Skimming the sales tax

Note: Politicians are trying to blame the state’s pension funds for Illinois’ chronic fiscal woes. This item is part of “Big Biz, Big Breaks,” a series on tax loopholes that pulls back the curtains on the billions in tax giveaways that are a major cause of the state’s budget shortfall. To learn more about these loopholes – and read other installments in the series –click here.

If you owe taxes and pay them right on time on April 15, you don’t expect to be rewarded – after all, you’re doing what’s required as a citizen of Illinois.

But things operate differently when you’re a big business – especially a big retailer like Wal-Mart. Businesses that collect sales taxes and other taxes in Illinois get a big break just for doing what the law requires.

In Illinois, retailers benefit from what’s called the Sales Tax Vendor Discount. It’s designed to compensate companies for the cost of collecting and remitting sales tax dollars to the state. These discounts amount to a $116 million tax break each year.

A policy like this made sense when most of these retailers were small mom-and-pop businesses, calculating their sales taxes by hand. Today, though, most of the businesses that benefit from this are gigantic national and multinational chains. Computers and high-priced accountants handle the work for them.

The discount provided in Illinois is also much larger than what other states offer. The Sales Tax Vendor Discount in Illinois is the highest in the country and 40 percent higher than the next-largest state.

In an age when large corporations do everything they can to avoid paying a dime in taxes, why should Illinois be giving them a break? The Sales Tax Vendor Discount is a prime example of a policy that’s outlived its usefulness and doesn’t help taxpayers or Illinois’ small businesses.

That’s only the beginning. Similar discounts exists for businesses that collect and pay taxes on motor fuel, telecommunications, cigarettes, hotels, liquor, underground storage tanks, gas use and auto rentals. Some businesses are even given a break for “prompt payment.” In fiscal 2011, these breaks cost the state another $47 million.

The money lost to these tax breaks could be better spent helping Illinois’ working families by investing in state services and retirement security for workers.

Want to close this loophole? Call your legislators now – tell them to close corporate tax loopholes and pass a balanced plan for pension reform supported by the We Are One Illinois coalition. You can reach your legislators using the toll-free AFSCME hotline at (888) 912-5959 or use our click-to-call tool.