CHANNAHON – For at least 150 days, the Illinois Department of Revenue is putting a stop to what it considers “artificially sourced sales” happening in various Illinois municipalities, which could very likely include Channahon.
The IDR issued an emergency amendment Wednesday establishing new regulations that prevent municipalities from collecting sales tax revenue on sales that did not happen in a “meaningful way” within their municipal borders.
Although the emergency amendment is in effect for a minimum of 150 days, the IDR also proposed permanent rules that could replace the emergency rules, pending a review from the Joint Committee on Administrative Rules.
With the new regulations, businesses operating across multiple locations will have to pay sales tax to the municipality that houses company executives and an inventory of goods, and is the primary location where purchase orders are accepted.
The amendment outlines several other rules regarding where and how point of sale should be determined.
“It’s not really fair if 3,000 employees work in Cook County and one employee works in Channahon, but [Channahon] get the sales tax revenue,” IDR spokeswoman Sue Hofer said. “Call me crazy, but that doesn’t seem like a fair treatment of sales tax.”
This amendment could affect Channahon, which the Regional Transportation Authority alleges has 16 or more companies routing sales transactions through small, nearly non-existent offices in the village – many listed under the same address – to take advantage of the county’s much-lower sales tax.
The RTA is involved in a lawsuit with Channahon and Kankakee, claiming that the municipalities deprived the RTA and other units of local government of several millions of dollars in legitimate tax revenue.
Channahon also entered into what it calls “Economic Development Incentive Agreements” with several of those companies in which it rebated as much as 85 percent of sales taxes revenues to the companies that paid them, according to Hofer.
Hofer said IDR feels it is unfair that the municipalities providing public services for the bulk of those companies are not getting the sales tax. Channahon President Joe Cook and Village Administrator Joe Pena said they are still in the process of interpreting the new emergency rules.
“Once we have an opinion one way or another on where we’re at with this whole thing, we’re encouraged that the [rebate program] can continue,” Pena said.
Cook said that despite the RTA’s allegations, the businesses in Channahon had employees, phones and computers, and could potentially meet the new criteria for point of sale.
But if the rebate program is eliminated and Channahon can no longer collect that tax revenue, Cook said he estimates the village would lose as much as $2 million annually. Grundy County Board Chairman Ron Severson said the county stands to lose as much as $1.8 million a year.
“The agency has changed rules that were in place for over four decades,” Cook said. “In an effort to appease the RTA, the city of Chicago and Cook County, they decided to develop rules that help [the RTA, Chicago and Cook County] but don’t consider how businesses operate throughout the entire state.”
The amendment was created to comply with a recent Supreme Court decision involving an oil company based in Cook County that routed all of its purchases through a small office in Putnam County. The Supreme Court ruled that current point of sale tax laws are unconstitutional.
Because the laws were in place and presumed legal up until this decision, Channahon will most likely not have to pay RTA any past revenue earned through the rebate program.
Severson said the county and the village of Channahon are working to convince companies to move their entire operations to Grundy County instead of using offices.
With Cook County having one of the highest sales tax rates in the country at 9.25 percent, Severson said Grundy County’s rate of 6.25 percent, paired with large property tax rebates, could lure the major companies.
As of Wednesday however, these companies will pay sales taxes to the municipalities where the greater portion of the business is currently located.
“We probably have a lot of late finance meetings ahead of us,” Severson said.