Cook County Record

Sunday, December 8, 2019

Retailers: Cook County soda tax unconstitutional, leaving drink sellers exposed to penalties, lawsuits

By Jonathan Bilyk | Jun 27, 2017

Law money 01

Saying Cook County rules would leave them unable to collect and pay the proper amount of taxes on the sodas, sweet teas and other sweetened drinks they sell, while leaving them exposed to penalties and lawsuits, a group of grocers, through their trade association, have asked a Cook County judge to block the scheduled July 1 implementation of the county’s so-called soda tax.

On June 27, the Illinois Retail Merchants Association filed suit in Cook County Circuit Court, asking for a temporary restraining order and injunction to bar the county from beginning to collect its 1 cent per ounce tax on most sweetened beverages sold at supermarkets, convenience stores, gas stations and other locations in Chicago and throughout the rest of Cook County.

Other named plaintiffs in the action include the operators of Berkot’s Super Foods, with locations in Chicago’s southwest suburbs; Fairplay Foods, with locations in Chicago and several southwest suburbs; Food Market La Chiquita, with locations in Chicago and several western suburbs; Tony’s Fresh Market, in Chicago and elsewhere in the Chicago area; and Walt’s Food Centers in Chicago’s southwest suburbs.

Cook County Board President Toni Preckwinkle

“As it stands, this ordinance is incomplete and it’s a perfect example of the disaster that awaits when policies are hurried through without serious thought to how they might impact the businesses that have to try to comply with these policies,” said IRMA president Rob Karr, in a statement announcing the legal action.

Last year, the Cook County Board of Commissioners, led by Cook County Board President Toni Preckwinkle, passed an ordinance establishing the tax, which would take effect July 1, 2017.

County officials said at the time they believed the ordinance would raise more than $200  million per year in new tax revenue for the county, and would help reduce consumption of soda and other sweetened beverages, improving public health.

However, in the months that followed, retailers launched a campaign against the tax, asking the county to rescind the tax out of concern for its impact on local retailers, who would be burdened with new rules and regulations, as well as costs to collect and pay the taxes, on top of lost revenue from decreased sales. They noted the tax would markedly increase the cost of soda, sweet tea, fruit juices and other beverages in the county, leading consumers to purchase their drinks elsewhere.

Opponents of the tax also said they did not believe the county would take in as much revenue as hoped, pointing to other jurisdictions, including the city of Philadelphia, where tax revenues from the new tax have declined since its implementation in January, while retailers and beverage distributors have reported steep declines in sales and announced resulting job layoffs.

With no sign Cook County will reconsider the tax, IRMA and the group of grocers took their case to court, asking a judge to declare the ordinance unconstitutional and unlawfully vague and unenforceable.

Particularly, the retailers pointed to differences in how the tax will be levied against different kinds of sweetened beverages. Bottled and fountain beverages would be taxed; however, drinks mixed behind a counter would be exempt. This, the lawsuit said, would lead to a situation in which a bottled Starbucks Frappuccino sold at a supermarket would be taxed, while a Frappuccino mixed by a barista at a Starbucks café would not.

“Even if the classifications of sweetened beverages created by the Sweetened Beverage Tax are based on real and substantial differences, the classifications bear no reasonable relationship to the purpose of the Sweetened Beverage Tax, which is expressly to promote public health and reduce obesity rates, because the health consequences of identical beverages in separate classifications are the same,” the lawsuit said.

The grocers also pointed to problems they could face in collecting and paying the proper amount of tax, which could leave them exposed to federal government enforcement actions or class action lawsuits.

They noted federal rules don’t allow them to collect the tax on sales of anything purchased through the Supplemental Nutrition Assistance Program (SNAP), also commonly known as food stamps. To address this problem, the county recently announced it would exempt beverages purchased using SNAP from the new sales tax.

However, the grocers said their cash register systems may not allow them to create such a differentiation, as the ordinance also requires the grocers to include the tax in the listed sales price for the beverages.

“…A retailer would have to either (1) issue a cash refund to a purchaser separate from the purchase transaction, such that the coupon is converted to cash for the SNAP participant, or (2) allocate the purchase with coupons and cash. Both options, identified by Defendants, would constitute violations of SNAP,” the lawsuit said.

Further, the grocers said the sales of fountain beverages and other drinks in “non-pre-determined size containers,” and which customers in some circumstances can refill themselves, would lead to “unavoidable over-collection and under-collection of tax in violation of the Sweetened Beverage Tax.”

With no ability to quickly and efficiently track the tax collections in real time and either collect more from customers or refund any over-collections, the retailers said the ordinance would likely lead to class action or so-called qui tam lawsuits – lawsuits filed on behalf of the county to collect unpaid taxes and enforce penalties – from lawyers and others looking to secure a payday at the expense of retailers who, the lawsuit said, may have not known they weren’t paying proper amounts of tax.

IRMA and the grocers are represented in the action by attorneys Marilyn A. Wethekam, Jordan M. Goodman and David S. Ruskin, of the firm of Horwood Marcus & Berk, of Chicago.

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Organizations in this Story

Cook CountyHorwood Marcus & Berk, CharteredIllinois Retail Merchants AssociationCook County Board of Commissioners