Illinois: Chicago’s checkout bag tax explained
The Windy City has recently posted updated guidance on its website to explain the various requirements and procedures put in place since the $0.07 checkout bag tax took effect, on February 1, 2017. Though retailers are not required to, most are likely to pass the tax on to consumers.
Normally, the wholesaler who sells checkout bags to a store is to collect the tax, but if a store receives bags from a wholesaler who has not collected the tax, the obligation is on the store.
The updated guidance includes these links to assist retailers and wholesalers:
- Affidavit for apportionment for mixed-use facilities: This is the form to indicate the percentage of total sales attributable to operations other than “restaurant,” and the percentage of total sales attributable to qualifying “restaurant” operations. This is necessary because the Ordinance states that the tax does not apply to "bags provided by a dine-in or take-out restaurant to contain food or drink purchased by the restaurant’s customers."
- Checkout bag tax placard: This is a placard intended to inform customers of the new tax, and encourage them to bring their own bags.
- Sample store receipts: As explained below, store receipts are to contain a separate line item for the checkout bag tax charged to the customer. This link provides a store with the proper placement of the tax on the receipt.
- Guidance on the checkout bag tax: The purpose of this form is to help retail merchants and wholesalers applying for a Bag Tax credit, when, among other things, the customer is purchasing items pursuant to a governmental food assistance program, as described below.
- Checkout Bag Tax FAQs: This provides answers for commonly asked questions.
The checkout bag tax ordinance (Ordinance) itself contains other information pertaining to checkout bag tax, including the facts that 1) there is a presumption that the checkout bags are subject to the tax; and 2) the burden of proving that the tax does not apply falls upon the person making that claim.
In addition, both paper and plastic bags are subject to the tax. These terms refer to the bags that people use to carry their purchases from the store, and not those used for things such as bulk nuts, fruits and vegetables, flowers, baked goods, and the like. Nor does the tax apply to bags that contain prescription drugs from the store’s pharmacy. Similarly, bags that one uses to carry items purchased under a Governmental food assistance program, like the Supplemental Nutritional Assistance Program, are not taxed.
Stores have the option of charging customers for the bags, and separately stating the tax on the receipt as the “Checkout Bag Tax,” or not. If a store chooses not to pass the bag tax on to the customer, it is still responsible for paying the tax. Regardless, every store that remits or pays the tax is eligible to retain $0.02 per checkout bag sold or used. The amount that a wholesaler should be receiving from a store and remitting to the Department of Finance should only be the net amount of $0.05 per checkout bag sold or used, less any credit for exempt bags allowed.
Finally, the Ordinance imposes a registration requirement on “[e]very store that possesses checkout bags for sale or use in the City purchased prior to the effective date…” This includes providing information “attesting to the quantities of such checkout bags in [the store’s] possession as of the last day prior to the tax increase, and remit[ting] to the Department the amount of tax due as a result of each rate increase.” Failure to comply will cost $100.00 per business location, in the absence of a “reasonable cause” defense.
New York City’s plastic bag fee blocked
According to the New York City Department of Sanitation (Department) “New Yorkers use more than 10 billion single-use carryout bags every year, costing the City more than $12 million annually to dispose of these bags. Most bags end up in landfills, where they take thousands of years to decompose. Those that [do not end up in landfills] often [get] stuck in trees and bushes, clogging storm drains, and littering beaches.” For these reasons, the Department attempted to impose a five-cent fee to discourage plastic bag usage. This was not considered to be a tax, because the Big Apple would not have received any revenue; retailers would have kept whatever amounts they collected.
The state legislature blocked the fee from taking effect, and Gov. Andrew Cuomo went along with the moratorium. In his press release explaining these actions, the governor asserted that the law was “deeply flawed” because it allowed merchants to keep the fees, instead of using the revenue to “solve the problem of plastic bags' environmental impact – essentially amounting to a $100 million per year windfall to merchants.”
Before proceeding further, Gov. Cuomo wants answers to numerous questions, such as:
- Whether the state should ban paper and plastic carry-out products;
- Whether a tax the best approach, and if so, at what level and who should be the beneficiary; and
- Whether New York state should be obligated to supply reusable bags for a period of time during a transition so that low-income consumers are not unduly financially burdened through the process.
To that end, he established a statewide task force to develop a plan for addressing the plastic bag problem.
