UPDATED 08/23/11 1:16 p.m.
CHICAGO (CBS) — The City of Chicago and the Regional Transportation Authority each filed a lawsuit Tuesday, over retailers who are doing business in the city, but routing sales through “sham shops” in other cities where the sales taxes are lower.
As WBBM Newsradio’s Nancy Harty reports, in suing Kankakee and Channahon, the city and the RTA claim the “sham shops” in other towns have cost the agency an estimated $100 million.
LISTEN: WBBM Newsradio’s Nancy Harty reports
The city claims Kankakee and Channahon have attracted many corporations by offering sales tax revenue kickbacks if they purported that their retail sales were processed through brokers in the towns.
The process is now so profitbale that Kankakee and Channahon are leading the state in annual retail sales per capita, at $78,000 and $62,000, respectively, and 10 times the per capita sales of Chicago.
“Companies are gaming the system and cheating Chicago’s taxpayers,” Mayor Rahm Emanuel said in a news release. “I have to be the voice for the taxpayers, and I will not tolerate this.”
RTA Chairman John Gates said the lawsuit was the last resort to go after companies that set up satellite offices outside of the RTA region, and do little work.
“Forward phone calls, faxes and mail, and the destination is outside of Kankakee and Channahon for multiple companies, solely for the purpose of paying less sales tax,” Gates said.
Ald. Walter Burnett (27th) says it is unethical and unacceptable for companies that enjoy public services of the collar counties to move sales offices, in order to avoid paying the taxes that pay for them.
“These are strictly public funds that come from the public,” he said.
Channahon Mayor Joe Cook says the village will aggressively defend the lawsuit, and the companies that move to his village.
“I think they’re operating within the limits of the law,” he said.
But Mayor Emanuel says they are not. The Mayor’s office says the practice was prohibited by the Illinois General Assembly in 2004, but Channahon and Kankakee still to enter into “sham shop” arrangements.
Catalog houses, appliance retailers and even oil companies are among the firms that have been setting up offices in low-tax towns.
In Kankakee, the sales tax is 6.25 percent, the Illinois state minimum. In Chicago, the sales tax is 9.75 percent.
Illinois is among a few states that apply sales tax where an offer is accepted rather than where a product is delivered to a customer.