KANKAKEE, Ill. (CBS) — The mayor of Kankakee is asking the City of Chicago and the Regional Transportation Authority to drop their lawsuits, which accuse her city and Channahon of allowing businesses to use their cities as havens to dodge Chicago sales taxes.

As WBBM Newsradio’s John Cody reports, Kankakee Mayor Nina Epstein says the problem is not that her city’s taxes are too low, but that Chicago’s are too high.

LISTEN: WBBM Newsradio’s John Cody reports

“I understand their fear,” Epstein said. “But when you continually raise your taxes to the point that your citizens can no longer pay them, or your businesses can no longer pay them, are you surprised at the result? It’s hard living with a six-and-a-quarter sales tax rate. We could raise our sales tax, and generate more income, but that would also disallow us the ability to have this program.”

The City of Chicago and the RTA claim 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 city and the RTA claim the “sham shops” in other towns have resuled in about $100 million in lost tax revenues since 2004.

And the process is now so profitable 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 last week. “I have to be the voice for the taxpayers, and I will not tolerate this.”

RTA Chairman John Gates said last week 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.

Gov. Pat Quinn said he also believes the legal action is necessary.

“I’m skeptical of evasion or avoidance techniques,” he said. “Avoidance, we have to take a look at to make sure it’s not evasion.
So this all needs to be reviewed.”

Quinn said he wants an “even-handed” tax that shortchanges no one.

But Epstein contends that if the city and the RTA win their lawsuits, businesses that have sales offices in Kankakee and Channahon will simply move out of Illinois, rather than pay higher Chicago sales taxes.

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