Tag Archives: sales tax

City Council, City of Peoria, State of Illinois, Taxes

City Attorney says nothing more can be done to protect against erroneous sales tax collection

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Back in July, I reported on some overtaxing that was taking place in Peoria. I discovered first-hand that when businesses erroneously charge too much sales tax, the citizen who is overcharged pretty much has to fend for himself to get reimbursed.

A communication from the city’s legal department to the city council more or less confirms that state of affairs. Councilman Gary Sandberg had requested that the city draft an ordinance that would impose penalties on businesses that collected more sales tax than they are statutorily authorized to collect. The memo to the council is in response to Sandberg’s request.

In a nutshell, the memo states that sales tax collection is handled at the state level — the city has no power to enforce collection or impose penalties for collecting the wrong amount (whether too little or too much). A plain reading of state statutes confirms this, unfortunately. However, City Legal then goes on to state:

A review of the State sales tax statutes, however, reveals that, in fact. there is a specific provision, 35 ILCS 120/2-40, which provides that purchasers are entitled to refunds from retailers who erroneously collect Retailers’ Occupation Tax and further provides that any erroneously collected tax not refunded must be forwarded to the Illinois Department of Revenue. 35 ILCS 120/2-13 provides for civil and criminal penalties for those who file fraudulent returns, who collect Retailers’ Occupation Tax and do not forward it to the Illinois Department of Revenue and who do not properly collect the tax. In short, the State sales tax statutes cover the field for civil and criminal penalties for sales tax violations.

The thrust of this and subsequent paragraphs, as I see it, is to assure the council that citizens are adequately protected by state law, and thus a local statute would not be needed even if it were permitted (which it’s not). But I would argue that it’s not adequate. Yes, 35 ILCS 120/2-40 does provide that, if the seller collects too much sales tax, “the purchaser shall have a legal right to claim a refund of that amount from the seller.” But this puts the onus on the purchaser to prove to the seller that they collected the wrong amount in the first place.

That might be easy if dealing with a local merchant (of course, a local merchant probably wouldn’t make that mistake in the first place), but when dealing with an out-of-town company, the local manager will generally give you a blank look and say, “the sales taxes are put in the computer by our corporate office.” So then you have to try to contact the corporate office, and the red tape only gets worse from there. Bottom line: it’s not worth your time to fight it unless you’ve purchased a big-ticket item and the difference in tax is significant.

Furthermore, the civil and criminal penalties listed under 35 ILCS 120/13 (not 35 ILCS 120/2-13, which doesn’t exist) only covers deliberately fraudulent acts and the failure to remit to the state all sales tax money collected. It doesn’t cover a situation like the one that happened in Peoria in July. We already knew that because I called the state and was basically told that as long as the business is remitting the money, the state isn’t going to do anything to correct the problem. It falls on the citizen to call the business and somehow convince them that they’re charging the wrong tax rate.

And that’s where this system falls apart. When you, Joe Citizen, complains that a business is charging the wrong tax rate, you are the one who has to prove it. From personal experience this year, I can tell you that the seller is going to defend the tax rate the store is charging. They get official documents from the home office in Chicago or Minnesota or wherever that says the tax rate is X, and by golly, the tax rate is X. Why should they listen to you? You’re probably just uninformed or a general complainer about how high taxes are.

There has to be a way for official notification to be sent to places that are charging the wrong tax rate. The city did do that this past month in order to clear up confusion with a number of businesses. But there is no policy in place that would require the city to do that. I would argue that they only did it because of the media spotlight that was put on the issue, because they certainly didn’t offer to do that for me when I complained, before the story got picked up by the local mainstream media.

If nothing else can be done (and that appears to be the case), the city should at least establish a procedure wherein citizens can notify the city of erroneous tax charges, and the city will notify the company of the correct rate. Someone needs to go to bat for the citizens of Peoria. Why shouldn’t it be the City?

Museum Block, Peoria Civic Center, Peoria County, Taxes

Ritschel not seeing all the benefits of higher taxes

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Here’s an intriguing story from the Journal Star. It’s in regard to a request from City staff to raise sales taxes downtown to help repay general obligation bonds that will be used to build a new Mariott hotel:

Civic Center officials believe an extra 1 percent sales tax on concessions and catering could put the Downtown sports and recreations center at a competitive disadvantage compared to other nearby facilities . . . .

Ritschel said the 1 percent tax would generate approximately $30,000 a year for the Civic Center, which is less money than they anticipate losing to East Peoria and elsewhere because of the extra tax.

Peoria and East Peoria tax similarly when it comes to hotels, food and beverage sales, Ritschel said, so the extra 1 percent would make the Civic Center “more uncompetitive.”

Perhaps someone from the museum group can explain to Ms. Ritschel and the rest of the Civic Center officials the big benefits of higher sales taxes. They spur economic growth; they don’t hurt it. The new Marriott downtown will bring jobs and be like our own little stimulus package. And besides, it’s so cheap — only $1 for every $100 spent. How much does the average person spend on concessions downtown? $25? It’s only going to add an extra quarter to your purchase! Pocket change, dude. They must just be naysayers who don’t want to see progress in Peoria.

Obviously, I’m poking fun at the arguments given for the museum sales tax. But all sarcasm aside, I actually agree with Ritschel on this issue. The same thing that Ritschel fears will happen with a 1% sales tax increase will also happen if voters approve a .25% sales tax increase in Peoria County to pay for the proposed downtown museum. It will make us less competitive and drive more business across the river and elsewhere. Did you catch the phrase she used? She said a tax increase would make the Civic Center “more uncompetitive.” In other words, there’s already a tax disparity, and adding to it is just going to exacerbate the problem.

Did the Bradley professors take the cross-border effect of tax disparity into account when they did their economic analysis of the museum project? I’ve added that to my list of questions to ask when we meet. I expect a call soon to set up a meeting date/time.

Museum Block, Peoria County

County re-crunches museum numbers

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Earlier this month, Peoria County administrators crunched the pro forma numbers submitted by the Museum Collaboration Group and found that it was a money-losing proposition. The museum folks objected to that analysis, saying it wasn’t accurate. They got together with the County and re-crunched the numbers, and now the County shows the museum will make a tidy profit.

Erik Bush, the County’s Chief Financial Officer explains what changed:

The first analysis actually showed a dire projection. When discussing the revenues with PRM staff, it became clear that in developing their background materials, PRM had established discounts on their revenue projections, from which I assumed as 100% projections. In reality, these numbers were in some cases 70% of their true projections. In tum, I was discounting discounted figures. A line by line narrative of these changes may be found at the end of this memorandum.

I asked PRM to provide me with the 100% revenue estimates and proceeded to run the second iteration.

The results are summarized as follows:

a. Based on the PRM’s assumptions, their projections could be off up to 9% and still operate in the black over a 20-year period.

b. In using their 100% revenue projections it appears revenues annually meet or exceed 100% of expense projections. The margin of actual to budget has historically been 1-2%; therefore, I find a 9% cushion to a structural deficit reasonable.

c. A key item missing from their pro-forma is the cost of future capital investment. A common benchmark for capital investment is 10%. Based on an expected expense base of slightly more than $4 million, it can be reasonably expected the museum is not showing close to $400,000 in potential annual future costs to properly maintain its assets. This figure is a benchmark and can be driven by annual needs.

d. In the 100% scenario, roughly $100k of the endowment will be necessary to cover the cost of capital investment and break even annually. In the 95% scenario, an endowment ofroughly eight million dollars would be needed to generate the necessary interest (assuming 4% annual return, compounded monthly) to cover the annual cost of capital investment, combined with the projected excess of revenues over expenditures.

The changes are all well-argued, but I still have a problem with a couple of key assumptions:

  • Gallery admissions still based on projected 240,000 visitors per year. On their pro forma, the museum changed some parameters: they raised the average ticket price from $5.25 to $7.50, and they assumed 40% of the 240,000 visitors to the museum would buy a gallery admission, up from 33%. Those changes raised their projected revenue for gallery admissions from $420,000 to $718,000. However, if we use a more realistic estimate of 180,000 visitors per year, the revenue would be $540,000 — $178,000 less than the county/museum projection.

  • Planetarium tickets and attendance projected to go up. I’m stumped as to how the museum folks think they’re going to raise the admission price for the planetarium from $1.50 to $4.00 per student, yet end up having more students (19,000 vs. 16,000) visiting the planetarium, especially with schools in as bad of financial shape as they are these days. Nowhere do they explain how they came up with their number of students or how their number compares with historical attendance numbers. In my opinion, they have to assume at the very least that the number of students won’t increase. So take 16,000 students times $4 and you get $64,000, $12,000 less than the county/museum projection.

So, that’s a total difference of $190,000 from the proposed pro-forma, which would bring their projected revenues down to $4,298,000. That would still cover their projected expenses, but would only give them about a 4% cushion instead of 9%. Also, it would mean they’d have to use roughly $270,000 of their endowment for capital investment instead of $100,000. I don’t know how big of an endowment that would require, but to get $303,750 interest earned takes $6,750,000 of investable funds according to the previous pro-forma analysis available at the county’s website. Do they have that much in their endowment?

Here’s the other thing. The money raised by a county sales tax would have to go toward capital purchases, according to the statute:

For the purposes of this Section, “public facilities purposes” includes, but is not limited to, the acquisition, development, construction, reconstruction, rehabilitation, improvement, financing, architectural planning, and installation of capital facilities consisting of buildings, structures, and durable equipment and for the acquisition and improvement of real property and interest in real property required, or expected to be required, in connection with the public facilities, for use by the county for the furnishing of governmental services to its citizens, including but not limited to museums and nursing homes.

If the museum doesn’t meet their revenue projections, I think it’s logical to expect them to scrap the capital investment fund, especially since they didn’t have it in their pro forma in the first place. Without infusions of capital, the place will get out of date pretty fast, and then you know what will happen? They’ll be back asking the taxpayers for more county tax money under this statute for “durable equipment” and “improvement[s].” And then the taxpayers will really be over a barrel because the project at that point will be “too big to fail,” if you know what I mean.

I still believe that a more compact, urban design would be significantly less expensive to build while still being an attractive civic building, plus it would free up the rest of the block (outside of Caterpillar’s visitor center, of course) for private development (retail, residential components), which will bring in property and sales tax dollars to the city and county. Plus, it would be what the public said they wanted on that block, and what professional city planners over the past several decades have said is needed on that block. Why is this option not being pursued?

County board member Merle Widmer has written extensively on the topic of the museum. I encourage everyone who’s interested in this topic to take a look at his blog, Peoria Watch.

The county votes tonight (County Board Room 403, 6:00 p.m.) on whether to put a sales tax referendum on the April ballot. No other counties of which I’m aware are planning similar measures to support this “regional” museum.

Museum Block, Peoria County

Sales tax referendum discussed at county finance committee meeting

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I couldn’t attend the Peoria County finance committee meeting Tuesday, but activist and regular commenter Karrie Alms did and provides this scoop:

Today’s Peoria County Finance Meeting was a real treat of new information.

  1. Peoria County feels that they will need to get the City of Peoria to title the museum property to them so that the County will be able to legally issue revenue bonds for the museum project. So, the County is in the process of carrying that water to the city.

  2. Roughly $35M will be needed for the museum project. Roughly — not a firm figure. Is that an increase, decrease or the same amount from the last figure on record? Wonder when that figure will be firmed up?

  3. That the resolution (the referendum language) will refer to a “public facility” not the museum specifically.

    I asked that as a voter in the voting booth, how would I know that the money would be specifically used for the museum? I wouldn’t know and that the museum people will have to make their appeal to let the voter know that the money is for the museum. Special, seeing that PA 95-1002 (born as SB 1290) refers to public facilities. I guess we will just vote to pass another tax for the County to start a fund for whatever suits them.

  4. And my favorite, that once the county has repaid the bonds, that the county could just give the land away to anyone — the city, the museum group or whomever. This concept was repeated at least twice.

After the bonds are paid off, Karrie told me, the County would then transfer title to the property back to the City or possibly the museum directly. I believe it was said in the meeting that it didn’t matter which entity got the property.

It’s interesting to me that they’re planning to use revenue bonds. What revenue will this project be producing exactly? Just a couple weeks ago, the city decided against using revenue bonds to pay for the new Marriott hotel downtown, opting for general obligation bonds because there was no established revenue stream. Now the county will be using revenue bonds for a project that will most likely need a perpetual operating subsidy? Where’s my municipal bond expert commenter? I need some more explanation on this one.

In answer to Karrie’s second question, the number was $24 million in November 2007 when it was first pitched to the county. By November 2008, the number reported was $35 million, evidently due to increased construction costs.

As for the referendum language, it is certainly vague if they’re indeed going to ask for a tax to go for a “public facility” without specifying said facility. They could use that money for anything, including other facilities besides the museum if the tax raised a surplus of money.

One other interesting note that Karrie didn’t mention: the results of the online survey were quite a bit more negative than the phone survey. On all the questions, a rather large majority was opposed to a sales tax increase regardless of the reason.

Museum Block, Peoria County

Museum referendum: Why you should vote “No”

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By now, you all know that Gov. Rod Blagojevich signed the bill that will allow Peoria County to ask voters to voluntarily raise their sales taxes to help pay for the Peoria Regional Museum. He might as well have; the legislature would have overridden his veto anyway, just like they did on SB2477 that allowed the school district to access Public Building Commission funds without a referendum.

There’s only one good thing about this turn of events: it does require a referendum. If the vote fails, there will be no tax increase, and likely no museum in its current form. This is probably the only way the citizens of Peoria can send a clear signal to the Museum Collaboration Group that, while we would like a Peoria history museum, the current plan is unacceptable; go back to the drawing board and try again.

The Journal Star gives us a little insight into the media blitz that will be coming our way to try to convince us that this museum plan is the best thing since sliced bread:

“Now it’s our job to reach out to the community and get a successful vote, something I think we can accomplish with hard work,” said Brad McMillan, the spokesman for the museum collaborative group that’s hoping to partner with Caterpillar to develop the old Sears block Downtown. “We need to show a majority of voters what a really great thing this project is for the future of this region for education, for quality of life and for its economic impact.”

So, there are the three things they’re going to try to push: education, quality of life, and economic impact. Let’s look at those.

  • Education. Any museum worth its salt will be educational, so that’s an easy value to sell to the public. But it misses the point. The question is, could we get just as educational of a museum without a sales tax increase? And the answer is yes. The reasons why this project is so expensive are:
    1. Design. The current design is inefficient and expensive. They want a whole city block to site an 80,000-square-foot one-story building. They want to put a parking deck underground for this building; not only is the parking deck completely unnecessary (there is plenty of parking surrounding the block), but the shape of the deck is different than the shape of the building that sits on top, which adds tremendous expense to the construction process. The waste inherent in this design is formidable.
    2. Scope. They are moving Lakeview Museum to the riverfront as part of this project. That’s unnecessary. Lakeview Museum already has a building and is self-sufficient. If the art and science museum were left where it’s currently located, the remaining history and achievement portions would be less expensive to house. They could be housed in a new building on a portion of the Sears block, or an old building could be renovated so the history museum could be in an actual historic building.

  • Quality of Life. What is “quality of life”? One definition is, “Those aspects of the economic, social and physical environment that make a community a desirable place in which to live or do business.” So let’s look at those items.
    1. Economic. Economically, a sales tax increase is certainly not a quality-of-life enhancement, but rather a detraction. It means that whenever you go out to eat, instead of paying 10% tax on your meal — already higher than all surrounding communities — you’ll be paying 10.25% or 10.5%, depending on how much money the museum needs. It means that whenever you go shopping for clothes or appliances or other retail items, you’re going to be paying higher taxes.
    2. Social. I would point out again that we already have Lakeview Museum which is self-sufficient and contributing to Peoria’s quality of life. It’s unclear how moving that museum four and a half miles southeast is going to improve the quality of life socially for Peorians. A Peoria history museum would add to the social quality-of-life aspects, but it can arguably be done without a sales tax increase.
    3. Physical. Physically, the museum is a travesty. Its architecture, siting, and size are all regrettable. It’s a suburban design right in the heart of an urban setting. It’s not big enough to house the museum collections that are not on display. In the 1970s, the city hired a city planner for advice on what to do downtown; on this block specifically, Demetriou advised dense, mixed-use development with residential and retail components. In 2002, the city again hired an urban planner for advice on what to do downtown; after holding numerous charrettes to solicit public input on what they’d like to see downtown (and specifically on this block), Duany advised dense, mixed-use development with residential and retail components. One would think that listening to the public and heeding the advice of urban planners would be the best way to enhance quality of life. Yet the Museum Collaboration Group has decided to do the antithesis — a single-use, nine-to-five, suburban-style development.

  • Economic Impact. We have two city blocks that will be bringing in no tax revenue to the community, but will instead be subsidized by a sales tax increase, and they want us to believe that it will have positive economic impact? It will not. Are they hoping for subsidiary development around the museum block? Where would it go? In the new office building they want to build on the Riverfront Village stilts? And if civic projects with this type of design are surefire economic engines, where is all the subsidiary development around the Civic Center and Chiefs ballpark? They say the definition of insanity is doing the same thing over and over while expecting different results; by that definition, expecting positive economic impact from the museum project as currently proposed is insane. Mr. McMillan did provide one example of economic impact in an earlier Journal Star article:

    “This project would bring hundreds of construction jobs to the region at the exact time there is talk of national economic stimulus and infrastructure improvements designed to keep people working,” McMillan said.

    In other words, make-work jobs at taxpayer expense. Only the government could say with a straight face that taking your tax dollars to pay construction workers for 18 months or so is a positive economic impact on the city. Also, consider the economic impact of higher sales taxes. How many people will continue shopping and eating out in Peoria if surrounding communities (read: East Peoria) have considerably lower taxes? Won’t that make things worse for businesses in Peoria?

We don’t need to raise sales taxes or any other taxes. There’s another solution. The solution is to go back to the Heart of Peoria Plan and develop the block the right way. The solution is to leave Lakeview Museum where it is and establish a history and achievement museum downtown, either in a new building on a small part of the Sears block with an efficient and affordable design, or in a renovated historic building elsewhere downtown. That way, the city and county can collect tax revenue from the mixed-use development on the Sears block, and a self-sufficient history museum can be established. All of these things will raise the quality of life in Peoria, without having to raise taxes to do it.

The Museum Collaboration doesn’t need sales tax revenue, they need a new plan. You can send them that message by voting “no” on the museum tax referendum.

Museum Block, Peoria County, State Legislation, State of Illinois, Taxes

Who’s afraid of the big bad economy? Not the museum!

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From the Journal Star:

With little debate, the Illinois Senate today voted 51-4 to send Gov. Rod Blagojevich a proposal to let Peoria County ask voters to OK a special sales tax to help pay for the Peoria riverfront museum.

The legislation, Senate Bill 1290, passed earlier in the House of Representatives. With Blagojevich’s signature, it would become law, and the question could be put to voters in the February or April municipal elections.

Not mentioned in the article is the fact that the bill allows increases in 1/4% increments, and could be used toward any “public facility” (e.g., Belwood Nursing Home), not just the museum. The way it will likely read on the ballot is:

To pay for public facility purposes, shall Peoria County be authorized to impose an increase on its share of local sales taxes by .25% (.0025) for a period not to exceed (insert number of years)?

This would mean that a consumer would pay an additional 25¢ ($0.25) in sales tax for every $100 of tangible personal property bought at retail. If imposed, the additional tax would cease being collected at the end of (insert number of years), if not terminated earlier by a vote of the county board.”

A quarter of a percent increase doesn’t sound like a whole lot, does it? But consider that, if this referendum were to pass, you would be paying .25% more on things that already are highly taxed — like restaurant food (which would go from 10% to 10.25% in the city). Is that going to make Peoria more or less competitive than East Peoria, right across the river? How many people do you think will come to see the museum in Peoria, then go have lunch in East Peoria?

And what about the economy? Is this the time to be increasing taxes when there’s plenty of unemployed people? What is the city’s solution on how to decrease the unemployment rate?
Consider these other items in the news as of late:

  • “[T]he effects of the economic crisis are being felt beyond Wall Street as charities locally and nationwide report increases in basic needs and decreases in donations to provide those. Some of the people who used to be donors are now asking for donations…. Nearly 90 percent of Catholic Charities nationwide report more families seeking help, with senior citizens, the middle class and the working poor among those hit hardest by the downturn…. The Salvation Army already has seen between 15 percent and 20 percent more need than last year in its first week of assistance applications received for the holidays…. The Friendship House scaled back the number of families this year allowed into their Adopt-A-Family program to ensure they could fulfill the need.”
  • “Fiscal restraint was the guiding principle in crafting next year’s [Peoria] county budget, which represents a 6 percent overall decrease over last year’s budget. In what is being described as a ‘maintenance budget’ with no new taxes or fees and no spending cuts, preliminary figures show spending requests at nearly $122 million while the county expects to bring in about $119 million in revenues. The approximately $3 million deficit – mostly in the capital fund – will be covered by reserve funds that sit at nearly $74 million, said Erik Bush, Peoria County’s chief financial officer….. The county expects to collect $25.5 million from taxpayers, about $1 million more than what was collected in 2007. Although the tax rate will drop 1 cent to 81 cents per $100 assessed valuation, property values are projected to increase 5.4 percent, so homeowners actually will pay more taxes to the county. The owner of a $120,000 home, whose value increases the projected 5.4 percent will pay $341.50 in taxes to the county, or $13.50 more than last year.”
  • “In total, the city’s staff whittled a $2.2 million budget deficit down to $117,771, an amount that some council members praised. ‘We asked an unbelievable task of our staff,’ Mayor Jim Ardis said. ‘Without cutting any positions or having any tax increase.’ …Finance Director Jim Scroggins said the biggest savings comes from the city’s health care costs, reflected in a substantial difference between the 12 percent budgeted increase for 2008 and the actual increase in health-related costs of only 4 percent…. In addition, the city plans to scale back on parking deck repairs ($300,000), repairs to some of its buildings ($200,000), delay repairs to police headquarters ($25,000), and reduce the neighborhood signs program ($68,662).”
  • “Illinois’ backlog of unpaid bills has hit a record $4 billion, and Comptroller Dan Hynes said Thursday the situation is ‘potentially catastrophic’ if allowed to continue…. Earlier this week, Blagojevich’s office said state revenues will fall $800 million short of projections because of the recession. The Senate Democrats’ top budget person, Sen. Donne Trotter of Chicago, said borrowing money right now may not be a good idea because of interest costs. He said the state should tap into its ‘rainy day’ fund first. Hynes said money in the rainy day fund was used in July. Trotter’s Republican counterpart, Sen. Christine Radogno of Lemont, also didn’t think much of borrowing money. ‘That’s exactly what’s gotten us into this problem,’ Radogno said. ‘Continuing borrowing is not a good idea. They’re going to have to look at making cuts. The wiggle room is gone.'”

It’s time to use all that advertising money to come up with another plan — one that doesn’t involve raising taxes.


Museum Block, before it was turned into a temporary parking lot