Local Government

Communities see portion of online use tax returns

By Herald-Whig
Posted: Apr. 15, 2019 7:30 am

QUINCY -- A U.S. Supreme Court ruling that allows states to collect taxes from online retailers is providing some additional revenue for communities as more shoppers avoid brick and mortar retails for many purchases. However, some groups are working to get online retailers, such as Amazon, pay local sales tax.

The court's decision last June in South Dakota v. Wayfair paved the way for states to collect sales taxes from online retailers.

In Illinois, "remote" online retailers that have more than $100,000 in online sales in the state, or at least 200 discrete transactions, must collect the state's 6.25% use tax.

City Comptroller Sheri Ray said use tax online retailers are paying the state of Illinois, which redistributes it to communities based on population.

The change has brought more money to the city since October. Last October, the city received $95,000 through the use tax, as opposed to $79,000 in 2017.

Through 11 months of the current fiscal year, the city has received $1.116 million, whereas last year the city had received $976,668.

"We're roughly $140,000 in use tax collections," Ray said. "That's where we are seeing that incremental growth but not in sales tax."

The city is expecting use tax returns to climb 12% in the next fiscal year.

The Illinois Department of Revenue estimated the change could bring in more than $200 million of new revenue every year.

"We just want to make sure that we can capture locally-imposed sales taxes on out-of-state retailers online," said Brad Cole, executive director of the Illinois Municipal League, which represents more than 1,200 local communities throughout the state.

Cole answered questions last month from members of the House Revenue and Finance Committee about how that might be accomplished.

Cole and other advocates say local governments should be allowed to collect sales taxes from online retailers. That, they say, would level the playing field for local brick-and-mortar retailers, who already must add a local tax on sales.

But opponents say trying to impose and collect local sales taxes on online purchases would be overly complicated.

"Municipalities collecting their own sales taxes would be a hideous administrative nightmare," said Rob Carr, president of the Illinois Retail Merchants Association. "I find it difficult to believe that a local municipality could either afford their own department of revenue or the hiring of a third party to do that for them."

Ray said adding a local sales tax to online purchases under current rules would be a logistical nightmare.

"The retailer would have to file sales tax returns to the state of Illinois for every single city they ship to, and that's just nearly impossible," she said.

One option, suggested by committee member Rep. Joe Sosnowski, R-Rockford, would be to create a state tax specifically for remote online retailers. The revenue would be disbursed to local governments based on an established formula.

That way, Sosnowski said, the state wouldn't have to deal with administering "a thousand different tax rates."

At least one municipality -- the City of Chicago -- already applies an extra 1% tax to remote online retailers on top of the state's 6.25%.

Carr, of the Retail Merchants Association, said he understands the pressure to include a solution in the next fiscal year's budget, but it's an issue that "has to go very, very carefully" because the Supreme Court's vote was 5-4, and it's not clear how similar future cases will be decided.

Capital News Illinois contributed to this report.