July 16, 2009 :: Business, Legislative

Illinois Sales Tax Changes September 1, 2009

On September 1, 2009 there will be changes to the Illinois sales tax laws to account for the recent definitional changes to the definitions of "Grooming and Hygiene Products" and "Soft Drinks" as well as the addition of a "Candy" definition. Currently "Soft Drinks" are taxed at the non-food (high) rate, "Candy" is taxed at the food (low) rate and "Grooming and Hygiene Products" may be either depending on the "medicinal claims" on the label.

Effective, September 1, 2009 each of these product categories will be taxed at the non-food or non-medicine high rate.

The definitions in the new Statute are taken directly from the Streamlined Sales Tax Project glossary of terms, so if you operate in any other State which uses these definitions and applies the sales tax rate to these products you already know how Illinois will treat specific items.

Following are the specific definitions from the new Act and what the Illinois Department is saying about each:

Grooming/Hygiene Products

Notwithstanding any other provisions of this Act, beginning September 1, 2009, "nonprescription medicines and drugs" does not include grooming and hygiene products. For purposes of this Section, "grooming and hygiene products" includes, but is not limited to, soaps and cleaning solutions, shampoo, toothpaste, mouthwash, antiperspirants, and sun tan lotions and screens, unless those products are available by prescription only, regardless of whether the products meet the definition of "over-the-counter-drugs". For the purposes of this paragraph, "over-the-counter-drug" means a drug for human use that contains a label that identifies the product as a drug as required by 21 C.F.R. § 201.66. The "over-the-counter-drug" label includes: (A) A "Drug Facts" panel; or (B) A statement of the "active ingredient(s)" with a list of those with a list of those ingredients contained in the compound, substance or preparation.

Illinois Department of Revenue Information Bulletin Language FY 2010-01

Personal Grooming and Hygiene Products

Grooming and personal hygiene products for humans are taxed as general merchandise (high rate) whether or not they make a medicinal claim, unless sold as a result of a prescription. Products affected by this change include, but are not limited to,

- Body soap and cleansers,
- Shampoo,
- Toothpaste,
- Mouthwash,
- Antiperspirant, and
- Suntan lotion and screens.

Soft Drinks

Notwithstanding any other provisions of this Act, beginning September 1, 2009, 'soft drinks' mean non-alcoholic beverages that contain natural or artificial sweeteners. "Soft drinks" do not include beverages that contain milk or milk products, soy, rice or similar milk substitutes, or greater than 50% of vegetable or fruit juice by volume.

Illinois Department of Revenue Information Bulletin Language FY 2010-01

The definition of "soft drink" has changed. "Soft drink" is any non-alcoholic beverage containing natural or artificial sweeteners. This includes, but is not limited to,

- Soda,
- Sport or energy drinks,
- Sweetened tea,
- Waters containing natural or artificial sweeteners,
- Beverages containing natural or artificial sweeteners,
- Beverages containing 50 percent or less fruit or vegetable juice, and
- All other preparations commonly known as soft drinks.

Exception: "Soft drink" does not include any beverage containing milk or milk products, soy, rice or similar milk substitutes, unsweetened teas, drinks with greater than 50 percent of vegetable or fruit juice by volume, and carbonated or uncarbonated water that contains no natural or artificial sweeteners. These remain reported on Form ST-1, Step3, Line 5a, and taxed as food (low rate).

Note: All beverages sold at a restaurant remain taxed as general merchandise (high rate).

How do I make the determination?

You must check the ingredients label or package. If an item contains milk or milk products or does not contain natural or artificial sweeteners, it is taxed as food (low rate).

Do these changes affect the Chicago Soft Drink Tax?

Yes. The broader definition of "soft drink" also applies to the Chicago Soft Drink Tax. The "soft drinks" previously identified as moving from low rate to high rate taxation will not be subject to the Chicago Soft Drink Tax. The rate for that tax remains at three percent (.03) and reported on Form ST-14, Chicago Soft Drink Tax Return.

See Publication 116. Chicago Soft Drink Tax, for more information regarding this local tax.

What if I have questions?

The department will answer taxpayer questions from the Tax Talk section on our Web site at tax.illinois.gov.

Candy

Notwithstanding any other provisions of this Act, beginning September 1, 2009, "food for human consumption that is to be consumed off the premises where it is sold" does not include candy. For purposes of this Section, "candy" means a preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts or other ingredients or flavorings in the form of bars, drops, or pieces. "Candy" does not include any preparation that contains flour or requires refrigeration.

Illinois Department of Revenue Information Bulletin Language FY 2010-01

Candy has a broad definition. For Illinois taxing purposes, candy is a preparation of sugar, honey, or other natural or artificial sweeteners, in combination with chocolate, fruits, nuts or other ingredients, or flavorings in the form of bars, drops, or pieces. Examples include, but are not limited to,

- Chocolate bars,
- Yogurt or chocolate covered fruit or nuts,
- Honey coated nuts,
- Caramel popcorn,
- Lollipops,
- Snack mixes containing yogurt or chocolate,
- Breath mints, and
- Gum

Exemption: Items that contain flour or require refrigeration are not considered candy. Examples include, but are not limited to,

- Chocolate covered cookies,
- Yogurt covered pretzels,
- "candy" that contains flour,
- Plain dried fruits, and
- Nuts with no added sweeteners.

How do I make the determination?

You must check the ingredients label or package. If an item contains flour or requires refrigeration, it remains taxed as food (low rate). If an item contains sugar, it is taxed as general merchandise (high rate).