"Junk Food" Tax Confuses Illinois Retailers

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"Junk Food" Tax Confuses Illinois Retailers

CHICAGO -- With Illinois’ new "Junk Food" tax taking effect Sept. 1, retailers across the state are struggling to implement the widespread and erratic changes imposed by the legislation, according to an article by Examiner.com.

The tax changes effectively raise currently low sales tax on certain candy and soft drinks within the state to the "general merchandise" rate of 6.25 percent. The tax increase was passed as part of budget negotiations and will help fund the state’s multi-billion dollar capital projects fund.

However, the state's definition of foods that fall under the candy and soft drink labels have left retailers scratching their heads and seeking further guidance, the report stated.

Under the guidelines, the state will consider any sugar-based product neither requiring refrigeration nor containing flour as candy. As a result, Hershey’s Kit Kat bars, containing flour, are no longer considered candy and are not subject to the increased tax. Likewise, Hershey’s Twizzlers and other licorice items, all of which are produced with flour, would no longer be considered candy, or taxed as such. While yogurt (requiring refrigeration) would still be considered a food product, yogurt-covered fruit is now considered candy and subject to the higher tax. Yogurt-covered pretzels, though, would still be considered food.

The confusion deepens when considering that a Hershey's chocolate bar would be considered candy, while the company’s Cookies and Cream bar (containing flour) next to it on the shelf would be considered a food item, according to the report.

The erratic definitions continue as retailers attempt to determine what is and is not a soft drink under the new law. While a vast majority would consider the term “soft drink” to refer to soda or certain juices, the state defines a soft drink as any non-alcoholic drink that contains natural or artificially flavors and/or sweeteners.

As a result, a bottle of iced tea would not be considered a soft drink, but if it is sweetened, then it falls under the additional tax. In addition, a bottle of flavored water that has zero calories and zero sugars is now subject to the more than 5-percent tax increase. However, a juice drink that contains more than 50 percent "real" fruit juice, and may be loaded with sugar, is not subject to the tax, the report noted.

The list of inconsistencies deepens as retailers comb the list of ingredients on products throughout the stores in an attempt to collect the proper tax. Unfortunately, many more retailers out of frustration and demands on time are likely to apply the tax across the board, resulting in consumers paying millions in taxes on items that do not fall under the state's "junk food" definitions, according to the Examiner.com report.

While large chains, with teams of researchers, legal staff and large amounts of resources, may find the changes to the law as a mere nuisance, small "mom and pop" retailers, convenience stores and gas stations will have to commit hours to combing the shelves, reading ingredients, reprogramming computer systems and consulting with accountants in order to comply with the tax laws that provide little specific guidance, the report stated.

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