City sales tax may increase under home rule

StoryImage( ‘/Images/Story//Auto-img-11339789578405.jpg’, ‘Photo by Jeff Havens’, ‘Rockford downtown shopper Carolyn Williams purchases snack items Dec. 6 from Downtown Discount Drugs. Williams said she would be willing to pay more in city sales tax depending on how officials spent the money. Williams added she would like more spent on education.’);

Rockford Mayor Larry Morrissey said staff are ‘exploring’ shifting some city funding from property to sales tax

Rockford Mayor Larry Morrissey said Dec.2 that his staff is exploring the pros and cons of shifting some city funding from property tax to sales tax, if home rule is approved next March. This means any decrease in city-levied property taxes may be met with a corresponding increase in city sales tax, which is currently 1 percent added to the cost of all consumer purchases.

Asked whether this possible funding change might inordinately shift a tax burden onto poor families and individuals, Morrissey said: “We are exploring our options right now.”

At a Nov. 14 rally, Morrissey touted a decrease in the city’s property taxes as one reason voters should support returning to home rule authority.

Raymond F. Wacker, professor of accountancy and taxation at Southern Illinois University (SIU), weighed in on the issue by discussing the advantages and disadvantages of both taxing systems. He has taught accounting and taxation at SIU for 17 years.

Wacker said one of the arguments against a funding shift from property tax to sales tax would be that it “would be harder on the poor.” He added that such a change would also “hit everybody rather than just homeowners,” and make avoiding the sales tax more difficult.

Wacker said one advantage of being a property owner is individuals can lower their federal and state income tax by claiming property on their tax returns. He also said a property tax “is less onerous on the poor,” even though the poor who do not own property, may indirectly pay property tax through increased rent.

For example, if the sales tax hike is implemented, an individual or family that is currently renting may pay more in sales tax at the store, gas station or restaurant. While at the same time, the property owner receives a property tax break, but pays the same percentage in sales tax as the renters for the same goods and services.

Morrissey said his staff was examining whether the burden on the poor could be minimized by excluding items from the sales tax, such as food and medicine.

Morrissey also said about 30,000 non-residents work in the city, but do not pay property tax. Morrissey explained that city staff are examining whether non-residents pay enough in sales tax to enable a cut in taxes for property owners.

Poor and rental demographics

Data from the 2000 census show 20,351 individuals, or 14 percent of the population in Rockford, at or below the federal poverty level. This compares with the national average, in which 12.4 percent of Americans were poverty stricken.

Most of Rockford’s extremely poor are concentrated in predominately black and Hispanic neighborhoods in areas immediately west and south of the River District in downtown Rockford.

In those areas, 35 to 48.8 percent were below the poverty level. In the region surrounding the highest concentration of poor, the poverty level ranges between 18 to 28 percent.

In 2000, of the 59,158 occupied housing units in the city, 23,014, or 38.9 percent, were renter-occupied housing units. Each of those, 23,014 renter-occupied units housed an average of 2.26 individuals.

This means approximately 52,000 Rockford residents, or more than one-third of the city’s total population of 150,115 citizens, live in rental units. And of the number of renter-occupied units, about 25 percent are at or below the poverty level, which house approximately 13,000 individuals.

The remaining 7,300 poverty-stricken individuals in Rockford are either homeless or housed in owner-occupied dwellings, according to 2000 census data.

Sales and property taxes

During 2004, the city’s current 1 percent sales tax collected $22.4 million from an unknown number of consumers, which included residents and non-residents who bought any item or service that was subject to sales tax. Rockford’s sales tax is applicable to necessities such as food and clothing—there are no exclusions.

In 2003, Rockford’s 1 percent sales tax generated $21.7 million for city coffers. This means between 2003 and 2004, about $700,000 more was collected from consumers, which represented an increase of 3.2 percent from the previous year.

The $22.4 million in 2004 sales tax compares with $43.8 million from property taxes levied in 2004. During that same period in 2004, the city’s property tax rate was $2.55 per $100 of assessed value of property, or 2.55 percent.

Using a three-step formula, this translates into an annual city property tax bill of $722.49 for the owner of a home with an assessed value of $100,000.

At the current city sales tax rate of 1 percent, if an individual spent an average of $20 per day during 2004, the individual would have paid $73 in city sales tax for the year.

This data suggests if exceptions are not made for the sales tax increase, a large percentage of any property tax cut would be hoisted on those least able to afford such an increase—the poor.

Similar to jail tax

The possible tax shift is similar to the 1996 change in state law that gave rise to Winnebago County’s 1 percent jail tax.

In the case of the jail tax, a November 1994 referendum was defeated by Winnebago County voters to increase property taxes to pay for “public safety” measures. Four months later in March 1995, Winnebago County Board Chairman Eugene Quinn (R) testified for changing the law, which shifted financing public safety initiatives from property taxes to sales taxes.

State Sen. Dave Syverson (R-34, Rockford) sponsored the 1995 bill (P.A. 89-107) that paved the way for voters to approve the county-wide jail tax in November 2002. Syverson’s bill became law in January 1996.

During the first two years the 1 percent, county-wide, jail tax was implemented, Winnebago County collected $52,440,306 from local consumers from July 1, 2003, to June 30, 2005.

In the first fiscal year, the jail tax generated $25,552,280, and $26,888,026 during the following fiscal year. More than 70 percent of the jail tax money came from Rockford businesses that charged their customers extra sales tax for goods and services.

Even with the jail tax’s exclusion for some food, medicine and medical products, it is still considered a regressive tax on the poor and middle classes.

Specifically, state law (55 ILCS 5/5-1006.5) dictates that if a local sales tax is imposed for public safety purposes, it may not be applied to “sales of food for human consumption that is to be consumed off the premises where it is sold (other than alcoholic beverages, soft drinks and, food prepared for immediate consumption) and prescription medicine and non-prescription medicines, drugs medical appliances and insulin, urine testing materials, syringes and needles used by diabetics.”

Morrissey said his group has yet to determine specifics about the possible tax shift, and whether it will include similar exceptions to the sales tax.

From the Dec. 7-13, 2005, isse

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