For as long as I’ve been covering local government—and that’s, well, longer than I care to admit—I’ve continually heard the same refrain: We’re (all but) broke. The income tax is flat and excludes too many types of income, the sales tax applies mostly to hard goods and not services, property taxes bother voters, yadda yadda
For as long as I’ve been covering local government—and that’s, well, longer than I care to admit—I’ve continually heard the same refrain: We’re (all but) broke. The income tax is flat and excludes too many types of income, the sales tax applies mostly to hard goods and not services, property taxes bother voters, yadda yadda yadda. Woe is us!
There’s much truth to that, excessive spending on things such as overly rich pensions not withstanding. Just about everyone who’s taken a serious look at Illinois’ tax structure in recent years has concluded that it’s out of date, with the major revenue producers not growing as fast as the underlying economy.
Now, though, there’s a sign that situation may be about to change—that a windfall of sorts is arriving. Whether the trend is real or not is a matter of debate. Either way, the latest data is absolutely fascinating.
The windfall of sorts is named internet sales tax collections. And something quite interesting, indeed, is happening with them.
Until a few years ago, internet vendors essentially ignored local sales taxes. In fact, they bragged to their customers about how they could get stuff tax free. The only people who had to pay were merchants who had a warehouse or other physical presence in a state—“nexus” in the legal terminology.
That dramatically changed in the U.S. Supreme Court’s 2018 Wayfair decision. It took states like Illinois a couple of years to update their tax codes, but now they have, and with more and more sales migrating from brick-and-mortar locals to the internet amid the COVID-19 pandemic, the revenue impact is becoming clear.
Like in Cook County. In fiscal 2019, the county reports it collected an estimated $91.8 million from internet retail sales, and $838.7 million from malls and the like. But this year, the figures are a projected $117 million and $779.5 million. By 2026, the tally should be $285.5 million from the internet—three times the level in 2019—with taxes from physical locations growing modestly to only $885.5 million. The trend is solid enough that officials have stopped predicting huge deficits in the figure and say the budget should be more or less balanced for the foreseeable future.
The city of Chicago isn’t quite as optimistic. Still, using the same techniques the county used—essentially extrapolating national trends to the local economy—they project internet sales taxes will rise from $91.8 million this year to $121.4 million within three years. That’s more than the proposed 2022 inflation adjustment in the city’s property tax.
Statewide data, unfortunately, is not available. The Illinois Department of Revenue, which collects all sales taxes, state and local, says the money just arrives in lump sums from each retailer and that it lacks the staff to sort things out.
Fortunately, one other solid data source exists. That’s Illinois Comptroller Susana Mendoza’s office. It reports statewide collection of sales taxes for cities and counties remained lower in the just-ended fiscal year 2021 than it was in fiscal year 2018, though sales tax receipts for the Regional Transportation Authority are pretty much back to where they were.
But collections of that portion of the sales tax that accrues to the state and not smaller governments have begun to spike, big time. Collections leapt from $11.74 billion in fiscal year 2020 to $13.25 billion in 2021. Cook County officials and others say that’s consistent with the reality that the state is better positioned than local governments to make sure it gets its cut of internet sales taxes, though the locals are catching up quick.
So just how meaningful—and how long lived—is this trend?
“It’s really hard to know,” says Carol Portman, president of the Taxpayers’ Federation of Illinois. “There have been so many moving parts lately. The law changed at the same time that COVID arrived.”
Still, Portman adds, the numbers are pointing at something. If that “something” means they won’t have to tax my house as much to pay the bills, I’m all for it.