The retailer’s discount is a generous corporate welfare program that Illinois can no longer afford. A new report [PDF] finds that Illinois currently dishes out $142 million per year in subsidies to retailers through it 1.75 percent retailer’s discount rate.
The retailer’s discount allows retailers to keep a portion of the sales tax they collect on behalf of state and local governments as compensation for collecting the taxes and transferring them to the government. 28 states have a retailer’s discount; 22 do not. This redistribution of tax revenues from the government to retail businesses may have made sense decades ago, when businesses maintained handwritten records. Today, however, the process of tax collection and transferal is automated, imposing minimal cost onto retailers.
Illinois is also one of only 12 states that does not cap the amount of revenue a retailer can make per filing period.
Illinois loses substantially more in revenue to retailers than neighboring states. The biggest beneficiary is the corporate giant, Walmart. Walmart receives nearly $10 million every year in Illinois to perform an automated process of sales tax collection.
At a time when Illinois’ financial condition has required cutbacks to essential services, Illinois must find new ways to save funding or generate new revenue to protect taxpayers.
Illinois should lower its retailer’s discount from 1.75 percent to the 0.50 percent rate used in Wisconsin.
If Illinois lowered the discount to 0.50 percent of all sales taxes collected:
- the Illinois General Fund would add $102 million to help improve the budget and fund essential public services;
- the state economy would grow by an additional $25 million; and
- good, middle-class jobs would be saved or created in Illinois.
Opponents of this policy change claim that a high retailer’s discount encourages retailers to open up stores in a state. However, economic data finds no evidence that more retail companies are located in the states with higher subsidies to retailers.
There is no statistical correlation between a higher retailer’s tax discount and a larger retail sector in the economy. In fact, retailers are doing just as well in the 22 states that do not have a retailer’s discount as they are in the states with high subsidies. Factors other than a tax subsidy are far more important in supporting a strong retail sector – such as high wages and strong consumer demand.
Illinois needs to fix its long-term budget outlook. The State simply cannot afford to continue providing a 1.75 percent subsidy to retailers on the sales taxes they collect. Lowering the retailer’s discount to the 0.50 percent rate of neighboring Wisconsin would improve the budget by over $100 million per year, provide funding for essential public services, boost economic output by $25 million annually, and have a negligible impact on retailers.
Reducing the retailer’s discount is a common sense way to help put an end to corporate welfare in Illinois.
The full report can be viewed here: https://illinoisepi.files.wordpress.com/2016/07/ilepi-retailers-tax-discount-final.pdf.