Chicago sales tax still highest in the United States - County's half-cent rollback this week helps, but it's still bad for business

Chicago sales tax still highest in the United States - County's half-cent rollback this week helps, but it's still bad for business
June 27, 2010
BY LISA DONOVAN
Copyright by The Chicago Sun-Times
http://www.suntimes.com/business/2435666,CST-NWS-salestax27.article


We're No. 1.


Chicago shoppers, such as these checking out Blackhawks gear at the United Center in April, paid the highest sales tax rate in the United States then and will continue to do so despite this week's rollback.

Even with the half-penny sales tax rollback set to kick in across Cook County this week, Chicago will still have the distinction -- shared with Los Angeles -- of having the highest sales tax rate of any large U.S. city at 9.75 percent.

While the rollback may help retail sales in the short term, Chicago will have a tough time escaping the No. 1 national stigma, even if it eventually falls out of the top spot. And that could hurt travel and convention business, experts say.

"An economist would say each quarter-cent or half-cent improvement you get will help at the margin," said William Ahern with the independent Washington, D.C.-based Tax Foundation.

"That means people who were going to drive out to a collar county for that flat screen might now say, 'Oh, I'll just buy it here. It can't be that much difference because I read that it [the sales tax] was going down,'" Ahern said. "So it can't hurt."

Long term, it's a public relations nightmare, he said. Ahern points to Massachusetts hanging on to the moniker "Taxachussetts," decades after reform measures stabilized state and local tax rates. In fact, he said, the state's overall tax rates are somewhere in the middle of the pack compared with other states.

"There have been a lot of stories about Chicago having the highest sales tax, and that's not a good thing," Ahern said. "It's a hard thing to shake when you're No. 1."

Cook County's portion of the sales tax is a fraction of the overall state, city and regional transportation sales tax pie. Sitting at 1.75 percent, the county's share will be reduced to 1.25 percent on Thursday for items such as clothing, appliances or dining out.

Still, the sales tax became a lightning rod for criticism after a majority of commissioners along with Cook County Board President Todd Stroger approved the penny-on-the-dollar tax hike to cover a budget deficit. In the run-up to this year's election, a block of commissioners -- feeling the heat from voters angry over the economy and allegations of government waste -- decided on the half-penny giveback.

Both Stroger, a South Sider, and Commissioner Joseph Mario Moreno, whose district stretches across the city's Southwest Side, stood by the tax hike, saying it provided funding for county-funded hospitals and clinics. It cost them their seats in the February primary.

Moreno told the Sun-Times last week he agrees the sales tax is too high but said he supported it in 2008 because it was the best way to fill the budget gap.

"I think we need to have a more reasonable tax base, we need to reform the way we tax people -- broaden the sales tax [to include more taxable items], and perhaps consider [increasing] the income tax," Moreno said.

Shoring up spending is inevitable as a budget deficit looms, he said.

But Commissioner Joan Murphy said the rollback is going to cause a sea of red ink.

"We're going to have to make tremendous cuts, and I don't know where we're going to cut," said Murphy, a Democrat whose district sits in the south suburbs. "When all the counties around us and the state were in financial trouble, we were doing well, but we will be in for it next year with the half a percent taken off."

Commissioner Liz Doody Gorman would like to see the full repeal of the 2008 tax hike, one that she voted against. The southwest suburban Republican points to Tinley Park, which is in her district, as an example. The suburb straddles two counties -- shoppers pay 7 percent sales tax in Will County and, as of Thursday, 8.5 percent in Cook County. A DePaul University study of the sales tax hike shows such border communities saw a dip in sales.

"We've got to try to find a way to bring some parity on this issue and give our businesses a fighting chance to compete," Gorman said.

Last year, the county collected $645 million in sales tax receipts -- more than double the roughly $320 million logged in 2007 before the sales tax hike kicked in, according to the Illinois Department of Revenue. In addition, the state gives a quarter of every sales tax dollar it collects in Cook County back to the county, said Sue Hofer, a Revenue Department spokeswoman.

Candidates for Cook County Board president have campaigned to repeal the remaining half-penny of the tax. Republican Roger Keats says it's job one, but Democrat Toni Preckwinkle says a projected budget deficit means it may be a few years until that happens.


HOW THEY RANK
Sales tax rates for the 10 largest U.S. cities, from highest to lowest:
Percent
1. Chicago 9.75
2. Los Angeles 9.75
3. Phoenix 9.3
4. San Jose 9.25
5. New York City 8.875
6. San Diego 8.7
7. Houston 8.25
8. Dallas 8.25
9. San Antonio 8.125
10. Philadelphia 8