The Governor's budget includes a proposal to cap the retailers' partial reimbursement for collecting the sales tax on behalf of the state to a $1,000-per-month. The Director of the Illinois Department of Revenue (IDOR) testified in support of the proposal last week.
The reimbursement is the 1.75% of the sales tax retailers are allowed to retain as partial reimbursement for their costs of serving as the administrator of the sales tax code on behalf of the state and local governments. Assume someone buys goods for $100 at the average state and local government sales tax rate of 8.75%. That means they pay sales tax of $8.75 on their $100 purchase. The retailer is allowed to retain 1.75% of that $8.75 or $0.15.
This is only a partial reimbursement for the retailer. In fact, retailers subsidize the cost of collection for state and local governments every time a consumer uses an electronic form of payment. Over 80% of transactions are electronic and that number is growing around 7% per year. Anyone processing an electronic payment (e.g. VISA, MasterCard, Amex, etc.) pays to the card companies an average processing fee of 2.5% plus $0.10 on every transaction. These fees are applied to the entire cost of the item including the sales tax. Using our $100 example transaction above, the following fees apply to just the tax portion:
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