city is working on a budget for its next fiscal year that starts in March. Overall, the city faces an $11 million to $12 million deficit, and the newly enacted fee is costing the corporate fund $500,000.

While Zalewski said lawmakers would act with caution, he acknowledged there will be pressure on them in the upcoming session to do something.

“I think generally the mayors are pretty upset about Springfield,” he said. “I do feel a subtle amount of pressure on us to try and do what we can to help local government. I think members are generally going to feel some pressure from their local governments to do something.”