Lawsuits Swelling as Retailers Implement Illinois Soda Tax

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By Michael J. Bologna

The volume of class action lawsuits faulting Chicago-area retailers for unlawfully administering Cook County’s controversial soda tax continues to climb while additional actions are expected shortly, sources told Bloomberg BNA.

Chicago plaintiff attorney Tom Zimmerman said Sept. 26 that he has filed more than a half-dozen actions in Cook County Circuit Court against beverage companies, fast food restaurants, grocery chains, and convenience stores. All of the actions allege retailers improperly administered the penny-per-ounce levy on sales of sweetened beverages in Illinois’ largest county.

Zimmerman has also filed actions against retailers alleging frauds under Chicago’s 3 percent soft drink sales tax. The tax is imposed on sales of canned or bottled soft drinks at retail in Chicago.

Zimmerman, of Zimmerman Law Offices PC, said additional actions are in the pipeline.

“The goal of the suits is primarily to get the retailers to fix their point of sale systems so they are not unlawfully taxing people,” Zimmerman told Bloomberg BNA. “It may seem like a small amount of money on an individual purchase, but when you add it up over thousands of people it adds up to a lot of money. And it’s just not right that the retailers are not doing it properly.”

Many Defendants

The list of defendants in the various lawsuits includes:

  • 7-Eleven Inc. The lawsuit alleges the convenience chain unlawfully charged tax on purchases of unsweetened coffee purchased in Super Big Gulp cups ( Tarrant v. 7-Eleven, Inc. , Ill. Cir. Ct., No. 2017 CH 10873, complaint filed 8/9/17 ).
  • Kentucky Fried Chicken and parent Yum! Brands Inc. The lawsuit alleges the fast food chain oriented its point of sale systems to impose sales tax on amounts required under the Cook County sweetened beverage tax, essentially a sales tax on a tax ( Zavala v. Yum! Brands, Inc. , Ill. Cir. Ct., No. 2017 CH 12542, complaint filed 9/15/17 ).
  • HMS Host Corp. The lawsuit contends the defendant, which operates concessions at O’Hare International Airport and Midway International Airport, imposes Chicago’s soft drink tax on purchases of bottles of 100 percent juice, which are exempt from taxation ( Wallace v. HMS Host Corp. , Ill. Cir. Ct., No. 2017-CH-11998, complaint filed 9/1/17 ).
  • Doctor’s Associates Inc., a franchisor for the sandwich chain Subway. The action alleges the sandwich restaurants charge Chicago’s soft drink tax on purchases of bottles of 100 percent juice ( Wallace v. Doctor’s Associates, Inc. , Ill. Cir. Ct., No. 2017-CH-11997, filed 9/1/17 ).
  • Doctor’s Associates Inc., a franchisor for the sandwich chain Subway. The lawsuit alleges Subway stores impose the Cook County soda tax on purchases of unsweetened iced tea, which are exempt from taxation. The case was removed to federal court Sept. 22. ( Drake v. Doctor’s Associates, Inc. , Ill. Cir. Ct., No. 2017-CH-11351, complaint filed 8/18/17 ) ( Drake v. Doctor’s Associates, Inc. , N.D. Ill., No. 1:17-cv-06850, notice of removal 9/22/17 ).
  • Albertsons Companies Inc., which operates the Jewel-Osco grocery chain. The lawsuit alleges the grocer imposes the soda tax on items purchased under the Supplemental Nutrition Assistance Program, also known as food stamps, which aren’t subject to state or local taxes ( Morales v. Albertsons Cos., Inc. , Ill. Cir. Ct., No. 2017-CH-11350, complaint filed 8/18/17 ).
  • Pepsico Inc., which operates vending machines throughout Chicago. While the company modified its machines to collect an additional amount for the Cook County soda tax, it also imposed the higher rate on purchases of bottled water, which isn’t taxable ( Williams v. Pepsico, Inc. , Ill. Cir. Ct., No. 2017-CH-11618, complaint filed 8/24/17 ).

Litigation targeting additional retailers has been filed by other plaintiff attorneys. McDonald’s Corp. franchisors and the Walgreens drug store chain are defendants in separate actions.

Retailers at Fault?

Zimmerman said the retailers are at fault for failing to modify their point of sale systems to accommodate the new tax program. He said retailers are constantly forced to make such adjustments, and Cook County’s initiative shouldn’t have been a major challenge.

“The retailers’ implementation of the tax is the problem,” Zimmerman said. “They had months to get their point of sales systems in order before the roll out. In many cases, it’s something as simple as reprogramming your software to add an additional code, and they should have been able to do that.”

Rob Karr, president and CEO of the Illinois Retail Merchants Association, said any glitches in tax collections are due to Cook County’s clumsy implementation of the tax scheme earlier this year. He said Zimmerman and other plaintiff attorneys can’t hold the restaurants, groceries, and convenience stores responsible for a flawed regulatory roll out.

“It’s just false. They haven’t had several months,” Karr said. “What he ignores is the fact that the county made six substantive changes in how they are supposed to calculate this tax less than 30 days before they put the tax in place. And, this is a brand new tax. No one has ever taxed this way before.”

Media War

The soda tax is also the target of a media war pitting major soft drink companies and retailers against Cook County Board President Toni Preckwinkle, who insists the tax is needed to balance the county’s budget and control a public health emergency.

Former New York Mayor Michael Bloomberg, a long-time critic of the health effects of sweetened beverages, has joined the fight as well, investing more than $5 million on political messaging to prop up Cook County’s tax program. Bloomberg is the founder of the financial data and media company Bloomberg L.P. Bloomberg BNA is an affiliate of Bloomberg L.P.

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

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