Documents Show Hundreds of Sales Tax Deals in 172 Towns
May 1, 2013
May 1, 2013
The Regional Transportation Authority (RTA) will be in Springfield this Thursday to provide the Illinois House Revenue committee with details of how some of the state’s most recognized companies deprive the RTA, cities and counties where they operate out of hundreds of millions of tax dollars each year.
The Illinois Department of Revenue (IDOR) disclosed that, to date, 172 municipalities have 501 agreements with companies to rebate sales taxes. These communities have reported that they have 501 agreements with companies to rebate sales tax. Many municipalities have not yet filed with the Department of Revenue, so these numbers will continue to grow. These reports are being collected as a result of legislation that the RTA supported last year. These reports mandate municipalities or counties that have tax revenue sharing agreements to file a report with the IDOR that details: the manner in which the retailers' occupation tax is shared; location of the business within the municipality or county; and the name of the retail business that receives the refund.
Two weeks ago, the RTA listed dozens of companies that have sales tax rebate agreements with Channahon and Kankakee. This week, the RTA, through a Freedom of Information Act request, learned of additional companies that have agreements with the City of Kankakee:
Joe Costello, RTA Executive Director, and RTA Chief of Staff Jordan Matyas will testify before the House Revenue and Finance Committee at 10 a.m. Thursday. They will explain to legislators how these companies and others, including Target, Southwest Airlines and Aldi, have engaged in practices to avoid paying the proper sales taxes. As an example of how enormous the problem has become through their activities over the last seven years, United and American Airlines alone have deprived Chicago and Cook County taxpayers, as well as local public transportation agencies, of nearly $300 million.
“We are grateful for the opportunity to shed light on the ways these companies are hurting the communities in which they have a presence and benefit from the public services, like transit, public safety protection, and other services funded by tax dollars,” Costello said. “Their own employees are forced to pay more in taxes and to pay more to ride the CTA, Metra and Pace, all because these companies are evading their responsibility to pay their fare share. That’s got to stop.”
While most states collect sales taxes based on where products are received, Illinois collects its sales tax based on where a company engages in the business of selling its products, including where its purchases are "accepted." That has led to a rash of companies setting up purported "sales acceptance" operations in rural counties where the sales tax rate is lower than those in Cook County and neighboring counties.
In small towns like Kankakee, Channahon and Sycamore, among others, the companies set up a desk and fax machine in tiny offices – some above “Cash For Gold” stores, hair braiding salons and ice cream shops – where their purchase orders are purportedly “accepted.” The RTA contends in a lawsuit that such set-ups violate state law because the companies’ selling activity clearly is not occurring in those offices to justify payment of sales tax at those locations. The towns actually have agreements which give a large portion of the municipal share of the sales tax back to the company.
Learn more about the RTA’s aggressive pursuit to collect sales taxes for public transit systems.