Some municipal leaders who may have initially cheered the news that a state budget was passed may now be cursing Springfield once again as details of the budget creep out.
A provision in the state budget implementation bill (SB42) allows for a sales tax collection fee to be charged by the Illinois Department of Revenue. That “fee” is against the municipalities in Illinois that charge a sales tax. Municipalities like Oak Lawn, which has a 0.75% sales tax on top of the State Sales Tax would have to pay the state to collect its tax and return it to the village.
Specifically, SB42 (now Public Act 100-0023) provides that, beginning in July 2017, 2% of certain sales taxes collected by the state on behalf of municipalities will be transferred to the Tax Compliance and Administration Fund.
The State’s collection fee will not be charged against the 1.25% local share of the state imposed 6.25% sales tax. Oak Lawn, and other municipalities receive part of the 1.25% local share of the state sales tax. In fact, it is distributed to municipalities (1.0%) and counties (0.25%). This expanded collection fee will only be applied to locally imposed sales taxes collected by the state such as the 0.75% tax imposed by the Village of Oak Lawn because it is instituted under the municipality’s Home Rule Power.
For cities, villages and towns that do not have any locally imposed sales taxes, and are only receiving the local share of the state sales tax, there will be no financial impact. However, villages such as Oak Lawn, that do have locally imposed sales taxes, will be paying a two percent fee on that money to the State of Illinois, which collects all sales taxes imposed.
Local legislators, Fran Hurley and Kelly Burke, who represent Oak Lawn, voted for the budget and the implementation bill that provides for this new fee. The legislation also raised income tax rates on individual taxpayers as well as corporate taxpayers. Most Oak Lawn residents will begin seeing the difference in tax rates on their next paychecks as companies begin to comply with the July 1 start date for the tax.
Despite Governor Bruce Rauner’s insistence on a property tax freeze, the legislation did not include a freeze of property taxes. Rauner vetoed the tax and spending legislation and the legislature overrode the vetoes. Village’s reportedly have contacted legislators who supported the legislation to complain but are being told that they should be happy it was only 2 percent. It is another barrier that village officials must overcome as they attempt to craft a local budget that must be balanced and must be passed by the end of the year.