Tax changes to come with HB 255

HB 255 is the complicated capital bill Governor Quinn is expected to sign into law next week. It will authorize major capital improvements and be paid for with some taxes on alcoholic beverages, soft drinks and other items along with legalizing video poker and internet lottery sales. IR Reader Steve Kaukl took time to clear up some misunderstanding about the tax changes:

Today I was reading Illinois Review's post from May 21, 2009 regarding Illinois House Bill 255. I work for a food retailer with three stores in northern Illinois and am responsible for assigning items to the proper tax rates in our stores.  I noticed a few thing which seemed inaccurate in the article based on my experiences with the Illinois Department of Revenue:

1.  This bill does not raise the sales tax on alcoholic beverages.  It raises the alcoholic beverage tax.  A small difference, but never the less a difference.  The alcoholic beverage tax is collected by the wholesaler from the retailer as part of the cost of the product.  Retailers will still be charging their customers the same sales tax rate on the customer’s purchases.  Presumably, the retail prices will increase due to the increase in the price the retailer is paying for the product.  The increase is roughly 13 cents on a 750 ml bottle of wine, 80 cents on a 750 ml bottle of liquor and 5 cents on a 12 pack of beer.  As always, it doesn’t matter where a tax is levied:  The final consumer is always the one who ultimately pays the tax.

2.   The sales tax on soda pop is not changing.  Prior to this bill soda pop was a high tax item and it will continue to be so if the bill is signed into law.  What is changing in the bill is the definition of a soft drink.  Prior to this bill the definition of a soft drink was:

“soft drinks" means any complete, finished, ready‑to‑use, non‑alcoholic drink, whether carbonated or not, including but not limited to soda water, cola, fruit juice, vegetable juice, carbonated water, and all other preparations commonly known as soft drinks of whatever kind or description that are contained in any closed or sealed bottle, can, carton, or container, regardless of size. "Soft drinks" does not include coffee, tea, non‑carbonated water, infant formula, milk or milk products as defined in the Grade A Pasteurized Milk and Milk Products Act, or drinks containing 50% or more natural fruit or vegetable juice.

 
The new definition of a soft drink will be:

‘soft drinks’ mean non-alcoholic beverages that contain natural or artificial sweeteners.  “Soft Drinks” do not include beverages that contain milk or milk products, soy, rice or similar milk substitutes, or greater than 50% vegetable or fruit juice by volume.

The differences, based on my experiences with the Illinois Dept of Revenue are:  Carbonated Unsweetened Unflavored Water (aka Club Soda) moves from high tax to low tax.  Ready to drink tea (Snapple and similar items, if sweetened) moves from low tax to high tax.  So, they actually did increase the tax on some types of tea.

3.     Grooming & Hygiene Products.  These products are all already taxed at the high tax rate.  I can see no changes in the tax status of any of these items.  All this language appears to do is to clarify that these items are absolutely high tax without exception.  The bill lists “soaps and cleaning solutions, shampoo, toothpaste, mouthwash, antiperspirants and sun tan lotions” unless the items are available only by prescription.

4.     Candy.  This does move from low tax to high tax in Illinois.  There is a very unapparent possible side effect to this change which may not yet affect Illinois.  In Wisconsin a similar definition of candy is due to take effect on October 1, 2009.  Wisconsin becomes a full member of the Streamlined Sales & Use Tax Association (SSUTA) on that date.  At this time Illinois is not a member.  Part of the SSUTA agreement is that all member states will accept uniform product definitions from the SSUTA.  I submitted a request for an interpretation on baking candy.  M&M’s baking bits, to be exact.  The SSUTA returned an opinion that the use was irrelevant and that the item met the product specification for candy, so it was candy.  As part of the conversation, I inquired about chocolate chips and was told that the same ruling would apply to chocolate chips.  The SSUTA rulings have no effect in Illinois at this time, but will if Illinois joins the SSUTA.

The new definitions for soft drinks and candy are exact copies of those in the Streamlined Sales & Use Tax Association ( www.streamlinedsalestax.org ).  At this point, Illinois does not appear on the list of full or associate members, but I would guess they may be starting to move in that direction.

Steve Kaukl

Comments

[David Jenkins]

I call that a backdoor tax, and an attack on personal freedom.

[Joy Criss]

Thank you for all this info. I have not received any notices on this matter. Which is not good since I am the Tax Accountant for several C-stores. My boss jsut happened to get an e-mail from someone.