News Updates

The benefits of adding more services to Illinois’ sales tax base

Sales taxes in Illinois are imposed primarily on tangible goods, not consumer services. This structure has led to unintended consequences for the State and local governments that rely on sales taxes, particularly as consumer behavior changes. Consumer expenditures on services such as personal care, clothing services, and household maintenance in Illinois grew 3.6 percent on average every year over the past 20 years, while expenditures on goods such as clothing and footwear and motor vehicles grew at average rates of 1.3 percent and 1.2 percent respectively.

As the consumption of services rises faster than the consumption of goods, the sales taxes that fund state, county, and municipal governments as well as the transit system in northeastern Illinois have become less sustainable. The Regional Transportation Authority (RTA) relies heavily on sales taxes to operate the region’s transit system, which is aging and in significant need of investment. Indeed, most dedicated transit funding resources are used for operating costs, and no dedicated capital funding source exists to pay for reconstruction and replacement — yet some 31 percent of transit assets in the region are beyond their useful life.

ON TO 2050 recommends that the State of Illinois modernize and expand its sales tax base to include additional services in a manner that generates needed revenue for transit, helps communities create a more balanced land use mix, ensures similar consumers are taxed in similar ways, minimizes the influence of taxation on consumer purchases, and mitigates the cascading nature of sales taxes. This policy update outlines why expanding the sales tax base would benefit the region.

This analysis is one of a series examining transportation funding in northeastern Illinois and explaining the revenue recommendations included in ON TO 2050. This analysis explores how expanding the sales tax base to additional services would benefit the region. Other analyses in the series examine existing revenue sources for the regional transportation system, and explain recommendations including increasing the state motor fuel tax and eventually replacing it with a road usage charge, expanding parking pricing, using tolling and value capture to fund transportation improvements, and implementing a federal cost of freight service fee.