Rockford among cities that want sales tax admin fee cut in half

By Greg Bishop 
Illinois News Network

Cities across Illinois are banding together in an effort to block the state from keeping so much of their sales tax revenue.

Part of the new budget imposed by lawmakers over the governor’s veto is a two percent fee to manage local sales taxes.

The city of Springfield faces mounting pension debt that’s eating up most, if not all, of its share of property taxes. Springfield has seen little growth in sales taxes and now the state is eating up a chunk of that with a 2 percent fee it charges cities to administer sales taxes.

Springfield City Budget Director Bill McCarty said the fee means the city loses out on $800,000 in sales taxes.

“Let’s call it what it is, it’s a surcharge,” McCarty said. “And we’re balancing the state’s budget on the backs of local governments.”

For Rockford, the picture is even bleaker. City Hall estimates that it’s losing out on around $2.5 million in revenue because of the new fee schedule, widening its budget deficit to around $10 million.

“You’re seeing more and more pushed onto the local level (by the state) with less and less funds being given to the local governments,” Mayor Tom McNamara said in an interview earlier this month.

McCarty joins the Illinois Municipal League in pushing for House Bill 4101 that would cut the fee in half.

The Illinois Municipal League lists the bill as key for its members, saying in a policy paper there was no real opportunity for discussion or debate of the fee before it was implemented over a gubernatorial veto. IML also said state law doesn’t allow municipalities to collect their locally imposed sales taxes themselves.

“The General Assembly should reduce the sales tax administrative fee to one percent, which is an acknowledgment that there may be a cost associated with collecting the locally imposed sales tax,” the IML paper said. “This will restore half of the revenues taken by the state that should be spent to provide local services to municipal residents. Local taxpayers should not be forced to disproportionately fund IDOR at the expense of local services.”

McNamara says he’s been active with IML since joining the board of the group when he became mayor. “There is lobbying happening. The IML is vigilantly going after this, trying to get this money back.”

McCarty said a bill wouldn’t go into effect until next year.

“We’re simply trying to look forward going into the next fiscal year and get that reduced and provide a little relief in that administrative fee,” McCarty said, adding he’d like to see the fee eliminated altogether, but cutting it in half is a compromise. He said the state’s costs to administer the money for all cities doesn’t add up.

“They’re already collecting their own state sales taxes,” McCarty said. “How much incremental work and effort and resources could it possibly take to collect the city portion since they come in together and distribute those?”

Proponents of a new push to re-certify home rule for the City of Rockford have pointed to increased administration fees as a key reason to bring back the policy. They say home rule would allow the city to collect and retain more revenue in areas currently reserved for the state, limiting the number of tax dollars administered via Springfield.

The State Journal-Register reported last week that Rep. Anthony DeLuca, D-Chicago Heights, proposed a bill to cut the collection fee. The Illinois Department of Revenue said it’s reviewing the bill.

The department “has not provided cost figures associated with the two percent service fee rate increase,” a statement said.

The budget plan signed in July levied the 2 percent fee on all municipality sales tax collections above 6.25 percent. Estimates say the state will collect around $60 million annually from cities and towns.

The measure remains in the Revenue and Finance Committee but could be voted on sometime next year.

Managing Editor Shane Nicholson contributed to this report.

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