The sales tax

February 18, 2014

The sales tax

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In Illinois, the sales tax ranks second in terms of state tax receipts, just after the individual income tax. Illinois’ 6.5 percent sales tax rate is relatively high compared to other states (though some of the collected revenue is returned to local governments). However, when local sales taxes are included, many Illinois locations have some of the highest overall sales tax rates in the nation.

The existing Illinois sales tax has a number of provisions that narrow its base, resulting in either higher tax rates or lost revenue. In most cases, a broader base with lower rates increases the efficiency and fairness of a tax.

Possible reforms of the sales tax that could address this problem include the reduction or elimination of the exclusion of food from the base, the inclusion of consumer services in the base, and aggressive attempts to collect legally required taxes on internet purchases. Any of these could be combined with some type of targeted low-income relief measures, as necessary. These reforms could improve the functioning of the sales tax while also providing potential additional revenue to deal with the state's long-term structural deficit.


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Research Area: Economic Policy

Policy Initiative: none

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