by Teresa Farnsworth July 22, 2022

Written By Guest Blogger S.M. Oliva 

Federal Judge: Illinois Can Require Retailers to Notify Customers of Sales Tax Suspension

State suspends sales tax on groceries for one year.

Until recently, Illinois was one of 13 U.S. states that imposed a sales tax on groceries. Most states exempt groceries altogether from their sales tax. Other states simply assess sales tax at a lower rate. In Illinois, for example, the general sales tax is 6.25 percent, while the tax on groceries was just 1 percent.

But earlier this year, the Illinois General Assembly approved a one-year suspension of the 1 percent sales tax on groceries. This means that until June 30, 2023, Illinois consumers will not pay any sales tax on food that must be prepared and consumed off-premises. Foods that are prepared for immediate consumption are still subject to the state’s full sales tax of 6.25 percent, and retailers must still collect a 1 percent sales tax on other non-food grocery items, such as medicine and hygiene products.

Legislation includes requirement of Notice by Retailers

Buried in the fine print of the legislation was a requirement that retailers “who sell items that would have been taxed at the 1% rate” prior to the suspension must notify customers of this fact. Basically, retailers must include either a statement on each customer receipt–or post a sign in their store–stating, “From July 1, 2022 through July 1, 2023, the State of Illinois sales tax on groceries is 0%.”

IL Food Tax Suspension Notice

The General Assembly’s decision to suspend the sales tax prompted a lawsuit from a group representing the state’s retailers and gas stations. The lawsuit did not challenge the suspension of the tax itself. Rather, the group argued that a mandate related to the suspension violated its members’ constitutional rights.

 

State suspends 1% inflation adjustment on motor fuels for one year.

Another provision of the legislation dealt with the Illinois’ tax on motor fuel. The General Assembly suspended an automatic 1 percent “inflation adjustment” to the tax for six months, from July thru December of this year. Fuel retailers must therefore also provide notice to their customers of this suspension.

IL Motor Fuel Sales Tax Suspension Signage

 But unlike the grocery sales tax mandate, failure to comply with the notice requirement for motor fuel carries potential criminal penalties. Specifically, a retailer can be charged with a “petty offense” under Illinois law and fined $500 per day for non-compliance.

The Illinois Fuel & Retail Association sued the state’s Department of Revenue and Springfield State’s Attorney David Harris, alleging the motor fuel signage mandate was a form of “compelled speech” barred by the First Amendment to the United States Constitution. The Association further argued that imposing criminal penalties for violating the motor fuel signage requirement–but the grocery tax signage requirement–violated the Fourteenth Amendment’s “equal protection” clause.

First Amendment Does Not Apply to Certain “Commercial Speech” Mandates

 On June 23, U.S. District Judge Sue E. Myerscough of Springfield, Illinois, dismissed the Association’s lawsuit for failure to state a valid claim. Essentially, Myerscough rejected the Association’s federal constitutional arguments. She noted that under traditional principles of First Amendment law, the government may not compel “political speech” but it can require businesses to engage in certain forms of “commercial speech.”

The Illinois mandates here fell into the latter category, she said. The state can require a business to disclose “purely factual” information related to the goods and services it offers, provided such disclosures “are reasonably related to the State’s interest in preventing deception of customers.” Here, the mandate only requires the retailers to explain that certain taxes (or tax increases) have been suspended. With respect to the motor fuel signage requirement, Myerscough said the state had a particular interest in “preventing gas retailers from deceiving consumers by increasing gas prices by the non-imposed but previously scheduled inflation adjustment.”

As for the allegedly disparate treatment of retailers under the motor fuel and grocery tax requirements–imposing criminal sanctions for violating one but not the other–Myerscough said that was not an equal protection violation. The Fourteenth Amendment forbids states from depriving certain classes of citizens of their basic constitutional rights. In this case, the General Assembly did not “create a suspect classification of race, alienage, or national origin.” And in any case, she said there was no violation of the Association’s First Amendment rights to begin with.

Lawsuit May Continue in State Court

Following Judge Myerscough’s decision, the Association refiled its lawsuit, this time alleging the General Assembly’s actions violated the Illinois state constitution as opposed to the United States Constitution. Myerscough, a federal judge, previously declined to exercise jurisdiction over these state constitutional claims. On July 7, the Illinois Department of Revenue moved to transfer the case from federal court to an Illinois state court. That motion remains pending before Myerscough.

 


S.M. Oliva is a writer living in Virginia. He authors the blog Computer Chronicles Revisited.
Teresa Farnsworth
Teresa Farnsworth

Teresa Farnsworth is the VP / Account Manager at Zip2Tax. She works closely with her clients to make sure they have just what they need to collect the right amount of sales or use tax in the U.S. and Canada. Questions? Chat with Teresa on the Web site, the Subscriber User Portal, or call her direct line; 866-492-8494.


Leave a comment

Comments will be approved before showing up.