Illinois Announces (Really Weird) Sales Tax Changes


As a tax practitioner who files Sales and Use tax returns in 45 states, I’m on all the mailing lists for each state and get notices when the state (and sometimes local) tax lawas are about to change. One such notice came in the other day and I felt compelled to share with the blogosphere.

I just received a notice from the Illinois Department of Revenue announcing some really bizarre changes to their sales tax laws that will take effect September 1st. (Disclosure: I have clients for whom we file Sales and Use Tax returns in Illinois, but their business has nothing to do with the items listed here – I just thought these were silly and wanted to pass them a long!)

First up, is the change to the tax on candy. Yes. The Illinois Candy Tax. According to the notice I received, the new Sales Tax form (ST-1) will include a separate line item for candy. So, now, candy must be taxed at the general tax rate, which varied depending on whether you are an out-of-state vendor, or based on location if you are an in-state vendor. But, lest you get confused as to the definition of “candy”, Illinois clarifies this 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 of chocolate, breath mints (thank goodness), and gum. Nothing wrong yet.

Like every good (open to interpretation) government program, there are of course exceptions to the “what is considered candy rule” and Illinois DOR tells us that chocolate covered cookies, yogurt covered pretzels, “candy” that contains flour, plain dried fruits and nuts with no added sweeteners are NOT candy and, therefore, are taxed at the lower “food” rate.

As a guide to help consumers and retailers to make sure that they have not violated this rule, the Illinois DOR
provides a helpful rule of thumb. They say, “You must check the ingredients label or 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 on soft drinks and which soft drinks qualify for the lower rate (food) and which are taxed at the higher rate (general). Basically, the determination is the same – if you look at the label and see that the soft drink contains milk or juice without sweeteners (whether sugar or artificial), it is taxed at the lower rate (food). Otherwise, it is taxed at the higher, general, rate. And don’t forget the special Chicago Soft Drink Tax – it’s also clearly defined.

Here’s the actual notice I received from Illinois: http://tax.illinois.gov/Publications/Bulletins/2010/FY-2010-01.PDF so you can see I’m not making this up.

Silly, silly, silly. As a former “insider” in another state department of revenue – not Illinois, I can just imagine the ridiculous amount of time wasted on developing these rules.

First, I can imagine the legislators considering the hoary problem of the “Candy Tax Loophole” and spending valuable floor time debating it.

Then, I can imagine their staffers calling frantically to the Illinois Dept of Revenue asking for face time with Commissioner Brian Hamer, or one of his staffers. Because goverment policy makers are often fresh-out-of-college compassionbots, I just can imagine the flavor of that meeting. “Gentlepeople, we have a serious problem with the Illinois tax code. We need your help to strengthen our language. In the development of the regs, legislative intent was to clearly define that chocolate covered pretzels should get a tax break but that chocolate covered nuts should not. The citizens of Illinois are dying from eating Goobers and Raisinettes. We HAVE to get them eating chocolate covered pretzels, immediately. OUR CHILDREN’S FUTURE DEPENDS ON IT!!”

Oh . . . my . . . stars. Those meetings really are that bad. I’ve sat in dozens of them.

Not to mention the 2 cents difference in the tax on the two different items. Let’s analyze what’s going on here. Supposed that in the entire state of Illinois, during the course of a year, consumers purchase a hundred million soft drink cans at roughly a dollar apiece. If the difference in the tax rate is 2 cents, consumers will be paying into the Illinois Treasury approximately $2 million in additional tax – just on soft drinks. Sounds like a lot of money doesn’t it? I assure you that an enormous amount of that additional revenue was consumed by the state in trying to apply the law change. For example, in the meeting I described above, there were probably 20-25 state employees involved over several hours worth of meetings. Then there was time involved in drafting the new regulations, developing the methodology for advertising the changes, distributing my mail to who-knows-how-many tax preparers like myself. Then, computer systems changes were required. Add to that developing and printing of the new forms, getting approvals at every step of the way and final signoffs by Commissioner Hamer and his team, and all of a sudden, two million bucks – POOF!!

Now, let’s say it’s NOT a hundred million cans, but a BILLION cans and $20 Million in new taxes. Now, you’re talking about a tax increase that an Illinois politician can sink some teeth into, like a Snickers bar (high tax).

Here’s the link to the actual notice I received from Illinois. http://tax.illinois.gov/Publications/Bulletins/2010/FY-2010-01.PDF See if I’m not telling you the truth about this. They’re serious.

In future articles, I’ll pass along some of the dumbest meetings I ever sat in. And, I’ll talk about some of the dumbest people I 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 the idiots.”

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3 Comments

Filed under Government Waste, Tax Issues

3 responses to “Illinois Announces (Really Weird) Sales Tax Changes

  1. This is some good information, I just finished my paper for school and think I should go re-edit it lol. You may have just made me a regular 🙂

  2. I’ve been interested in taxes for lengthier then I care to acknowledge, both on the individualized side (all my employed life history!!) and from a legal viewpoint since passing the bar and pursuing tax law. I’ve offered a lot of advice and redressed a lot of wrongs, and I must say that what you’ve put up makes utter sense. Please continue the good work – the more individuals know the better they’ll be outfitted to cope with the tax man, and that’s what it’s all about.

    • Thank you for sharing. I just think that sometimes government agencies begin to exist for the sake of themselves, rather than for the public they are designed to serve. I’d like to shine a light on some of these, in order to make others aware.

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