(This article was published first by the Illinois Policy Institute).
While holiday shopping might bring back some semblance of “normal” to 2020, the shock of Illinois’ high sales taxes are a painful reminder of government fiscal problems.
Illinois sales tax averages have crept up to 8.8% from 8.22% between 2020 and 2015, according to the Tax Foundation’s most recent rankings. Illinois was 10th in the nation for sales taxes in 2015 but ranked No. 7 in July 2020.
The state’s sales tax rate is 6.25%, but when considering additional local sales taxes, the combined statewide average hits that 8.8% mark. Some Illinoisans pay 10% or more on every purchase.
Chicago, a holiday shopping destination known for the Magnificent Mile and bright Christmas lights on State Street and Michigan Avenue, makes shoppers suffer even more. Shoppers leave the stores thinking twice about their gift purchases after paying a 10.25% sales tax. It’s the highest combined sales tax of any U.S. city with at least 200,000 residents, a title Chicago has held since the Cook County Board passed a sales tax hike in 2016.
Some gifts are even more expensive after they are given in Illinois. New smartphones are one of the most popular Christmas gifts. However, the state holds the title of highest cellphone taxes in the country. A typical Illinois family with four cellphones pays on average $374 annually in taxes on cell service, but if that family lives in Chicago it pays $526 in cellphone taxes.
The New Year will also bring more pain at the pump. Illinois is one of only seven states to charge residents state and local sales taxes on a gas purchase. Pritzker’s doubling of the state gas tax in 2019 already costs each Illinois driver about $100 more per year, and it automatically rises with inflation every July. On Jan. 1, an additional 3-cent gas tax hike will go into effect for Chicagoans on top of the other eight taxes and fees on every gallon.
With the pre-pandemic rise in online shopping, in 2020 Illinois began collecting taxes on purchases from online marketplaces that facilitate sales by third-party users, such as eBay and Etsy, at a base rate of 6.25%. Next Christmas shoppers will pay more in online sales taxes based on their addresses. On Jan. 1, a new law will make online purchases subject to the state and local taxes depending on the buyer’s location. Therefore, a purchase made by a Chicagoan in-store or online will be subject to the same 10.25% combined sales tax.
Changes can be made to lighten the sales tax burden on the state’s shoppers. For one, Illinois does not tax most services. If sales taxes were applied to both goods and services, the rate could be lowered. It would also provide a more stable income in times of economic downturn when consumers purchase less.
A broadening of the sales tax could also do more harm, however. Low-income people could not afford higher taxes on important services or expanded taxes to items such as food. Additionally, Illinoisans would have to make sure lawmakers do not use more tax revenue as a justification for more spending – as they have done with most tax increases. That lawmaker proclivity in part defeated their “fair tax” push Nov. 3.
Lawmakers must find a way to ease the tax burden on Illinois consumers. Raising taxes does nothing to address the underlying cause of state and local fiscal stress – rampant pension debt. Instead of ever-increasing sales and other taxes, they should create lasting reform by fixing government pensions.