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Chicago to tax bags in 2017

  • Dec 21, 2016 | Gail Cole

 Chicago bag tax: it's for a good cause.

To encourage Chicagoans to bring their own bags, Chicago banned the use of thin plastic bags on August 1, 2015. While the law has helped to raise awareness, it lacks the teeth needed to truly discourage the use of these bags. Now the city is trying a more persuasive method — it's imposing a Checkout Bag Tax on the retail sale of paper and plastic bags used at checkout, beginning February 1, 2017.

Wholesalers of checkout bags are required to register with the Chicago Department of Finance before February 1, 2017 and begin collecting the tax on the first. Retailers that are eligible to collect and remit the tax directly to the department must also register before the first and collect the tax starting February 1.

Exempt bags

Bags used inside a store, such as plastic or paper produce bags, are not subject to the tax. The following “paper carryout bags” are also exempt:

  • Bags to contain unwrapped prepared foods or bakery goods
  • Bags to wrap frozen foods, meat, or fish
  • Bags to contain or wrap flowers or other damp items
  • Bags provided by pharmacists to contain prescription drugs
  • Bags sold in packages and intended for use as garbage bags, pet waste bags, or yard waste bags
  • Bags provided by dine-in or take-out restaurants 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

Additional exemptions are listed in the Chicago Checkout Bag Tax Ordinance.

A tax on the user

The tax is to be paid by the user. According to the ordinance, “nothing in this chapter shall be construed to impose a tax on the occupation of a wholesaler or a store.”

If a retailer charges its customers for checkout bags, it must separately state the tax (identified as “Checkout Bag Tax”) on the receipt. Absorption of the tax is prohibited in this situation, as is failure to separately itemize the tax.

However, if a retailer provides checkout bags to its customers free of charge, it has two options:

  1. Separately state the tax on the receipt provided to the customer at the time of sale of the store’s tangible personal property, in which case the store shall collect the tax from the customer; or
  2. Not separately state the tax on the receipt provided to the customer, in which case the store shall not collect the tax from the customer.

Additional collection, remittance, and payment rules exist for wholesalers who sell checkout bags to stores located in Chicago.

The tax must be paid, either by the wholesaler, retailer, or customer. As explained by the department:

“The failure of the wholesaler or store to collect the tax shall not relieve the user of its, his or her duty to pay it. In the case of a checkout bag that is sold by a store to a customer, if the wholesaler and the store failed to collect the tax, the customer of a store shall be required to pay the tax directly to the Department in the same manner and form as a store that has used a checkout bag.”

See the ordinance for more details.

Count your bags

According to the Chicago Department of Finance, “All retail stores must perform an inventory of all checkout bags on hand by the close of business on Tuesday, January 31, 2017.” Inventory must be reported on a Floor Tax return and submitted with payment of the Checkout Bag Tax by Friday, March 3, 2017.

Businesses that fail to remit the required Checkout Bag Tax, or fail to provide all necessary information, may be subject to a penalty of $100.00 per business location required to be reported on the tax return. For additional information, please see Checkout Bag Tax, on the Department of Finance website.

New taxes, like the Chicago Checkout Bag Tax, and amended tax rates and rules complicate tax compliance. Tax automation software helps simplify it. Learn more.

photo credit: ATIS547 Saving the Planet One Bag at a Time via photopin (license)

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.