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Report shows state, local tax rate in Illinois among highest in nation


Tuesday, January 26, 2021  |  Article  |  By Scot Bertram | The Center Square

Taxes, misc. (89)
(The Center Square) – A new report shows the state and local sales tax rate in Illinois is among the highest in the country.

According to the research conducted by the Tax Foundation, an independent tax policy nonprofit, the average combined sales tax rate in Illinois is around 8.8 percent.

“Illinois has the seventh-highest combined sales tax rate in the country,” said Katherine Loughead, senior policy analyst with the Tax Foundation. “That, in some ways, puts the state and it is taxpayers at a competitive disadvantage compared to taxpayers in states where the rates are lower.”

The statewide sales tax rate of 6.25 percent is the thirteenth-highest in the country, while the population-weighted average local tax rate of 2.57 percent ranked seventh. All of Illinois’ bordering states have sales tax rates that are lower overall than in Illinois.

“That can cause some issues with individuals choosing to make larger purchases perhaps in lower tax jurisdictions,” Loughead said. “Whether that be in the suburbs instead of the city of Chicago, for instance, where the combined rate is really high at 10.25%, or even across state lines into Wisconsin, where the sales tax rate is very low.”

She says the high rates combined with a comparatively narrow tax base means Illinois’ system could use an overhaul.

“Illinois is missing out on a lot of revenue it could receive from certain consumer goods and services,” Loughead said. “One of the ways in which Illinois could really generate some new revenue in a good way, rather than an economic economically harmful way, is by broadening the base and modernizing it to a bigger basket of consumer goods and services.”

Tennessee and Louisiana have the highest rates in the country, while five states do not have statewide sales taxes. Those are Alaska, Delaware, Montana, New Hampshire, and Oregon.

The report notes that sales taxes are part of an overall tax structure and should be considered in context. For example, Tennessee has high sales taxes but no income tax on wages, while Oregon has no sales tax but high-income taxes.

“One of the benefits of the sales tax is people know about how much they pay in any given year or at least on any given transaction,” Loughead said. “They can determine whether they think the government services they receive are on-par with the amount of taxes they're having to pay.”