Grocery Tax Change
Posted on May 5, 2022
The Illinois Retail Merchants Association (IRMA) recently posted updates about the Grocery Tax in the Retailers Occupation Tax Act in SB 157. They “can be found on pages 284-334 (although effectively the changes stop after page 310). Corresponding changes are made to the Use Tax, Service Use Tax Act, and the Service Occupation Tax Act.
A. What has changed? From July 1, 2022 thru June 30, 2023, SB 157 removes the 1% tax on “…food for human consumption that is to be consumed off the premises where it is sold (other than alcoholic beverages, food consisting of or infused with adult use cannabis, soft drinks, and food that has been prepared for immediate consumption)…”. Non-food items that are taxed at the low-rate of 1% (e.g. adult diapers, feminine hygiene products, etc.) will continue to be taxed at 1%. Food for immediate consumption will continue to be taxed at the high rate of 6.25% plus any locally-imposed tax. In order to assist with implementation, IRMA has asked IDOR for a list of the categories of non-food items that are taxed at 1%. We will share that if/when we receive that.
B. What is food for immediate consumption? Food for immediate consumption is taxed at the high rate (6.25% + any locally-imposed tax). The Illinois Department of Revenue (IDOR) has well-developed regulations defining and providing examples of what constitutes food for immediate consumption. Those regulations can be found here and your tax compliance team members are strongly encouraged to review them. Briefly, it boils down to a rebuttable presumption on whether the retailer provides premises for the consumption. To a certain extent, whether the food is hot is also a determining factor. That is the general approach but it is not that simple. For example, hot and cold sandwiches are considered food for immediate consumption and drinks and salad bars are considered food for immediate consumption regardless of whether a seating area is provided.
C. What about the Retail Discount? Illinois retailers are allowed to retain 1.75% of the sales tax they collect as a partial reimbursement for their costs of serving as the state’s sales tax collector and administrator. Under the provisions of SB 157, retailers are allowed to assume they collected the 1% on groceries for purposes of calculating their discount. This means the retailer is held harmless. That provision can be found on pages 305-306.
D. Will it impact when you must file? Illinois retailers who have a monthly sales tax liability of $20,000 or more must remit their sales taxes on a quarter-monthly basis (weekly) which is then reconciled the next month. In order to hold the state harmless, in determining whether or not your company meets that threshold, you must assume the 1% tax on groceries was collected. That provision can be found on page 310.
E. Sign required. Initially, the proposal required retailers to notify customers on any receipt issued to the customer that the 1% tax was removed. However, after IRMA explained the technical impossibilities, they added the words “if feasible”. If retailers cannot do so on a receipt, they are asked to post a 4×8 sign somewhere visible to the consumer that states the following: “From July 1, 2022 through July 1, 2023, the State of Illinois sales tax on groceries is 0%.”.