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Illinois leads on sales tax loss

Illinois leads the nation in states tax revenue lost from diversions to retailers to compensate for collection costs, according to a new study by Good Jobs First.

The state loses an estimated $126 million a year to retailer compensation — far more than any other state — and it also leads the nation in sales tax subsidies as part of economic development packages for Wal-Mart.

Nationally, of 45 states which collect sales tax, 19 provide no compensation for collection costs; of 26 that do, 13 of them cap compensation amounts, most of them below $10,000. Good Jobs First estimates that states lose $1 billion a year through sales tax diversions — $70 million of which goes to Wal-Mart.

Vendor compensation allowances, instituted before computerization brought down accounting costs, create “a windfall for giant retailers like Wal-Mart,” according to GJF’s Phil Mattera. GJF urges retail compensation be modernized in light of technological advances.

GJF cites a study that found that sales tax collection costs range from 13.5 percent for small retailers to 2 percent for large retailers.

“It is frustrating that when our state’s huge, ongoing deficits have forced cuts to human service programs used by the most vulnerable members of society, Illinois continues to lose so much revenue to this practice,” commented Ralph Martire of the Center for Tax and Budget Accountability.

Illinois leads on Wal-Mart breaks

Looking at diversion of sales tax revenues to economic development projects, GJF found that Illinois by far leads the states in sales tax rebates for new Wal-Marts, with $41 million going to eleven Wal-Mart developments over the past decade. In addition, a Wal-Mart in Collinsville received $9.5 million in sales tax increment financing in 2004.

The total for Illinois is more than a third of the $130 million in development-related sales tax subsidies that GFJ estimates Wal-Mart has received nationally over the past decade.

Last year Good Jobs First reported that Illinois leads other states by a wide margin in public subsidies to Wal-Marts — including subsidies for new stores in Orland Hills, Belleville and Collinsville that replaced existing Wal-Marts (see June 2007 Newstip).

The group calls for reasonable limits on retailer compensation and for restricting economic development subsidies to bringing basic necessities to underserved areas.

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Category: state budget, taxes, Wal-Mart

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