DeKalb’s Freakishly High Sales Tax Rate Might Actually be Good for Something

**Update** 1/26. Related: “Sales tax coffers could get boost with new law”. Discusses the Marketplace Fairness Act and its impact (if it ever passes the U.S. House) on state revenues.
**Update** 1 p.m. Related: “Now comes the Internet Sales Consultants”. It provides more food for thought on this scheme, as well as a description of an omission that sounds like a possible violation of the Open Meetings Act.

DeKalb’s city council is considering a new kind of retail revenue source. You should know about it because your tax money is involved.

Chronicle:

City leaders are trying to lure Internet retailers with an 85 percent sales-tax rebate.

The first step in the coaxing process came Monday when aldermen unanimously approved an agreement with a shell company called Great Lakes Economic Development LLC.

The company was created by Tom McPeak, a partner with Atlanta-based Barnwell Consulting, who said he has an undisclosed client interested in setting up shop in DeKalb.

McPeak is an acquaintance of Roger Hopkins. Hopkins used to head the DeKalb County Economic Development Corporation, and after that contracted with the city to provide economic development services for a time. And it looks like he’s done us a solid in facilitating an introduction.

Let’s take a closer look at the potential in this gift.

You are probably aware that it’s often tricky to determine who gets to collect sales taxes on Internet purchases. According to the memo provided by city staff in advance of the meeting, the Illinois Department of Revenue has recently adopted a five-point test for this. They consider:

1) Where sales persons who solicit the orders are located.
2) Where the seller takes action to accept the sale.
3) Where payment is tendered and received or where invoices are sent from.
4) Where tangible inventory is located.
5) Where the seller’s headquarters is located.

If the city and a given retailer work out an arrangement where at least three of the five conditions are met, the city supposedly would collect the local sales taxes just as it does from transactions in any brick-and-mortar store in town.

Staff estimates derived from conversations with McPeak and one of his clients, the City of Frisco, Texas, indicate as much as $500,000 in taxes generated annually per high-volume, national retailer.

Of course, each retailer would want a big chunk of the sales tax take in compensation for opening an office in DeKalb. The Chronicle reports the portion as 85%, but also states that the city’s portion would be $200,000; this doesn’t gibe with the above half-million estimate*. Keep in mind, though, the council’s only decision so far was to pass a resolution to contract with consultant McPeak, so throwing out any compensation figure at this point is just so much laying of groundwork for theoretical future negotiations with specific retailers.

Still, McPeak did say DeKalb’s high sales tax rate is the draw for Company X, and apparently Illinois has no ceiling on this type of retailer compensation (PDF), so expectations must be high.

Let me add my own high expectations that, should DeKalb eventually sign on with Internet retailers using our local tax dollars as corporate welfare, the city would put a guaranteed percentage of its portion of the new revenues into tax relief for us.

One more thing, something for the goo-goo files. From the staff memo (emphasis is theirs):

McPeak works with high volume internet retailers who seek an arrangement to locate a qualifying enterprise in the City with a portion of the sales tax coming back to the company as an incentive. This raises a philosophical question regarding to what extent the Council believes it is appropriate to incentivize private enterprise with the sales tax dollars that are, at the time of receipt, public dollars.

Staff furthermore declined to make a recommendation on the matter until the city council settles the policy question.

The new crew is demonstrating a better grasp of roles and boundaries than their predecessors had. Tip o’ the hat for this, along with hopes that we may soon take for granted a raised bar for professional conduct at city hall.

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*I watched/listened to much of the meeting — streaming it while fixing supper — but I missed any comments about the 85%.