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CHICAGO-AREA TAX RATES INCREASING - Will Comsumers Make Big Purchases Across State Lines? On the Internet?


As you no doubt know by now, Sales Taxes in an around Chicago are going up!

Effective April 1, 2008, the Sales Tax in Chicago will be increasing by 0.25%, in most suburbs 0.50%.  The increase comes as a result of action by the Illinois State Legislature last January to use the new revenue to fund Mass Transit in the Chicago and suburban area. 

On November 1 of this year, Cook County Sales Taxes will increase by an additional 1%.  The Cook County Board of Commissioners approved this increase minutes before the IL-mandated budget deadline of February 29th.

After these increases are loaded, the Sales Tax for Consumers in the City of Chicago will be the highest for any big city in the U.S. - 10.25% (it currently sits at a steep 9.0%).  Tax rates in surrounding suburbs will increase to a lesser degree, but some Cook County suburbs will jump as high as 10%, while others will remain at a comparatively-low 7% rate.

By comparison, the base sales tax in Illinois, which will soon become the going rate most communities in Downstate IL - far from the Chicago Metro Area - will be a seemingly-more-modest 6.25%.

Because of widespread tax disparity, will shoppers cross county or state boundaries to save money on their purchases after the increase become law?  Today's Chicago Tribune tells of a couple from the Bridgeport Neighborhood on the South Side of Chicago crossing to neighboring Indiana, where the State Sales Tax is 6.0%, with no current plans to change it.  They purchased a new Desktop Computer at a Best Buy store in Indiana, and saved $32 in applicable sales tax.

Others may increase their purchases from out-of-state online retailers.  Unless retailers have a PHYSICAL PRESENCE in the state where online goods are being purchased - either a retail store, or an office or warehouse - collection of local and state sales tax is not required. 

(The State of Illinois requires consumers pay a 6.25% Use Tax for these purchases, but is is rarely enforced or collected from most consumers.  Only on cars and other vehicles purchased out of state is the tax routinely corrected - local dealers everywhere are required to have their customers pay the ILLINOIS tax in order to be able to purchase proper license and title).

Michael Nelson, the Chair of the Economics Department of the University of Akron, OH, sees little impact in Downtown Chicago - although many will grouse for a while about the tax increase.  Many in-city residents do not have the means or the inclination to travel great distances to take advantage of tax savings. 

But consumers in border areas, near state or county lines, will most likely drive for a few extra minutes to save big money on expensive items. (See our posting here on from March 6th, where city officials in one Chicago Northwest Suburb are actually talking secession from Cook County as a result of the increase!)

Many complain these tax increases couldn't have come at a worst time - with gas prices predicted to reach record highs this summer, and many workers increasingly concerned about job security as the U.S. Economy is struggling.

See Monique Garcia and Emma Grave Fitzsimmons article in today's Chicago Tribune for more on this story, including relevant graphics, and the experiences of other states and counties, in other parts of the U.S., where local sales tax increases negatively impacted sales.


Posted: Sunday, March 09, 2008 10:21 AM by Dean's Team


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