Illinois Suspends Sales Tax on Groceries

All retailers registered for sales tax in the state of Illinois should be aware of Public Act 102-0700, which was passed last month. According to P.A. 102-0700, Illinois is suspending sales and use tax on specific grocery items from July 1, 2022, to June 30, 2023. What does this mean for you and your business? Let’s find out.

The Illinois Grocery Tax Suspension

The state of Illinois has announced that beginning July 1, 2022, grocery items that are normally taxed at the 1% sales and use tax rate will instead be taxed at a 0% rate. This will continue for one year, until the end of June 2023. Retailers should therefore ensure that they are not collecting sales tax on these qualifying grocery items during this period, and their customers should be made aware of the change in tax rate upon making a purchase. Here are the guidelines for retailers on how to notify their customers:

• Retailers should include the following statement on the purchase receipt: “From July 1, 2022, through June 30, 2023, the State of Illinois sales tax on groceries is 0%”.

• If adding the statement to the purchase receipt does not make sense for the retailer, a sign may be used. The sign must have the same statement as above, be at least 4”x8”, and be easily visible to the customer.

Furthermore, the Illinois Department of Revenue has created a schedule for retailers to use for reporting purposes during the suspension period. When filing your returns, you should report your taxable sales as normal, including the sales of all normally taxable grocery items. Then, you will use the schedule to claim a credit on the tax reported for grocery items that qualify for the 0% rate under the suspension.

It is also important to note that the additional local tax that the Regional Transportation Authority and Metro-East Mass Transit District charge on grocery items is NOT suspended under the act. 

(Original source: Informational Bulletin FY 2022-23)

What Items Qualify for the Tax Suspension?

Now you may be wondering - which specific items qualify for the 0% rate under the suspension? The state of Illinois charges two different sales tax rates on food items. There is a “high rate” of 6.25% and a “low rate” of 1%. Which of these rates a food item should be taxed at depends on what the specific item is and where it is intended to be consumed. With that being said, all items that are normally taxed at the state’s “low rate” of 1% will qualify for the 0% sales tax rate under the suspension. So, if you know what rate the items you sell should be taxed at, understanding which of your items qualify for the suspension is easy. However, taxability can be complicated, so let’s break it down.

Grocery items that are to be taxed at the state’s low rate of 1% include most food for human consumption that is intended to be consumed off the premises of where it is sold. However, there are some exceptions, including:

• Soft drinks

• Candy

• Alcohol

• Food consisting of or infused with cannabis

• Food that has been prepared for immediate consumption

Although these items may be intended for consumption off the premises where sold, they do not qualify for the state’s low rate of 1%, and therefore, they do not qualify for the 0% rate under the suspension.

Furthermore, it is important to consider factors that may cause items that are “normally” taxed at the 1% rate to be taxed, instead, at the 6.25% rate. For example, if food is prepared for immediate consumption, it will generally be taxed at the higher rate. So, while you can buy a whole, raw chicken at the 1% tax rate (which would qualify for the suspension in July 2022), a hot rotisserie chicken would be taxed at the higher 6.25% tax rate (which would NOT qualify for the suspension in July 2022).

However, some items, like bakery or deli items prepared by a retailer could qualify for the lower rate even though they seem to have been prepared for immediate consumption (dependent upon other factors).

These are only some examples of the complex taxability rules on grocery food items in Illinois. There are more, and each situation can be unique. As we often say, taxability is very complex and can be very confusing. However, understanding the taxability of items you sell is crucial for both the upcoming tax suspension and in general.

If you require assistance in determining your taxability or completing your returns, reach out to us here - sales tax returns and research are some of our core services, and we’d be happy to help!

By: Briana Wagner

This blog is intended for educational purposes and not as tax advice. Tax policies and procedures change frequently, so specific information, such as thresholds, rates, etc. included in this blog may have changed since it was originally published. Please request a consultation for more in-depth information.