RTA Commends Governor Quinn for Approving Law to Shine Light on Sales Tax Agreements

August 21, 2012

The Regional Transportation Authority commended Gov. Pat. Quinn on Friday for signing into law a measure that will inform the public about sales tax rebate agreements many of which deprive the appropriate local governments, police, fire departments and transit agencies of the funds they need to provide public services.

“Before considering rate increases or any other revenue options that would burden our transit riders, we’re committed to identifying and collecting all of the sales tax revenues rightfully owed for the support of our transportation system,” said Joe Costello, RTA Executive Director.

“I appreciate Gov. Quinn signing this bill into law and providing Illinois taxpayers with the transparency and the open government they deserve,” he said. “I’m also grateful for the hard work and leadership of Rep. Carol Sente (D-Vernon Hills) and Sen. Kwame Raoul (D-Chicago) on the issue of government transparency and accountability.”

Under sales tax rebate agreements, certain municipalities align with so-called “tax consultants” that represent businesses located in Cook County, the collar counties and several downstate counties and municipalities. The consultants establish sham sales offices allowing their clients to record transactions as occurring in cities with a lower sales tax rate. Those municipalities take a small cut of the tax on each sale, the consultants take a portion, and the difference – most of the revenue – goes right back to the businesses.

With Gov. Quinn’s approval of House Bill 3859, local governments must electronically submit these agreements to the Illinois Department of Revenue within 30 days (they will have 90 days to submit currently existing ones). Submitted reports must include: the name of the participating business, its location, the terms and duration of the agreement, and any entities that are not direct parties to the agreement who receive a portion of the revenue sharing or rebate.

Illinois lawmakers approved HB 3859 with overwhelming bipartisan support during their spring session. The measure is the result of carefully crafted legislation that enjoys the support of the RTA, City of Chicago, Cook County, DuPage County, the Taxpayers Federation of Illinois and the Illinois Department of Revenue.

“I am committed to ensuring a more open government, and this is an important step for the State,” Rep. Sente said. “The public has a right to know how its tax dollars are being spent and to whom. We need the facts about where tax dollars are going, who is getting them, and for what purpose they are being expended.”

“The sales tax provides critical revenue to our municipalities to ensure that police, fire and transit have the financial ability to provide the critical services our residents depend on,” said State Senator Kwame Raoul. “We cannot afford to create a system where any taxpayer can avoid paying their fair share of taxes.”

Under a sales tax agreement, even if the sale of a product by a business in Chicago was negotiated in the City of Chicago, then delivered and used by a purchaser at a Chicago address, the purchaser would not be required to pay any City of Chicago, Cook County, RTA sales taxes or other specific taxing districts if the order is executed in a satellite office outside of the region. As a result, government agencies receive less revenue and local businesses, residents and transit riders would be forced to fill the gap.

In addition to the regional transit system and municipal and county government, sales tax revenue helps fund special districts across northeastern Illinois, including libraries, parks, fire protection, water treatment and sanitary districts, economic and community revitalization, and other vital services.

In 2011, the RTA sued Kankakee and Channahon to stop the practice of engineering sales tax rebates through sham sales offices in those municipalities. Cicero, Elk Grove Village, Forest View, Hazel Crest, Lemont, Melrose Park, Northbrook, Orland Park, Stickney and Tinley Park have joined the lawsuit, which alleges that large corporations in the region have been siphoning away vital sales tax dollars from the municipalities and counties where the sales transactions actually occurred. Litigation is ongoing.