Tax on E-Commerce Produces Odd Adversaries

State Sen. Steven J. Rauschenberger of Elgin is on the side of retailers and commercial property owners who consider themselves to be at a competitive disadvantage because their customers have to pay state sales tax, which in Illinois is 6.25%, 1% on food and drugs. State Rep. Jeffrey M. Schoenberg of north suburban Wilmette admits he's a "closet libertarian" who questions some of the implications for commercial and industrial real estate, as well as privacy issues related to e-commerce taxation.

"Clicks and mortar are what's surviving," says Schoenberg, relating the move by a bookstore owner in neighboring Winnetka who set up a web site for his business. It may not be Amazon.com, but it's an integrated approach between the old and new commerce. "That's what's going to make the difference."

The difference now is about 6% to 8% less revenues for traditional retailers, Rauschenberger argued at the National Edge Cities Conference in this northwest suburb of Chicago, held at a hotel located in a two-mile stretch with the most valuable office and retail real estate outside Downtown. Rauschenberger buys arguments from the National Association of Shopping Centers that Internet sales should be taxed just as purchases at nearby Woodfield Shopping Center do.

"They're seeing more dark stores because they can't get businesses," says Rauschenberger, which automatically lowers the value of commercial real estate.

The result also could mean transferring more of the property tax burden to residential homeowners, Rauschenberger says, though the host of "Edge Cities" symposium doesn't levy a tax for village services because its 1% cut of sales tax and commercial tax base is huge enough to make it unnecessary.

Communities including Schaumburg could end up gaining as a result of a tax-free e-commerce system, Schoenberg says. "It's helping certain sectors of real estate," he adds, industrial to be specific. "There's a need to warehouse products."

One high-tech job means four more to service that high-wage worker, Schoenberg adds. And he argues the state's loss in sales tax revenue was just 0.25% in 1998, with a projected rise of 2 percentage points a year through 2003.

However, that could add up to $400 million to $800 million in sales tax revenue for Illinois by 2003, says Kenneth Alderson, executive director of the Illinois Municipal League. But there's a human element to the equation, he adds.

"You end up with a business going out of business. You lose sales tax and property taxes when that business goes out of business," Alderson says. "But you also have people who worked in those businesses, and now you have those people out of work."

Besides unemployment compensation going out of the state's treasury, there also could be foreclosures as a result of those workers not being able to meet mortgage payments, he adds.

Rauschenberger is pushing legislation adding Illinois to the list of states to experiment with a system of collecting use taxes – another form of a sales tax on out-of-state purchases. Collection certainly is inefficient now, Alderson says. "Did you fill out the use tax for goods and services bought out of state on your Illinois tax return this year?" Alderson asked. "Everybody who buys something out-of-state over the Internet is breaking the law if they don't pay the use tax."