Illinois Court Upholds Cook County’s Beverage Tax Finding It Passes Constitutional Muster and Related Developments

On July 28, Circuit Judge Daniel Kubasiak dismissed the Complaint filed by the Illinois Retail Merchants Association and a group of retailers challenging the constitutionality of the Cook County, Illinois Sweetened Beverage Tax (Tax). A copy of the court’s Order is linked here (Order). The Order also dissolved the June 30 temporary restraining order which had halted the county’s imposition of the Tax, on which we have previously reported. In response to the Order, the county required Tax collection to begin on August 2. The county also announced that by September 20, retailers must remit a “floor tax” on the inventory of sweetened beverages in their possession as of August 1.

The Order rejected both of the constitutional arguments raised by the Complaint. The court held that Plaintiffs raised a good faith Illinois Uniformity Clause challenge, and thereby shifted the burden of proof to the county, because the Tax applied to pre-made, but not made-to-order sweetened beverages. The court went on to hold, however, that the county met its burden to justify this arbitrary tax classification by alleging that pre-made sweetened beverages were more widely available and therefore more likely to be purchased and consumed than made-to-order beverages (thus generating more tax revenues) and by arguing that imposing the Tax on made-to-order beverages would be administratively burdensome. The court then held that Plaintiffs had failed to meet their burden of establishing that the county’s justifications were insufficient in law or unsupported by the facts. According to the court, the “County has set forth a real and substantial difference between the people taxed, who purchase ready-to-drink, pre-made sweetened beverages, and those not taxed, who purchase on-demand, custom sweetened beverages.” (Order at 9.)

The court also rejected the Plaintiffs’ argument that the tax was unconstitutionally vague, concluding that people of ordinary intelligence could understand and comply with the requirements of the Tax. In making this ruling, the court relied heavily on the regulations issued by the county regarding the Tax, including those which soften the impact of the Ordinance’s requirement that the Tax be included in the selling price, even with respect to goods sold to individuals purchasing through the Supplemental Nutrition Assistance Program (SNAP). The court also rejected Plaintiffs’ argument that the Tax regulations unlawfully exceeded the scope of the Ordinance.

In the Order, the court expressly disclaimed any reliance on the county’s public airing of its budgetary woes. The Order also provides that the court was not responsible for evaluating whether the Tax was of a “progressive or regressive nature.” (Order at 2.)

Practitioner Notes:

The fight continues despite the fact that the Tax is now in effect.

  • Plaintiffs appealed from the Order and filed a motion for emergency reinstatement of the temporary restraining order (TRO) with the appellate court. The appellate court denied the TRO motion.
  • The county filed a motion with the circuit court seeking damages in excess of $16 million from Plaintiffs for the tax revenues allegedly lost during the time period that the TRO halted the imposition of the Tax. Judge Kubasiak chided the county’s demand for damages as having a “chilling effect,” and some Cook County board members publicly denounced the motion. The county has since withdrawn its damages claim, a county spokesperson stated, in response to the appellate court’s denial of the TRO motion.
  • In direct contradiction to the Order’s conclusion that the Tax was understandable to the ordinary person, at least three lawsuits have been filed by consumers against major retailers in the county, alleging consumer fraud violations for failure to properly collect the Tax; and
  • On August 9, the Secretary of the Illinois Department of Human Services conveyed to the county the concerns of the United States Department of Agriculture Food Nutrition Services, rejecting the county’s regulations, declaring that retailers who collect the Tax from SNAP recipients violate the federal program, and may no longer participate in SNAP, even if they offer an immediate refund to those customers.
Mary Kay McCalla Martire
Mary Kay McCalla Martire focuses her practice on state and local tax disputes. She helps clients with audits, tax-related litigation, letter rulings and settlement conferences. Mary Kay has experience resolving disputes involving income, sales and use, utility and telecommunications taxes, as well as premium and retaliatory tax. Read Mary Kay McCalla Martire's full bio.

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