Sales Tax Changes in Illinois
As a tax professional who files sales and use tax returns in 45 states, I’m on every mailing list in every state and get alerts when state (and sometimes local) tax laws are about to change. One such notice came through the other day and I felt compelled to share it with you here.
I just received a notice from the Illinois Department of Revenue announcing some really strange changes to their sales tax laws that will go into effect on September 1st. (Disclosure: I have clients for whom I file sales and use tax returns in Illinois, but their business has nothing to do with the items listed here; I just thought they were dumb and wanted to pass them along!)
The changes
First, there is the change in the tax on sweets. Yes. The Illinois candy tax. Based on the notice I received, the new sales tax form (ST-1) will include a separate line for candy. So now, candy is taxed at the general tax rate, which varies depending on whether you’re an out-of-state seller or based on location if you’re an in-state seller. But, lest you get confused by the definition of “candy,” Illinois makes this clear for you.
The following items are considered candy by the Illinois Department of Revenue:
chocolate bars, yogurt or chocolate-covered nuts or fruit, honey-coated nuts, caramel popcorn, lollipops, snack mixes containing yogurt or chocolate, breath mints (thank goodness), and chewing gum. Nothing bad yet.
Like any good government program (open to interpretation), there are exceptions to the “sweet rule” and Illinois says that chocolate-covered cookies, yogurt-covered pretzels, flour-containing “candies,” dried fruit and nuts without added sweeteners are NOT sweet and therefore taxed at the lower “food” rate.
As a guide to help consumers and retailers ensure that they have not violated this rule, IDOR provides a useful rule of thumb. “You should check the label or ingredient package. If an item contains flour or requires refrigeration, it remains taxed as food (low rate). If an item contains sugar, it is taxed as general merchandise (high rate).”
There are similar clarifications about soft drinks and which soft drinks qualify for the lowest rate (food) and which are taxed at the highest rate (general). Basically, the determination is the same: if you look at the label and see that the soda contains milk or juice with no sweeteners (sugar or artificial), you are taxed at the lower rate (food). Otherwise, pay taxes at the higher general rate. And don’t forget Chicago’s soda excise tax: It’s also clearly defined.
the ramifications
Dumb dumb dumb. As a former “insider” at another state revenue department, not in Illinois, I can imagine the ridiculous amount of time wasted developing these rules.
First, I can imagine lawmakers considering the “candy tax loophole” issue and spending valuable time debating it.
So I can imagine your employees frantically calling the Illinois Department of Revenue asking to speak face-to-face with Commissioner Brian Hamer, or one of his employees. Because government policymakers are often compassionate robots fresh out of college, I can imagine the flavor of that meeting. “Gentlemen, we have a serious problem with the Illinois tax code. We need your help to strengthen our language. In developing the rules, the legislative intent was to clearly define that chocolate-covered pretzels should be exempt from tax, but that chocolate covered pecans shouldn’t. Illinoisans are dying to eat Goobers and Raisinettes. We’ve got to get them eating chocolate covered pretzels, right away.”
Not to mention the 2 cent difference in tax on the two different items. Let’s break down what’s going on here. Suppose that throughout the state of Illinois, over the course of a year, consumers buy 100 million cans of soft drink at approximately one dollar each. If the tax rate difference is 2 cents, consumers will pay the Illinois Treasury approximately $2 million in additional taxes, just on soft drinks. Sounds like a lot of money, right? I assure you that a huge amount of that additional revenue was consumed by the state trying to enforce the law change. For example, in the meeting I described above, there were probably 20-25 state employees involved during several hours of meetings. Then there was time involved in drafting the new regulations, developing the methodology for collection and distribution, publicizing the changes as required by another law, mailing them to who knows how many tax preparers like me. Then, changes to computer systems were required. Add to that the development and printing of the new forms, obtaining approvals every step of the way, and the final signatures of Commissioner Hamer and his team, and all of a sudden, two million dollars — gone.
Now, let’s say it’s not a hundred million cans, but a billion cans and twenty million in new taxes. Now, you’re talking about a tax increase that an Illinois politician can sink his teeth into, like a Snickers bar (high tax).
In future articles, I’ll mention some of the dumbest meetings I’ve ever sat in. And I’ll talk about some of the dumbest people I’ve ever fired (names will be changed to protect the innocent). When I watched Dragnet when I was a little kid, I thought they said at the end “Names have been changed to protect idiots”.
