The Illinois State Senate has not been able to pass a bill to put brick-and-mortar companies on a more equitable basis with Internet sales companies because of the sourcing issue, said a state senator.

Speaking at a meeting in the Vernon Hills City Council chambers to what he said was a “room full of tax losers,” State Sen. John J. Cullerton .

The “losers,” he said, would be municipalities which could lose sales tax revenue in the millions of dollars range if the method of collection was changed from collection at the point of sale to the point of delivery.

Senate Bill 1429 is designed to have Illinois join the national Streamlined Sales Tax Project (SSTP) which Cullerton said currently includes 22 states. The project is voluntary, but that situation would change if the federal government passed legislation changing sales tax collection.

Most people agree on the goal of collecting sales taxes from Internet companies, many of which have not been making payments, but implementation is the problem, the senator said to more than 40 people at the Vernon Hills meeting, one of several information-gathering sessions held recently by Cullerton and Sen. Pamela J. Alhoff.

“We have exhausted the discussion for the moment,” said Cullerton after the nearly two and one-half hour meeting. “We need to have a study done to make sure there is enough money in a fund to help municipalities who lose tax revenue. We need to figure how to compensate the losers.”

He said by having these meetings the senators sponsoring SB 1429 are trying to accommodate the losers. Villages and cities with big malls will be among the losers, according to the senator. Winners could be communities which are largely residential and do not have many companies selling products to distant locations.

Cullerton added that retailers need to keep the big picture in mind as the future of retail sales could be fewer people going to the malls and more people ordering merchandise from Internet companies.

“Let me say to the losers that everybody has to be concerned about the increases in Internet sales, which are almost inevitable,” he said. “We will not rush into any changes. We will not ram through any bill. If the state does not make enough money from receiving Internet sales taxes, then we will not pass a bill.

“At a minimum there should be a mandatory study about the losses experienced by local governments. I will be talking to the Governor.”

One example of potential losses came from Bob Pfeiffer, a Lincolnwood government official who said about 58 percent of the revenue comes from sales taxes on companies like several furniture stores and a major electronics company.

“We are confident that our 7,000 residents will not make up for the sales taxes lost by changing from point of sale to point of delivery,” he said.

In Vernon Hills the figures would be a loss of $2 million in a budget of $18 million, according to Roger Byrne.

Elmhurst city manager Thomas Borchert said in that city the loss would be about $3 million in a budget of more than $40 million because several large companies deliver almost all of their products outside the city.

The move toward a change in sales tax collection could be a long and difficult one if it is similar to the situation in the state of Washington, which is beginning to implement sales tax collection based on delivery points.

Michael Bailey, an administrator from Renton, Wash., said, “I want to clarify that it is not all peaches and cream. It has been a very difficult process.”

During an hour long phone conversation of comments and answers to questions, Bailey noted that there has been an ongoing debate in the state of Washington over the last three years since many cities can lose significant amounts of money.

His city will lose about 20 percent of its sales tax revenue or about $1 million. “I am optimistic that we will get all the money from the state. If you have a dog in the fight, you are in a good position.”

The state has plans to compensate cities for various periods up to five years into the future. Beyond that time, he said no decision has been made.

Asked how to deal with a recession in the economy, Bailey said that was a good question.

“We presume the state will follow through on reimbursing cities for lost revenue. So far, so good in a good economy here. But there really is no fallback plan.”

“People got pretty upset,” Bailey said of the three years of discussion. “There was not much progress made for some time. Then enough calm heads got together in a room and worked out something about sales tax collection in the future.”

But administrative problems remain in the state of Washington such as the collection of sales taxes on Internet companies. Bailey said about 35 to 40 firms has jointed the SSTP to make sure they qualify for amnesty for sales taxes not collected in the past. But he noted that is only a portion of the companies using the Internet for sales.

That voluntary situation could change if the U.S. Congress would pass legislation about the collection of taxes on Internet companies. Then the system would no longer be voluntary, Bailey noted.