Amazon sparks sales tax envy in Illinois

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With populations of 5,100 and 8,100, respectively, south suburban Monee and Crete have a lot in common. Located just a couple miles from each other in Will County—University Park separates them—both are home to a lot of professionals, many of them minority. They even share a high school district.

But there is one huge difference. As Crete Mayor Mike Einhorn recently put it in an email to state legislators, Crete in June took in $142,490 in sales tax receipts, while the smaller Monee got $1,231,115. Crete and other towns “are starving to death,” wrote Einhorn. 

What’s up? Welcome to the through-the-looking glass world of Illinois sales tax law, a staggeringly complex maze of rules and regulations where even the best of intentions eventually goes south. At the heart of the matter is—you guessed it—Amazon, the retailer whose ability to upset the normal course of business almost everywhere continues to amaze.

Specifically at issue is what Taxpayers’ Federation of Illinois President Carol Portman dubs “sales tax sourcing,” a mild and wonky sounding term, but one which according to her has caused bitter "where’s-mine" disputes in nigh every state. “It’s a bone of contention across the country,” Portman says, “although Illinois is probably the most complex.”

Once upon a time, you paid sales tax at the store or shop where you got your product. Some of the money went to the state or other regional governments, such as the county. Other funds went to the municipality where the store or shopping mall was located. That’s called point-of-sale collection.

Enter Amazon and the internet. 

For a while, Amazon and other internet vendors often refused to pay local sales taxes, giving them a leg up on local merchants and outraging needy mayors. Their argument was they had no physical location or “nexus” in a state, so they couldn’t be dinged. Eventually, though, Amazon figured out that its customers wanted their goods delivered today, not tomorrow, so they had to have warehouses—“wish fulfillment center” in Amazon-speak—almost everywhere. And then the U.S. Supreme Court in the 2018 Wayfair case effectively tossed out the nexus rule, holding that companies had to pay.

In the wake of Wayfair, the Illinois Legislature and Department of Revenue adopted new rules to allot money. But as Illinois Municipal League chief Brad Cole puts it, those changes moved the state away from a point-of-sale distribution to point-of-delivery, as in your home address.

In the case of Amazon, if you buy something through them but they’re just an intermediary, the address of your home—the point-of-delivery—determines who gets the sales tax. If you live Crete, Crete gets the tax. On the other hand, if Amazon fills its order out its stock at one of its wish fulfillment centers, the village in which the center is located gets the dough. And Amazon just happens to have a wish fulfillment center in Monee.

Now, I suspect Monee Mayor Therese Bogs likely has a different take on this. A former president of the Monee Chamber of Commerce, she could, for instance, argue that Crete ought to lure its own Amazon outlet. Or liken the current flap to the days when some towns had big shopping malls and others didn’t. But she didn’t call back, emailing that she was too busy to possibly call back this week. Perhaps she is busy tallying sales tax receipts.

Cole’s group is staying neutral, since it’s got members on both sides of this issue. But one of the legislators contacted by Einhorn, Rep. Anthony DeLuca, D-Chicago Heights, says that the mayor has a point and that he’s interested enough that he’s asked legislative staff to draft language for a cleanup bill he may introduce later this year. The likely answer according to him: some form of revenue sharing.

Them’s fighting words. But then big money is at stake here. I remember a few years ago when Northwestern University bought Evanston a new fire truck in lieu of paying property taxes. Perhaps Bogs could see if Einhorn needs some nice new equipment as a peace offering.

via Crain’s Chicago Business

August 13, 2021 at 02:04PM

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