How should you report sales during the grocery tax suspension in Illinois?

The Illinois Department of Revenue has published a compliance alert regarding improper reporting of sales during the state’s grocery tax suspension.

Most food for home consumption is normally taxed at a reduced rate of 1% in Illinois. Yet from July 1, 2022, through June 30, 2023, the 1% sales and use tax on many retail sales of groceries is suspended. The normal rate of tax continues to apply to sales of alcoholic beverages, candy, soda, and certain other products.

Illinois doesn’t typically provide a sales tax holiday, so retailers in the state can perhaps be forgiven for being confused. Nonetheless, it’s critical retailers understand and fulfill obligations as required.

Do not tax groceries eligible for the tax suspension

The department has been informed that “some retailers are erroneously collecting tax on retail sales of groceries.”

If you’ve collected tax on transactions qualifying for the temporary 0% rate, you basically have two options:

Refund the overcollected tax to the customers from whom it was collected
Remit the overcollected tax to the Illinois Department of Revenue

The department urges taxpayers to review their records to ensure they’re fulfilling requirements properly.

How to report sales during the grocery tax suspension

During the duration of the suspension period, retailers are to report sales of qualifying products on the new Schedule GT, Sales and Use Tax Holiday and Grocery Tax Suspension Schedule. Schedule GT should be filed along with Form ST-1, Sales and Use Tax and E911 Surcharge Return (and, where applicable, Form ST-2).

Taxable sales as well as receipts from temporarily exempt sales of groceries should continue to be reported on the normal Form ST-1 (and Form ST-2, if applicable). The new Schedule GT should be used to calculate a credit against the tax reported on qualifying sales.

Retailers are permitted to include the amount of tax that would have been due at the 1% rate to determine the state’s timely filing discount.

Common grocery tax suspension reporting errors

The department is observing several “common, significant errors” on the Form ST-1 and Schedule GT. These, it says, “need to be corrected immediately.”

Retailers are excluding sales of groceries from their gross receipts reported on Line 1 of Form ST-1, rather than including those receipts then claiming credit for their retail sales of groceries on Schedule GT.
Retailers are including sales of groceries in their taxable receipts on Form ST-1 but deducting the entirety of those receipts on Line 16 of Schedule A on Form ST-1, rather than claiming credit for their retail sales of groceries on Schedule GT.
Retailers that sell both groceries and other low-rate items, such as medicine and medical appliances, are claiming credit on Schedule GT for retail sales of all low-rate items, which means these retailers are erroneously claiming credit for nonqualifying low-rate items.

It’s important for retailers to figure out how to report these sales correctly sooner rather than later. Failure to “comply with the proper tax collection and remittance requirements” may lead to the imposition of penalties and interest, and the longer tax is incorrectly reported, the greater the penalties and interest are likely to be.

For more details, see the department’s compliance alert, Improper Reporting of Grocery Tax Suspension Sales on Form ST-1 as well as Retailer Resources — Groceries, Back-to-School Holiday, Motor Fuel

Learn why automating sales tax calculation and returns can help in situations like these.

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.