Bloomington-Normal city officials are praising a U.S. Supreme Court ruling that may finally turn our online shopping into local tax revenue.
The Supreme Court ruled Thursday that states can require retailers to collect and remit sales taxes on out-of-state purchases. The 5-to-4 decision reversed decades-old decisions that protected out-of-state vendors from sales tax obligations unless the vendor had a physical presence in the state.
The ruling is a “huge step in the right direction,” said Town of Normal Finance Director Andrew Huhn. Normal and other municipalities have seen falling or flattening sales tax revenue in recent years, and the shift to online sales was a major reason why, Huhn said.
“We see this as a big plus,” he said. “The Town of Normal and municipalities and states across the country have wanted some sort of solution to a problem that’s impacted us for more than a decade.”
Sales taxes make up about one-third of Normal’s operating budget, Huhn said. Last spring Normal cut 25 jobs, arts grants, a police substation, and other services to close its anticipated budget deficit.
It’s unclear how much more tax revenue Normal may see as a result of this ruling, but Huhn called it likely “significant.” There are also big questions about implementation and how such taxes will actually be collected, he said.
“Certainly brick-and-mortar places who’ve been pushing for it for some equity in terms of competition will see it as a good thing too,” Huhn said.
Indeed, the Illinois Retail Merchants Association (IRMA) welcomed the decision.
“This ruling replaces the pre-Internet ruling that was determined by lower courts to prohibit states from requiring internet retailers to collect sales tax,” President and CEO Rob Karr said in a statement. “As IRMA has long argued, regardless of where a sale occurs, a sale is a sale and sales tax should be applied. This ruling will ensure that main street retailers—who employ your neighbors, pay property tax and support local programs—are able to compete on a level playing field with out-of-state retailers that use our roadways and other services, but up until now, did not contribute anything to Illinois' economy. This decision also protects Illinois consumers who have been liable for the sales taxes remote sellers refused to collect."
The City of Bloomington was also following Thursday’s ruling.
“While the impact to municipalities is anticipated to be positive, estimates at this time are not readily available,” said city spokesperson Nora Dukowitz, adding that staff will be closely monitoring financial-impact reviews from the Illinois Municipal League, the Government Finance Officers Association, and others.
Beginning in October, online sellers will have to collect state sales tax if they conduct at least 200 transactions or earn more than $100,000 in Illinois.
Officials estimate Illinois could gain an additional $200 million in annual tax collections. That does not, however, equate to an unexpected windfall—the budget for the new fiscal year already counted on getting an additional $150 million in sales taxes following a favorable ruling. (That represents the $200 million annual figure pro-rated to nine months, since the new law doesn't take effect until Oct. 1).
IPR’s Brian Mackey contributed to this report.
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