The city of Chicago is implementing a new tax on the use of paper and plastic carryout bags (see bottom of article for exclusions), deemed the Checkout Bag Tax.
The Checkout Bag Tax is a tax assessed on each paper or plastic bag that is purchased by a retail store from a Wholesaler.
Any wholesaler anywhere in the United States, no matter the location, that sells paper or plastic bags to retail stores in Chicago, must charge the retail store $.05 per bag sold and remit that amount to the Department of Finance. The Wholesaler must remit the tax collected to the Department of Finance by the last day of the month following the month for which tax was collected. For example, tax collected for the month of February will be due on March 30. On the receipt given to the retailer for the purchase, there must be a separate line on the receipt indicating the amount of tax paid. Wholesalers must start charging retailers $.05 per bag by February 1st.
The retailer may choose to pass the tax paid to the Wholesaler on to the customer or absorb the tax themselves. In order to pass the tax on to the consumers, the retail store may charge the customer $.07 per bag given to each customer. This recoups the $.05 paid to the Wholesaler and allows the Retailer to keep $.02 for themselves. If the retailer charges their customer the $.07, they must state the amount of tax collected from the customer on a separate line item on the customer’s receipt. If the Retailer chooses to absorb the tax themselves and not collect it from the customer, no separate line item is necessary. Retailers can start charging the customer $.07 per bag as soon as their POS systems are capable of doing so.
In order for Chicago to prepare for this, action is required by all Retailers (not Wholesalers). Each Retailer must file with the Department of the Floor Tax Return. The store must take an inventory of their paper and plastic bags as of January 31 and report this on the tax return. With this tax return, the Retailer must include any tax due on the checkout bags, for sale or use in the city, that tax has not yet been collected on; this will amount to $.05 per bag. The Retailer may in turn collect the tax from its customers as described above. This form was sent out to all Retailers registered with the City of Chicago during the first week of January and is due by March 3, 2017.
In addition to the above requirement, each time there is a rate increase, each store must file with the Department of Finance, another tax return similar to the Floor Tax return described above. This return reports the amount of checkout bags in the Retailer’s possession or control, as of the last day before the increase, for sale or use in the city. With this tax return, the store must include any tax due on the checkout bags, for sale or use in the city, that tax has not yet been collected on. The Retailer may in turn collect the tax from its customers as described above.
In order for a Wholesaler to register, the Wholesaler must email the Department of Finance at RevenueDatabase@cityofchicago.org. If the Wholesaler is a registered business with the City of Chicago, included in this email should be the account number, the name of the company, and the contact information for the person who will be in charge of the tax remittance. If the Wholesaler is not registered with Chicago, they must provide their FEIN number, the name of the company, and the contact information for the person who will be in charge of the tax remittance.
“Paper and plastic carryout bag” means any paper or plastic bag that is provided by a store to a customer for the purpose of carrying goods out of the store. The term “paper and plastic carryout bag” does not include:
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