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Sales Tax Impact Is Murky For Normal As Rivian Sales Begin

 A Rivian R1S SUV drives through Uptown Circle in Normal.
Emily Bollinger
/
WGLT
A Rivian R1S SUV drives through Uptown Circle in Normal.

The economic impact of Rivian’s manufacturing plant in Normal will be vast. We’re already seeing that in the hot housing market. Local and state governments also expect to see more tax revenue as property values rise and thousands of Rivian workers do what we all do: buy stuff.

But one piece of the Rivian economic puzzle is less clear: If someone buys a Rivian vehicle, who gets a cut of the sales tax money?

The answer is important in part because Rivian vehicles are expensive. The cheapest Rivian now starts at $67,500. With the typical tax rate on a vehicle sale 6.25%, that’s at least $4,200 in tax revenue for every vehicle. If Rivian sells tens of thousands of vehicles each year, that’s big money.

Of course, the math is not that simple.

“It is not clear to the Town how sales will be recorded and how the taxation of those sales will be allocated,” said Town of Normal spokesperson Cathy Oloffson. “Will transactions be recorded as direct sales from the factory here in Normal? Or will they be recorded as sales in the locations where customers take delivery? We aren’t certain. The town understands Rivian is currently busy with production and start up, and we know this will be resolved when they start selling vehicles.”

Koos and Scaringe
Megan McGowan
Rivian founder and CEO RJ Scaringe, left, with Normal Mayor Chris Koos during an event in Uptown.

Mayor Chris Koos said it’s a realistic possibility that his town will see some of that money.

“It’s Rivian’s decision to build their model. We’re more reactive in that regard than anything, because it’s their company, it’s their business model,” Koos said.

Fight over direct sales

One reason it’s murky is because there’s a legal challenge to whether Rivian will even be allowed to sell its electric vehicles directly to consumers. A coalition of auto dealers sued Rivian and the Illinois secretary of state, claiming they’re breaking a law that protects the dealership model.

The Illinois attorney general has sided with Rivian. In asking a judge to dismiss the auto dealers’ lawsuit, the attorney general’s office plainly said, “Illinois law does not prevent Rivian … from selling their vehicles directly to Illinois consumers.” That case remains pending, with the next hearing on Oct. 28.

Rivian plans to open a sales showroom in Chicago’s Fulton Market neighborhood. It will also open what a spokesperson called a “consumer experience space” at its Normal campus, focused on the Rivian adventure brand and the community’s direct introduction to its vehicles. More details on the Normal location and other showrooms are expected to be released later this year. Rivian’s recent application for a dealer license, filed with the secretary of state, shows a showroom space in Normal.

Koos is aware of those plans.

“I’ve heard conversations about test-drive, off-road course, if you will, where people can come out and try those vehicles in a real-life situation. But definitely they’ll be a customer engagement center in this community. And early on, it may be one of the first ones out there. People will come here to either pick up their Rivian, or shop for their Rivian,” Koos said.

Rivian is waging the fight for direct sales across the country. Sales tax revenue is part of Rivian’s argument.

In Connecticut, Rivian public policy director Dan West told lawmakers, “When we are not permitted to operate in the state, Connecticut residents are forced to travel to neighboring states to test drive a Rivian vehicle or speak to a product specialist—and the vehicle sales tax may be paid in the neighboring state. It’s a net loss for the state economy, an unnecessary burden on Connecticut consumers, and discouraging for the next generation of American automotive innovation.”

Rivian’s public policy VP, James Chen, made an identical case in testimony in Washington state.

“Without allowing us to participate in that marketplace in Washington, the state will inconvenience its citizens, surrender the sales tax revenue to other states, and cede leadership of this new U.S. automotive technology to others,” Chen said.

Others in the pro-EV lobby want direct sales in every state. Their analogy is the iPhone: A consumer can buy one online, or at Best Buy or Target, or from the Apple Store.

“The goal is electrify as quickly as we can,” said Ben Prochazka, executive director of the Electrification Coalition. “And if we’re gonna do that, we need new entrants who are making really compelling products, and we need to get those vehicles to the market and into the hands of consumers really fast. And one of the best ways we can do that is to make this friendly to consumers.”

For the sake of argument, let’s assume Rivian is allowed to make direct sales in Illinois. As a retailer, Rivian would collect sales tax (6.25%) on all direct sales made in Illinois. A few scenarios then emerge.

As is often the case with Rivian, the EV pioneer Tesla offers a useful comparison.

Tesla, which does direct sales, operates a store and service center in Bloomington. Tesla collects state sales tax, some of which is sent to the City of Bloomington if the sale is delivered through that facility, officials said. If the buyer is a Bloomington or Normal resident, they also pay a 0.75% local use tax that’s applied to all titled purchases—like a car. The city gets that money, too.

Tesla did not respond to WGLT’s request for comment about how this works.

Out-of-state buyers

It gets more complicated for out-of-state buyers. Home delivery will be Rivian’s “primary” method, according to its website, but factory pickups in Normal also may be available.

Out-of-state residents who buy in Illinois would generally be exempt from Illinois sales taxes, if they use a “driveaway permit” issued by the secretary of state’s office or affix their out-of-state plates to their vehicle. It’s like a tax-friendly quid pro quo, so Illinois residents can travel to other states and buy cars, too.

But there are exceptions. There are eight states that don’t have a so-called reciprocal deal with Illinois, meaning sellers here have to charge sales taxes. Indiana and Michigan are among them.

“The takeaway is, if a non-resident comes to Illinois and buys a car, they might be forced to pay sales taxes on that purchase, but they might not, if certain conditions are met,” said Michelle Layser, a tax law expert from the University of Illinois’ College of Law.

At face value, it might seem like Illinois is leaving money on the table by not forcing out-of-state buyers to pay its sales taxes. But it’s a policy decision, Layser said.

"In terms of sales taxes, I don’t think it’s going to have a great effect."
Kenneth Kriz, Institute for Illinois Public Finance

“Reasons why we might do that? Maybe it’s exactly this,” Layser said. “We bring in this manufacturer, and it’s making it easier to maintain a large sales customer base by having a favorable tax rule like this. They can bring out-of-state buyers into the state more easily than maybe if those buyers were going to be facing an Illinois sales tax. I’m more likely to come to Illinois to buy a car if I don’t think Illinois is going to tax me on that. I’ll go back to my home state and deal with their use tax rules.”

Tesla has fought state-by-state tax battles too. It’s building a plant in Texas to make EVs, but direct sales are not allowed in Texas. Until that’s changed, Tesla will have to ship its Texas-built vehicles out of the state before it can sell (and ship) them back to Lone Star buyers.

Some speculate that McLean County might benefit from factory purchases or deliveries through EV tourism. That buyer might spend the night at a local hotel, or grab dinner at a local restaurant.

That didn’t really happen in Fremont, Calif., where Tesla’s EVs are made.

“I’m not aware of any significant increase in city revenue related to ‘Tesla tourism,’” said Fremont’s finance director David Persselin. (To be sure, Fremont is located in the heart of the Bay Area in California, not an isolated metro area like Bloomington-Normal.)

The City of Fremont does receive sales tax revenue from Teslas purchased at the Fremont Tesla factory, and it also receives use tax for large items of manufacturing equipment purchased by Tesla for the factory, Persselin said. The recipient of sales tax for online sales depends on several factors, so it’s not clear how much of online Tesla sales result in sales tax revenue for the City of Fremont, he said.

Indeed, Layser said the Town of Normal may see some extra sales tax revenue come in, “but maybe not as much as you’d hope.”

Kenneth Kriz, the director of the Institute for Illinois Public Finance at the University of Illinois at Springfield, agreed.

“In terms of sales taxes, I don’t think it’s going to have a great effect,” Kriz said.

Metro Zone

The sales tax question has implications for the City of Bloomington too. For 30 years Bloomington and Normal shared sales, property, and food and beverage tax revenue generated in the area near the Rivian (formerly Mitsubishi) plant. But Bloomington exited the Metro Zone agreement in 2017. City officials said they felt they weren’t getting as much money out of the deal as Normal; town officials say that only happened because the second Walmart in west Bloomington opened—something that both the town and city lobbied to make happen.

Because the sales tax picture is still so murky, it’s unclear if Bloomington leaders missed out on revenue by exiting MetroZone when they did. There may be a windfall, but there may not.

“Hindsight is always 20/20,” said Bloomington Mayor Mboka Mwilambwe, who was a city council member in 2017. “But again, I’m one person who never really looks at life with regret. I say the decisions were made, and we have to move on. As it is, the city of Bloomington is going to see some benefits from Rivian being here. Their employees are purchasing homes in Bloomington. They’re buying goods in Bloomington.”

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