Sunday, August 19, 2007

Property Tax vs. Sales Tax

From the proposal to invest in the future of Carbondale, here are the arguments in favor and against the property and sales taxes. Notice that several arguments are advanced against the property tax and none against the sales tax. Amazing, isn't it?

Revenue Options

There are two sources of revenue controlled by the City of Carbondale that can generate the amount of revenue required by the City to continue delivering the quality and diverse services to its citizens and to continue funding community organizations in support of their programs. The two sources of revenue are the property tax and the home rule sales tax.

Property Tax:

Exhibit #2 provides a five year projection for a General Government tax rate that would be required to maintain the General Fund's minimum fund balance. A property tax levy would be required in December 2007 for taxes payable in 2008 and received by the City during its 2009 fiscal year. The property tax levies and corresponding tax rates would increase annually thereafter. The benefit of a property tax levy is that property taxes are a steady, reliable source of revenue.

The property tax rate in Carbondale is high compared to many other communities. There are different reasons for this including a large amount of tax exempt property, multiple units of local governments, demands for services from the citizenry and the lack of an industrial base. In 2007, the property tax rate per $100 Equalized Assessed Valuation (EAV) in Carbondale and within the Carbondale Elementary School District #95 is 8.44352.

The City of Carbondale has been the leader in reducing the property tax rate in Carbondale. Through its economic development initiatives, Carbondale's Equalized Assessed Valuation has increased from $112 million in 1992 to $247 million in 2007. The City maintained a policy for 10 years of not increasing its property tax rate, but rather to absorb the annual increases of the tax levy into the General Fund's general revenues. In 2002, the City eliminated its General Government Property Tax levy of over $1 million completely, thereby reducing the overall Carbondale tax rate by 0.592. In addition, the City adopted a 1/4% home rule sales tax in 1999 to assist in the funding of a new Carbondale Community High School and thereby avoiding an additional property tax levy by the high school district.

The history of the City regarding property taxes during the past 15 years has been first, to maintain its tax rate and later, to eliminate its property tax rate altogether. Increasing the property tax for General Government purposes would be a change in the philosophy of the current City Council and of previous City Councils. It is essential for community growth that efforts to lower the property tax rate be continued.

Home Rule Sales Tax:

Carbondale has consistently been the leader in the region for retail sales. The FY 2008 budget projects sales in Carbondale to approach $640,000,000. The City receives sales tax revenues from the regular 1.0% tax provided by the State of Illinois (from the 6.25% standard state sales tax) and the home rule 1.0% tax levied by the City. The total tax rate in Carbondale is currently 7.25% on general merchandise. The home rule 1.0% sales tax is not applied to items licensed by the State (cars, trucks, boats, etc.) or on groceries and medicine. Together, these sales taxes are projected to provide the City with $10.9 million in revenues in FY 2008.

Sales tax revenues in Carbondale have shown steady growth. Revenue from the regular 1.0% sales tax has increased from $5.35 million in FY 2004 to $6.1 million in FY 2007, a 14% increase in three years. The home rule 1.0% sales tax increased from $3.86 million in FY 2004 to $4.37 million in FY 2007, a 13% increase in the same three year period. The Five Year Budget anticipates continued growth in sales tax revenues as shown in Exhibit #3.

The home rule sales tax has been a popular source of revenue for home rule communities for many years. Carbondale adopted a 3/4% home rule sales tax in 1992 and increased the rate to 1.0% in 1999 to help fund construction of the new high school. In 2006, the State of Illinois extended the ability to adopt a local sales tax to non-home rule communities. Exhibit #4 lists current sales tax rates in selected Illinois communities.

Illinois law allows the home rule sales tax rate to be increased in one-quarter of one-percent (1/4%) increments. The State, which serves as collector of all retail sales taxes, adjusts its collection rates twice a year, in January and July. Further, it requires municipalities to notify the Department of Revenue three months prior to those months in order for the retailers to be properly notified of increased rates. Any ordinance increasing the home rule sales tax must be approved by September and March, respectively.

The adoption of an additional one-half of one-percent (1/2%) sales tax in Carbondale would begin generating approximately $2.3 million annually as shown in Exhibit #3 and would provide the City with the additional revenue required to continue delivering the quality and diverse services to its citizens and to continue funding community organizations in support of their programs.

The revenue from the additional 1/2% sales tax would also provide the City with the resources to address four major community capital projects. First is a new Public Safety Center for the City of Carbondale Police and Fire Departments and Emergency Management Services to be located on the site of the former Lincoln Middle School (now owned by the City) in the event that federal funds are not secured to construct this facility. The second is a new Fire Station on the west side of Carbondale to replace the existing station on South Oakland Avenue. The third project is open space development involving the construction of bikeways, sidewalks and greenways in the community. Finally, the fourth project is the Southern Illinois University Carbondale initiative to replace McAndrew Stadium and upgrade the SIU Arena through the Saluki Way project.

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