The City of Chicago strikes again with another tax for retail license holders called the Checkout Bag Tax. In an effort to reduce the use of paper and plastic carryout bags in Chicago, the city is imposing a seven cent ($0.07) per bag Checkout Bag Tax on the retail sale or use of checkout bags, effective February 1, 2017. A two cent ($.02) per bag credit is available for retailers who pay the tax upon acquiring bags from a wholesaler. The tax must be separately stated on customer receipts and identified as the "Checkout Bag Tax." The bags for which the tax applies are “provided by a store to a customer for the purpose of carrying goods out of the store” and would include those plastic and paper grocery bags provided by most retailers for carrying purchased items.
Floor Tax Return
The City of Chicago describes actions retailers must take to prepare for reporting the new tax and notes that a Floor Tax Return must be filed on or before Friday, March 3, 2017. The form to prepare this return was mailed to all licensed Chicago retailers prior to the end of 2016. Every wholesale and eligible retail store selling or using checkout bags must register with the Department of Finance before February 1, 2017, the effective date to begin collecting and/or remitting the tax.
All retail stores must perform an inventory of checkout bags on hand by the close of business on Tuesday, January 31, 2017. The Floor Tax return reporting such inventory must be submitted with the corresponding tax payment on or before Friday, March 3, 2017. All returns filed after the March 3, 2017 deadline are subject to a $100 late filing penalty for each site reported on the return; a hold may be placed on the business’ license renewal for failure to file this return.
Retailers may choose not to collect the Chicago Checkout Bag Tax from customers, but will then be responsible for paying the tax itself for each checkout bag given to a customer.
Stores that do not sell or use checkout bags prior to February 1, 2017 are still required to file the Floor Tax Return.
Examples of Bags Not Subject to the Checkout Bags Tax
Paper and plastic bags ordinarily intended and designed for use by customers inside a store would not be subject to the checkout bags tax. Common examples include those bags within the store that:
Package loose bulk items, such as fruit, vegetables, nuts, grains, candy, cookies or small hardware items
Contain or wrap frozen foods, meat or fish, whether prepackaged or not
Contain or wrap flowers, potted plants or damp items
Segregate food or merchandise that could damage or contaminate other food or merchandise when placed together in a bag
Contain unwrapped prepared foods or bakery goods
Other Examples of Bags Not Subject to the Chicago Checkout Bags Tax
The following are some of the exemptions/non-taxable carry-out bags for which the Carryout Bag Tax would not apply:
Bags provided by a pharmacist to contain prescription drugs
Bags sold in packages containing multiple bags intended for use as garbage bags, pet waste bags or yard waste bags
Bags provided by a dine-in or take-out restaurant to contain food or drink purchased by the restaurant’s customers
Bags of any type that customers bring to a store for their own use or to carry away from the store goods that are not placed in a bag provided by the store
Dry cleaning or garment bags
Plastic liners that are permanently affixed, or designed and intended to be permanently affixed, to the inside of a particular bag
Plastic bags with a retail price of at least fifty ($0.50) each
Retail sale or use of checkout bags that are used to carry items purchased pursuant to the Supplemental Nutritional Assistance Program or similar government food assistance program
Every holder of a retail license should have received a notice from the City of Chicago with more information. Included here is a link for a placard you can display to inform your customers of the tax.
Please reach out to us if you have any questions.
About the Author - Sanjay Wadhwani received his Bachelor of Science Degree in Finance from University of Florida in 2004 and a Master of Science in Taxation from University of Central Florida in 2006. Mr. Wadhwani is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants and the Illinois Certified Public Accountants Society. Mr. Wadhwani has over 10 years of accounting and tax experience. His areas of expertise include individual, corporate, and partnership income tax compliance and consulting.