Illinois Supreme Court | Vimeo livestream screenshot
The city of Chicago didn’t have the authority under Illinois state law to slap a new tax on the sale of smokeless tobacco, pipe tobacco and cigars, the Illinois Supreme Court said.
And if the city doesn’t agree, it needs to take the matter up with its state representatives, a majority on the state’s high court said.
On Dec. 19, the Illinois Supreme Court struck down the city’s 2016 ordinance imposing flat taxes on units of so-called non-cigarette tobacco products.
Illinois Supreme Court Justice Thomas L. Kilbride | Illinoiscourts.gov
The 5-1 decision was authored by Justice Thomas L. Kilbride, with justices Robert R. Thomas, Rita B. Garman, Lloyd A. Karmeier and P. Scott Neville concurring.
Justice Mary Jane Theis dissented, while Chief Justice Anne M. Burke abstained from taking part in the decision. Burke’s husband, now-indicted Chicago Ald. Ed Burke, had served as chairman of the Chicago City Council’s Finance Committee at the time the city imposed the new tobacco products tax. Ald. Burke has been indicted in an unrelated matter, allegedly for scheming to shake down city permit applicants to steer work to his law firm.
In the tobacco tax case, the city asserted the taxes were needed to allow the city to capture more revenue on the back of the rapid growth in sales of such products. In the Supreme Court’s decision, for instance, justices conceded the market for such products has burgeoned in the last three decades, while the market for cigarettes has weakened.
“The City claims that it enacted the … tax in response to a market shift from cigarettes to noncigarette tobacco products and growing concerns about the public health consequences of such products, particularly among young adults,” Justice Kilbride wrote for the majority, acknowledging the city’s “public policy arguments.”
He noted the city reported Illinois state government logged a 700% increase in tax revenue on the sale of non-cigarette tobacco products since 1995. The state now brings in almost $43 million annually from that tax, thanks to the booming market for the products, Kilbride noted.
The city asserted it adopted the tax in 2016, along with “various regulatory measures” to “reduce consumption of these products.”
However, Kilbride and the other justices in the majority said this reason is not enough to allow the city to continue exacting the tax on the products.
A coalition of tobacco products sellers had challenged the tax since the city first imposed it, arguing the tax was not allowed under Illinois state law. They particularly pointed to a provision which they said prevents cities from imposing a new tax on “cigarette or tobacco products” if that city had not enacted “such a tax” before July 1993. The prohibition, they said, applied whether or not the city was a “home rule” government, with broader powers and abilities to regulate and tax, under the Illinois state constitution.
A Cook County judge backed the tobacco sellers’ position on the matter, finding the state law blocked the city from applying a new tax on tobacco products.
The city appealed, arguing the judge misinterpreted that provision. The city asserted the provision should be read to mean a home rule city is free to impose any number of new taxes on tobacco products, so long as it had a tax on tobacco products in place in July 1993.
That argument secured the city a win from the Illinois First District Appellate Court, and reinstated the tax. The appellate decision was authored by Justice Jesse Reyes, who is now running for a seat on the Illinois Supreme Court in the March 2020 Democratic primary election.
The tobacco sellers then appealed to the Illinois Supreme Court.
Justice Theis sided with the city, saying the Illinois Supreme Court’s majority, along with Cook County Judge Ann Collins-Dole, “imagined” a law that state lawmakers didn’t write.
Rather, the state law’s “language indicates that the legislature wanted to leave untouched the authority of some home rule municipalities to impose a tax on cigarettes and tobacco products but to limit any expansion of that authority to other municipalities,” Theis wrote in her dissent. “In my view, the City clearly had authority to impose a tax on the number of units of cigarettes or tobacco products. Its 2016 tax ordinance was a permissible exercise of that authority.”
The majority, however, disagreed, saying the appeals court and Theis answered the legal question incorrectly.
In the opinion, Justice Kilbride said the city’s pre-existing tax on the sale of cigarettes, established first in the 1970s, does not now allow “unlimited future taxes on all tobacco-based products.”
That position, Kilbride said, would undermine the intent of state lawmakers, who had enacted the legal provision at the heart of the case, specifically to limit the ability of municipalities to enact tobacco taxes.
“… The plain statutory language demonstrates legislative intent to prohibit future municipal taxes on cigarettes or other tobacco products unless the tax was enacted before July 1, 1993,” Kilbride wrote.
The majority also noted the city has repeatedly lobbied the Illinois General Assembly to change the law to allow such city taxes, but state lawmakers have thus far refused to do so.
“Although the General Assembly has rejected the City’s prior requests to amend that statute to allow explicitly the City to tax other tobacco products, the City’s arguments on the evolving nature of OTP (other tobacco products) use and its impact on taxation may warrant reconsideration of the statutory scheme,” Kilbride wrote.
“But that is a decision for the General Assembly, not this court.”
Plaintiffs suing the city included Iwan Ries & Co., the Cigar Association of America, the Illinois Association of Wholesale Distributors, the Illinois Retail Merchants Association, the International Premium Cigar and Pipe Retailers Association, the National Association of Tobacco Outlets and Arangold Cigar Co.
On appeal, the plaintiffs have been represented by attorneys Stanley R. Kaminski, Amy E. McCracken and Elinor H. Murarova, of Duane Morris LLP, of Chicago.
The city has been represented by its corporation counsel in its Department of Law.