Cook County's sales tax hike: Who really pays the price? Cook County's tax hike: Who pays the price? Depends on where you live in Cook County and beyond.
Friday, July 17, 2015
Chicago Tribune by Becky Yerak and Robert Channick
It's going to cost more to shop in Cook County.
The county's board last week approved a 1-percentage-point increase in the sales tax, a reversal of a reversal of the same tax a half decade or so ago, a tax that got Todd Stroger ousted as board president and saw Toni Preckwinkle installed. Now Preckwinkle and her board are going where Stroger paid the political price to tread.
In Chicago, the sales tax will rise to 10.25 percent on Jan. 1, 2016, bumping up the cost of that $1,000 appliance an extra $10.
Retailers and other business interests fear that the additional expense will drive consumers, particularly those living close to the Cook County border, to neighboring counties. At least one study backs up that notion.
A 2009 study by Joseph Schwieterman, director of Chaddick Institute for Metropolitan Development at DePaul University, found that sales tax rates affect buying behavior near the Cook County border. At the time, the average rate for Cook County, including municipal sales tax, was about 2.16 percentage points higher than in DuPage, Kane, Lake, McHenry and Will counties.
With the January increase, Cook will charge 2 percentage points more than every collar county except DuPage, where the difference will be 1.75. That figure does not include the sales tax charged by municipalities, which Schwieterman said tends to be higher in Cook County.
Schwieterman found that while 25 percent of the region's population lived in communities with tax rates of 7.75 percent or less, its members accounted for more than 28 percent of retail sales, suggesting that "relatively low-tax areas are becoming formidable competitors to higher tax areas."
The recession made it difficult to assess the impact of high sales taxes on Cook County, which was in the middle of the pack among local counties with drops in retail sales in 2008, he said.
But Schwieterman found that "communities near the edge of the Cook County border suffered significantly greater losses in retail sales than other communities" as consumers shopped in lower-priced neighboring counties within five miles.
"Consumers in these communities are typically more aware of sales tax differences than those further away from the county line and can divert to lower-tax areas with only a few minutes of additional travel time," he said in his report.
Schwieterman reported that Cook County experienced a 4.1 percent drop overall in retail sales in 2008, but its communities nearest to its boundary saw a 5.7 percent loss while towns just outside Cook County saw only a 1.7 percent drop.
Schwieterman also studied nine communities that straddled the county line.
Where cities were within Cook County, retail sales fell by 6.5 percent from 2007 to 2008; in parts outside, the drop was only 3.1 percent. And in the parts of Orland Park and Schaumburg within Cook County, they dropped by 8 percent and 7 percent, respectively.
"It's a myth that people won't change their behavior due to 1-percentage-point price change," Schwieterman said Friday. "Most people buy gas before arriving in Chicago, and you can see the same tendency for other goods as well."
Palatine, which sits on the border with Lake County in northwest suburban Cook County, threatened to secede from Cook County the last time a 1-percentage-point sales tax increase was implemented in 2008 by Stroger.
The village was eventually assuaged by Preckwinkle's campaign promise to repeal the tax hike, with the increase rolled back gradually over two years beginning in 2010. Not surprisingly, Palatine officials are disappointed and frustrated by its imminent return.
"It's going to be devastating to us," said Palatine Mayor Jim Schwantz, the former Chicago Bear. "It's going to be devastating to any community that borders on another town outside of Cook County."
When the increase takes effect, Palatine will have a 10 percent sales tax rate. Just a few miles north in Lake County, shoppers pay 7.5 percent in Lake Zurich. That's a $25 savings on a $1,000 purchase.
"Once it's done and the shoppers know it, they're just going to get in their car and drive up to Lake Zurich and do their shopping up there," said Schwantz.
"It's not just the pocketbook where it hurts," Schwantz said. "There's also a public perception to this, that I'm saving hundreds of dollars if I stay out of Cook County. That's going to be very difficult to overcome again."
Craig Horwitz, co-owner of H. Horwitz Co. jeweler in Chicago's Water Tower Place, said the current sales tax rate of 9.25 percent is challenging enough.
"10.25 percent can only make it more (so)," said Horwitz. "This can't help."
A $500 sale currently has tax of $46. That rises to $51 beginning next year.
"I can assure you that our clients will see that $51," he said.
Longtime Chicago furniture retailer Walter E. Smithe has 11 showroom locations, including four in Cook County.
The imminent sales tax increase will be enough to drive some customers to the collar counties and may even derail plans for the chain to open new locations in Cook County, according to Walter Smithe, grandson of the company's namesake and president of the 70-year-old family business based in Itasca. "It gives you some pause," said Smithe.
Smithe, one of three brothers who put themselves front and center in the retailer's ubiquitous TV commercials, struck a more serious tone over the tax increase, calling it a "bad idea." He nonetheless doesn't expect a huge exodus by shoppers out of Cook County.
"A high-end furniture purchase like ours almost always requires several visits to finalize the purchase," Smithe said. "If you start adding up the inconvenience and the automobile costs of driving back and forth, that 1 percent starts to go away pretty quickly."
However, Smithe said the decision on whether to locate additional Walter E. Smithe stores in Cook County exemplifies what may be a short-term spike in sales tax revenue but a long-term loss for the county.
"Those decisions are going to be made by thousands of businesses over the next few years," Smithe said. "This kind of thing has a very big impact on the way the county is going to develop and the way business is going to develop. Long term, it's not a positive thing."
Chicago lawyer Tony Peraica, a Cook County commissioner from 2002 to 2010 who says he never voted for a sales tax increase, was incensed at the hike.
"We Got What We Deserve: Cook County Board votes to raise sales tax," tweeted Peraica, who lost his 2010 election to Jeff Tobolski. Tobolski voted in favor of the increase.
In a phone interview Thursday, Peraica, who said his family and business are based in Cook, said he travels to DuPage County to buy more expensive items.
Nick Kokonas, chief executive of restaurant booking and payment system Tock and co-owner of Alinea, echoed Peraica.
"Sales Tax raise / property tax increases / cloud computing tax — cook county will have a VAT soon enough. Bad for residents and business," Kokonas tweeted.
Jerry Kamhi, chief executive of Haberdash, a men's clothing store in downtown Chicago, said he doesn't think a 1-percentage-point hike in the sales tax will have a major impact on his business but has concerns about the overall taxing demands of Chicago and Cook combined.
"It's not going to stop someone from buying a great pair of Alden shoes that they want," he said. "However, I do think that the cumulative effect of the taxes yet to come — cloud tax yesterday, sales tax today — to finance the city's needs could be detrimental to the average person's ability to spend."
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