Naperville aims to raise taxes on cellphones, Airbnb

Naperville aims to raise taxes on cellphones, Airbnb

Illinois' fifth-largest city is moving to raise taxes on telecommunications and hotels, and fold homesharing into the latter.

Residents of Naperville could soon see an increase in two city taxes. The Naperville City Council convened Jan. 16 to discuss proposals to hike taxes on hotel and motel room rentals, as well as mobile phones and landlines.

The hotel/motel tax would jump to 5.5 percent from 4.4 percent, while the telecommunication tax would go to 6 percent from 5 percent, according to the Daily Herald. In addition to the rate increases, the hotel tax boost would be accompanied by an extension in applicability to online homesharing services such as Airbnb.

The hotel and telecommunications tax hikes are being floated as an alternative to local property tax hikes, but as of yet, there’s little assurance property taxes won’t continue to rise regardless of whether City Council approves the measures.

While hotel taxes on services such as Airbnb are already levied at the state level, participation among local governments has been scattered, yet building. The proposal would add Naperville to the growing list of cities folding homesharing companies into its municipal hotel tax.

If passed, the measures could help ease a looming $2.1 million property tax increase before bills are issued this summer.

The Naperville City Council will reconvene for a vote on the proposals Feb. 6. And if given the greenlight, the tax hikes are projected to generate more than $500,000 for 2018 according to the Daily Herald.

Revenue collected from the proposed hikes would bring the city closer to its $2.1 million target, but still leave it $1.6 million short, thereby necessitating either spending cuts or further tax hikes, according to the Naperville Sun. That shortage may be smaller if not for a special tax deal between the city of Naperville and a handful of hotels.

Though the proposed hotel tax hike would raise an estimated $600,000 in annual revenue, only a projected $350,000 would make it to public coffers. This is because the city of Naperville has a deal with four hotels in which 100 percent of their hotel tax burden is rebated in full, according to the Naperville Sun.

In 2014, for example, Naperville negotiated a deal with Marquette Companies in which the hotel developer was rebated 100 percent of its hotel taxes as well as a portion of its retail sales taxes. Marquette agreed to spend $3.8 million on developments in exchange.

Special tax breaks such as the Marquette agreement can partially explain why the city is still exploring even more tax options on those not lucky enough to strike a deal with local leaders. According to the Daily Herald, City Attorney Michael DiSanto is currently weighing expanding the local sales tax to online purchases from suppliers located outside of Naperville. Currently, the tax only applies to purchases in which sellers operate a physical location in the city.

Meanwhile, municipalities across the state are continuing to raise property tax levies. In fact, property tax bills grew six times faster than household incomes in Illinois from 2008-2015. Naperville’s moves to avoid a politically unpopular property tax hike by levying other tax and fee hikes is one reason why attempts at the state level to freeze property taxes must come with reforms to reduce cost-drivers for local governments – otherwise, communities will simply find other ways to squeeze residents.

More tax hikes won’t pull Illinois out of its fiscal crises. On the contrary, taxes are a primary motivating factor by which the state’s core tax base is fleeing out of state in record numbers.

Until lawmakers – at the state and local level – introduce serious reforms that slow the growth of public spending and offer Illinoisans genuine property tax relief, residents will continue to desert the state.

Want more? Get stories like this delivered straight to your inbox.

Thank you, we'll keep you informed!