Are Groceries Taxed in Illinois?
If you’ve suspected your grocery bill is going up in your Illinois town, you’re correct. In July of 2023, Illinois began taxing groceries again after a one-year grocery-tax suspension. Today, you’ll pay a 1% tax on your consumable groceries. Learn more about the Illinois grocery tax and how it affects you as a consumer or business owner who sells consumable products.
Why Does Illinois Tax Groceries?
The state of Illinois taxes groceries and distributes the revenue across local governments and municipalities. These funds help offset the cost of local governments doing business for their communities. In June of 2022, the state of Illinois suspended the grocery tax due to high inflation as part of the state’s 2022 $46.5 million fiscal plan to help consumers struggling due to high inflation.
During the budget-planning stage for 2022, officials for the state of Illinois suspended the normal 1% grocery tax for 12 months until inflation rates decreased. During the suspension period, consumers buying groceries to be consumed off-site from where they were sold avoided the 1% tax. However, now that the tax is reinstated, you’ll pay an extra $1 for every $100 of groceries you buy.
During the one-year suspension period, those living in the Illinois Regional Transportation Authority or Metro-East Mass Transit District did not get the relief provided by the suspension, as these areas never suspended the 1% grocery tax.
Interestingly, before the suspension period was to end, Illinois State Senator Donald DeWitte (R), from St. Charles, introduced legislation to repeal the reinstation of the 1% grocery tax, but the bill was not accepted and the suspension period ended.
What Types of Groceries Get Taxed?
Any alcoholic beverages, legal cannabis-infused products, soft drinks, candy, and food prepared to eat on-site have always been taxed in Illinois, even during the 12-month suspension period. States that have grocery taxes base them on the nutritional value of the consumable items, therefore, items such as sodas, candy, and alcohol will always be taxed in those states.
However, some areas of taxation become vague, depending on the state. For instance, in New Jersey you’ll be taxed for a decorative pumpkin but not for a pumpkin meant to be eaten, such as in soup or pies. In addition, Alaska, Delaware, Montana, New Hampshire, and Oregon don’t levy taxes on any groceries, candy, or sodas, while most states do have a tax on soda, candy, and alcohol, yet not on groceries. These discrepancies can be confusing for consumers.
Another area of confusion about grocery taxes comes from food prepared to be eaten on the premises and those bought to be eaten at home or outside the business. For instance, if you buy a rotisserie chicken heated on a device within the business but meant to be eaten off-site, you would still be taxed for it. However, if you buy the already-cooked chicken but it’s wrapped in plastic and not heated on a device on-site, you would not get taxed for that.
In an article written by the Tax Foundation, they suggest that a low flat-rate grocery sales tax covering all consumable items would be less confusing for consumers. This flat-rate tax would be easier to administer and track while providing revenue to the local governments and municipalities that rely on grocery tax revenue.
Implications for Businesses That Sell Consumable Items and Groceries
Sellers of consumable goods and groceries do not see the revenue generated by the grocery sales tax — the money goes directly to the local governments and municipalities. Sellers of consumable goods need to collect taxes, keep track of them, and pay that money to the state, including in Illinois. They’ll need to consult with their accountants or tax attorneys to help them keep track of their taxable records and pay the proper amount in a timely fashion.
Businesses that sell prepared food need to understand what is taxable and what is not and input that information into the cash register or point-of-sale software. Some supermarkets have dining areas that sell prepared food and also allow consumers to eat food they have bought in-store.
If you buy a pre-made sandwich in the deli area of the market, in most cases you won’t get taxed on it, even if you eat it at the dining table. However, if you buy a sandwich made at the dining area, you’ll get taxed on that item. It’s imperative for the business to clarify what is taxable, both to the consumer and to the business’s staff, for clarity and transparency.
Illinois consumers living in low-income households may struggle with paying grocery taxes, and businesses must be vigilant in following the state’s guidelines on what are taxable consumables and what are not.
Are There Other States That Tax Groceries?
Yes, there are other states that tax groceries including:
- Arkansas at 0.125%.
- Illinois at 1%.
- Missouri at 1.23%.
- Utah at 1.75%.
- Virginia at 2.5%.
- Hawaii at 4%.
- Alabama at 4%.
- Tennessee at 4%.
- South Dakota at 4.5%.
- Oklahoma at 4.5%.
- Kansas at 6.5%.
- Mississippi at 7%.
As you can see, among the states that tax groceries, Arkansas has the lowest rate at 0.125% while Mississippi has the highest at 7%. For consumers on a tight grocery budget, these numbers can affect their ability to buy basic groceries. However, local Illinois governments and municipalities benefit from the revenue generated by the grocery tax. In Hawaii, Idaho, Kansas, and Oklahoma, the state will give credit or a rebate to help low-income households who may struggle to pay the grocery tax since it may lead to food insecurity.
Get More Information on the Illinois Grocery Tax
If you’re a business owner who sells groceries, you’ll need to adjust your cash register to reflect the taxable items. You’ll also need to remove any stickers or notifications that highlighted 0% taxes during the suspension period of July 1, 2022, to June 30, 2023. Contact our team at Pasquesi Sheppard LLC in Lake Forest, Illinois to learn more about the implications of the Illinois grocery tax on your business or as a consumer. You can call us at 847-234-5000 or reach out to us through our easy-to-use online form. We can also help you with your tax needs or other accounting/financial requirements.
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