The department has stressed that the taxes are not new, but that they reflect a redefinition of what is classified as a soft drink or as candy. The rules will move more products into the state’s ‘general merchandise’ tax category, which stands at 6.25 percent, as opposed to ‘qualifying food and drugs’, which are taxed at one percent. Additional local taxes bring the general merchandise tax rate up further – to 10.25 percent in Chicago, for example, where ‘qualifying food and drugs’ are subject to a total of 2.25 percent tax.
It is expected that there will be some confusion as the rules are introduced, as the new definitions exclude candy that contains flour, meaning that although Reese’s Peanut Butter Cups, for example, will be taxed as candy, Kit Kat bars will not. Items that require refrigeration are also exempt under the new rules.
Soft drink tax
Meanwhile, the department has defined soft drinks as “any non-alcoholic beverage containing natural or artificial sweeteners”, although it excludes waters, unsweetened teas and drinks containing milk, rice, soy or more than 50 percent fruit or vegetable juice.
The changes to soft drink tax mean that sweetened tea, such as Snapple, will now be classified as a soft drink and subject to the higher tax rate, whereas it was previously exempt. Similarly, the rules do away with the previous stipulation that soda only falls into the higher bracket if it is sold in a closed container, meaning that fountain drinks are will also be taxed at the higher rate.
It will be manufacturers’, retailers’ and distributors’ responsibility to pass on the cost of higher taxes to the consumer.
Taxes and obesity
Unlike proposals for soft drink taxes in other parts of the US, such as the abandoned 18-percent tax proposal for non-diet soft drinks in New York State, the new rules have not been framed as a way to pay for measures to combat obesity. Instead, state officials have said that the Illinois tax change is expected to raise about $150m a year, with some of the money earmarked for new construction plans for roads, bridges and schools.
Other countries also differentiate between fatty or sugary foods and healthier foods in their tax systems. France, for example, levies a 19.6 percent tax on foods such as candy, chocolate and margarine, and a five percent tax on all other foods. Similarly, the UK applies its value-added tax (VAT) to fattening treats like ice cream, sugared beverages, alcohol and candy at 17.5 percent (temporarily lowered to 15 percent until the end of 2009).
The Illinois tax changes also apply to some personal hygiene products, moving those that make medicinal claims, such as anti-dandruff shampoo or toothpaste intended for those with sensitive teeth, into the higher tax bracket together with non-medicinal products.