TAX INCREASE?

Beginning Tuesday, Illinois shoppers may notice they are paying more for their favorite shampoo. Or toothpaste. Or candy bar. Or adult beverage.

Sales tax changes approved by the Illinois General Assembly last spring to help pay for road improvements, school construction and other public works projects take effect Tuesday.
Starting Tuesday, a $10 box of chocolates, now $10.10 with tax, will set you back $10.75 in the city of Springfield.

That anti-dandruff shampoo used to be considered a medication and carried a sales tax of only 1 percent. Now the sales tax will be at least 6.25 percent – or more in areas, such as Springfield, where local governments impose their own sales tax (1.5 percent in the city’s case).

Unless, of course, a doctor prescribes the shampoo. In that case, it’s still a medication.
Munch on a handful of plain, dry-roasted peanuts for a snack, and you are eating food taxed at 1 percent. Buy the honey-roasted version, and you are eating candy, which is taxed at 6.25 percent at the state level.

Yogurt-covered fruit? Candy.

Yogurt-covered pretzels? Food.

Less confusion

Although the changes sound confusing, the Illinois Department of Revenue, which receives the sales taxes retailers collect from their customers, thinks the changes actually will reduce confusion about what is taxed at what rate.

“We believe this will reduce errors in classification of grooming products so that, no matter where a customer goes to buy a tube of toothpaste, they’ll be charged the same,” said Revenue spokeswoman Sue Hofer.

David Vite of the Illinois Retail Merchants Association agrees the changes will make things less difficult for retailers. Well, up to a point.

“Certainly in two areas (soft drinks and grooming products), it will be easier. Candy is not going to be any easier,” Vite said. “Any time you have a system that taxes different products differently, there is confusion. This gets rid of a lot of problems for the retail industry.”

The Illinois Petroleum Marketers Association represents 500 members who operate more than 3,500 gas station/convenience stores in the state.
“It is confusing, but we have to work our way through this thing,” said executive vice-president Bill Fleischli. “We don’t want down the line to have members subject to an audit and then be subject to penalty and fines.”

The changes are intended to raise revenue for the state that will be used to pay off the bonds issued for public works projects. It was part of the $31 billion capital bill approved by lawmakers last spring.

Extending the sales tax to candy is expected to raise $35 million to $38 million for state government, Hofer said. Changes in tax rates for grooming products will raise an estimated $14 million.

Prices going up

Reaction among some Springfield retailers varied. Rob Flesher, president and co-owner of Pease’s Candy Shops of Springfield, said the increase will “immediately cut into our sales.”

“All of a sudden you’re adding 6.75 percent to everything we sell,” Flesher said. “In this economy, people have only a limited amount of money for discretionary funds.”

Flesher said Pease’s products do not fall into any of the exceptions outlined in the new taxes.

Bill Caslin, co-owner and manager of Springfield Novelties and Gifts, doesn’t think the changes will be a big deal for his business, even though he sells soda, candy and personal care products.

“We do our best to be competitive,” Caslin said. “In that regard, we hope to do our best not to pass it on. Some people are going to recognize there has been an increase, but I don’t think it will be too drastic.”

People shouldn’t expect to skirt the tax changes by buying their candy bars in vending machines. Hofer said the tax applies to those products as well.

“Whoever owns the candy that goes into the machine pays the tax,” Hofer said.

Capital City Vending Co. operates vending machines throughout the city. A person answering the phone there Tuesday, who would only identify himself as Dave, said prices will go up.

“You have to pass it on. There’s no way not to,” he said.

He predicted candy that now costs 80 to 90 cents will probably increase to $1.

Not everything is seeing a tax increase, Hofer said. Seltzer water, previously taxed as a soft drink because it is carbonated, will now be taxed as a food because it contains no sweeteners.
Liquor taxes also to rise

Taxes on alcoholic beverages are also going up to help pay for the capital bill.

The state expects to collect another $109 million from alcohol excise taxes, which are based on the gallonage and alcohol content of a product.

The tax increases amount to 81 cents on a fifth of liquor, 13 cents on a bottle of wine and 2.6 cents on a six-pack of beer, Hofer said.

However, Bill Olson, president of the Associated Beer Distributors of Illinois, cautioned that those numbers only apply to the increased taxes distributors will pay to the state.

“What we pay on taxes isn’t the only factor,” Olson said of beer prices. “We are getting an increase from breweries. Both of those go into the price we sell to the retailer. The retailer determines how much they will charge consumers.”

Famous Liquors on Wabash Avenue in Jerome put up a sign advising people to buy now because taxes are increasing Sept. 1. Manager Fred Manker said that warning hasn’t prompted a big increase in business yet. But if the pattern repeats from 1999, when taxes were last increased, he said customers will start flowing in as the deadline approaches.

Manker said he’s already been notified by distributors that prices will be going up.

Department of Revenue spokeswoman Sue Hofer said the department expects some retailers are stocking up now on supplies before the taxes increase. However, the department won’t know for sure for several more weeks because of delays in collecting those taxes.

By DOUG FINKE
THE STATE JOURNAL-REGISTER