Tobacco sellers, allied organizations say Chicago lacks authority to tax non-cigarette tobacco products

By Dan Churney | Jun 7, 2016

A number of tobacco companies and trade groups are trying to snuff out a pending city of Chicago ordinance, alleging the ordinance burdens them with collecting sales taxes for non-cigarette forms of tobacco, while at the same time usurping rightful state authority over such taxes. 

Tobacco seller Iwan Ries & Co., of Chicago, and Arango Cigar Co., of suburban Northbrook, filed action May 31 in Cook County Circuit Court against the city of Chicago and Acting City Finance Department Comptroller Erin Keane. 

The following organizations joined with the companies in the action: Cigar Association of America; Illinois Association of Wholesale Distributors; Illinois Retail Merchants Association; International Premium Cigar and Pipe Retailers Association; and National Association of Tobacco Outlets. 

A fire was lit beneath plaintiffs in March, when the Chicago City Council enacted a sales tax on pipe, chewing and smoking tobacco, as well as on cigars, to take effect July 1. The city already had a sales tax in place on cigarettes. 

Plaintiffs want a judge to declare the tax illegal and prohibit the city from applying the tax, because they allege it violates a 1993 state law prohibiting a home rule municipality, such as Chicago, from taxing non-cigarette tobacco products after July 1, 1993. 

Plaintiffs contend the new tax ordinance will subvert the “State of Illinois’ ability to maintain primary control over the revenue stream derived from the taxation of tobacco products.” 

Specifically, the ordinance will allegedly defeat the purposes of the 1993 law, one of which was to preserve jobs in the tobacco industry by limiting the number of companies taxed at both the state and municipal levels, according to plaintiffs. 

Plaintiffs claim they will incur “substantial” non-reimbursable costs by having to implement an administrative system to track tobacco transactions subject to the tax, then having to collect and remit the taxes to the city. However, plaintiffs say their problems won’t end there, as they will lose customer goodwill and business. Plaintiffs add they will have to spend money “developing a public relations strategy to address the real and potential loss of sales.” 

In the end, the tax will depress plaintiffs’ income, which in turn will lower tax revenue to the state and lead to job reduction in the tobacco industry, the suit claims. 

Plaintiffs noted that if they do not comply with the ordinance, they then could face liability for the unpaid taxes and lose their business licenses. 

A hearing to address the injunction request is set for June 23 before Cook County Circuit Judge Alexander P. White. 

The Philadelphia-based global firm of Duane Morris, which has a Chicago office, is representing the plaintiffs.

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