Cook County Soda Tax Circling Drain in Illinois

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Michael J. Bologna

Cook County’s controversial sweetened beverage tax continues to draw fire, now in a new forum: the state Legislature.

A block of Democrats in the Illinois House introduced legislation repealing the Cook County Beverage Tax by barring home rule counties from imposing sales taxes on the purchase of sweetened beverages based upon weight or volume. By Aug. 18, the measure ( H.B. 4083) had already attracted 29 cosponsors.

“This tax greatly increases the cost of groceries and adds yet another tax burden to local families,” Rep. Marty Moylan (D) said in a statement. “Even more concerning is that this tax will hurt local businesses and jeopardize jobs in our community by pushing residents to shop outside of Cook County.”

The legislative push under H.B. 4083 marks the second time Illinois lawmakers have discussed a soda tax this year. During budget negotiations in January, the Senate briefly flirted with a statewide tax on sweetened beverages as a strategy for closing a massive budget gap. The soda tax was eventually withdrawn and replaced with a menu of new taxes, including a massive income tax increase.

The Cook County Board of Commissioners enacted the soda tax last year, but retailers didn’t commence collections until Aug. 2. The tax, a 1-cent-per-ounce levy on all sweetened beverages, is expected to raise $200 million per year.

Rep. Sam Yingling (D) said Cook County’s program is simply bad tax policy.

“Instead of regressive taxes, we must modernize and reform our tax code so that people who make more pay a higher rate and people who make less pay a lower rate,” Yingling said. “That way, we can provide an environment where small businesses can grow and middle-class families can thrive.”

Food Stamp Controversy

The House legislation is one of several recent developments affecting the beverage tax.

Cook County revenue officials said they had resolved a dispute with the U.S. Department of Agriculture’s Food and Nutrition Service (FNS) over its administration of the tax. FNS had asserted the tax program violates federal rules prohibiting state or local sales tax from being collected on food items purchased under the Supplemental Nutrition Assistance Program (SNAP), more commonly known as food stamps.

The purported violation involved Cook County’s efforts to accommodate certain retailers unable to modify their point-of-sale systems in time for the Aug. 2 start date, giving them the option to refund the tax charged on SNAP purchases after initial collection. But FNS said this interim arrangement violates prohibitions on state and local sales collections involving SNAP benefits, jeopardizing $87 million in federal food stamp funds going to the state.

Frank Shuftan, a spokesman for Cook County President Toni Preckwinkle, said the county solved the problem by eliminating the refund option.

“The County worked diligently with FNS to provide additional guidance to our retail community moving forward,” Shuftan said Aug. 17. “Today, we will send a letter to the Illinois Department of Human Services alerting the State of this timely resolution with the federal government. The requested corrective action has been implemented and will ensure ongoing access of SNAP benefits for eligible Illinois households.”

Advertising Blitz

In another development, former New York Mayor Michael Bloomberg, a long-time critic of the health effects of sweetened beverages, announced plans to spend more than $2 million on an advertising campaign designed to prop up Cook County’s tax program. A series of television, radio, and digital ads were set to commence as soon as Aug. 18.

A spokesperson for Bloomberg said the ads would “counter all the one-sided advertising from the soda industry” and “counterbalance all the special interests that profit off soda.”

Shuftan said the county was “grateful” to have the support of “a strong public health advocate like Michael Bloomberg.” Shuftan said the beverage industry has aggressively pursued a media campaign “fostering a message that distracts from the real health concerns related to their products.”

Bloomberg is the founder of the financial data and media company Bloomberg L.P. Bloomberg BNA is an affiliate of Bloomberg L.P.

Case Dismissed

In another development, a lawsuit challenging McDonald’s Corp.’s administration of the soda tax has been withdrawn ( Wojtecki v. McDonald’s Corp. , Ill. Cir. Ct., No. 2017 L 8008, dismissed 8/15/17 ).

A class action, filed Aug. 8 in Cook County Circuity Court, alleged double taxation by McDonald’s and several franchise operations. The lawsuit alleged the defendants calculate sales tax by first applying the sweetened beverage tax to a purchased product and then imposing the various state and local sales taxes.

But Judge Thomas R. Mulroy Jr. issued an order Aug. 15 dismissing the case with prejudice. The dismissal came after attorneys representing the consumers conceded the sales tax wasn’t applied on top of the beverage tax.

“[B]ecause Plaintiff has no reason to believe that customers were ‘double taxed’ at any other McDonald’s restaurant in Cook County, Plaintiff hereby voluntarily dismisses his lawsuit,” Mulroy wrote.

The McDonald’s case is just one of several filed following the implementation of the soda tax. Class actions alleging over taxation have been filed in Cook County Circuit Court against Walgreens Boots Alliance Inc., 7-Eleven Inc., Circle K Stores, and Albertsons Companies Inc.

In addition, the Illinois Retail Merchants Association has filed an action challenging the constitutionality of the the tax ordinance. IRMA lost at the circuit court level and filed a notice of appeal in the case Aug. 1.

To contact the reporter on this story: Michael J. Bologna in Chicago at mbologna@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

Copyright © 2017 Tax Management Inc. All Rights Reserved.

Request Daily Tax Report: State