WASHINGTON, Aug. 14, 2017 - Cook County, Illinois, and the state’s Department of Human Services (IDHS) are working to resolve USDA concerns about the county’s tax on sweetened beverages in order to avoid a cutoff in funding used to administer nutrition programs.
Food and Nutrition Service Regional Administrator Tim English told IDHS Secretary James Dimas last week that Cook County’s decision to allow retailers to charge the tax when customers check out, and then provide a refund, violates Food and Nutrition Act regulations prohibiting collection of state or local sales tax on Supplemental Nutrition Assistance Program purchases.
The 1-cent-per-ounce tax on sweetened beverages went into effect Aug. 2 after a Cook County Judge dismissed a lawsuit filed by the Illinois Retail Merchants Association challenging the tax as unconstitutional. IRMA is appealing the ruling.
The association had cited concerns in its lawsuit about how retailers might run afoul of SNAP requirements. “Many retailers may not be able to correctly charge the Sweetened Beverage Tax, especially since the rules have been changed approximately two weeks prior to the date retailers must begin collecting the tax,” IRMA said in a news release in late June. “If retailers do not comply they might be in jeopardy violating the terms of their SNAP contracts.”
The county has struggled with how to apply the tax and, at the same time, comply with SNAP requirements. English noted in his letter to the state that initially, the county said the ordinance would not apply to purchases exempt from taxation under federal law, such as SNAP.
Then retailers were advised they could include the tax in the beverages’ shelf price, but the state said the added cost would make the beverages subject to sales tax. So in early June, the county said retailers could add the tax at the point-of-sale.
But with retailers struggling to implement point-of-sale systems, the county gave them an alternative – refunding the tax to SNAP purchasers.
In a statement, FNS said it is working with IDHS “to make sure Cook County and its retailers are operating in accordance with the law.” FNS has given the state until Aug. 21 to come up with a plan to address the legal deficiency or delay implementation of the tax.
The revenue hit to the state could be substantial. In the last fiscal year, the amount of administrative funding provided by FNS to the state for SNAP was $86.8 million, according to a letter from Dimas to Cook County Board of Commissioners President Toni Preckwinkle.
Cook County spokesman Frank Shuftan said county officials who discussed the matter with FNS in late June thought the county’s plan to implement the tax – which allows retailers to use the in-store refund if they do not have a point-of-sale system in place – complied with SNAP requirements.
In his Aug. 7 letter to Dimas, however, English said FNS had “advised Cook County via phone call on June 28, 2017” that the refund option for managing the tax was “unacceptable. However, as of Aug. 3rd, this alternative still appears on the Cook County website.”
“The state must take immediate steps to address Cook County compliance in this area,” English said. By Aug. 21, the state must submit a Corrective Action Plan that addresses “how the implementation of the Cook County tax will be adjusted to conform with the Food and Nutrition Act (or) confirmation of a delay in implementation along with a timeline and plan that allows for proper implementation of the tax at the point-of-sale by SNAP authorized retailers.”
Otherwise, English said, the result could be “suspension or disallowance “ of federal funding
“We are confident that the state, the county, and the retailers are working to remedy this issue to make certain they are all adhering to the law,” FNS said in its statement.
The Cook County revenue department is working with IDHS to resolve FNS’s concerns, IDHS spokesperson Meghan Powers said. Shuftan said he is hopeful the state and county will be able to meet the FNS deadline.
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