Missed Deadline Costs Illinois County Millions in Cannabis Revenue
Originally appeared at https://www.taxnotes.com/tax-notes-today-state/sales-and-use-taxation/missed-deadline-costs-illinois-county-millions-cannabis-revenue/2020/11/03/2d4q3
Forgotten paperwork will cost Kane County, Illinois, a year’s worth of cannabis tax revenues amid a bumper season for marijuana.
Kane County has missed out on a potential $1 million in tax revenue from its 2.5 percent municipal tax on the retail sale of cannabis because "we did not actually file the ordinance that would allow the Illinois Department of Revenue to collect the tax,” Joe Onzick, executive director of finance for Kane County, said during an October 28 meeting of the city's finance committee.
When Illinois legalized recreational cannabis, the state allowed municipalities to pass ordinances levying their own sales tax. Kane County passed an ordinance for a 2.5 percent local sales tax on the gross receipts of cannabis sales, but it did not file the ordinance with the DOR by the October 1 deadline.
The county sent in the required paperwork after having discovered its mistake, but the soonest it can implement the tax and start collecting revenue is July 1, 2021, according to the DOR. The state has strict deadlines for paperwork and requires that ordinances be filed with the DOR 90 days before implementation; the next deadline for ordinances is April 1, the DOR told Tax Notes.
Kane County Board Chair Chris Lauzen has placed the blame on the Kane County State’s Attorney's Office, arguing that it helped draft the ordinance and that legal experts were hired to check work on statutory matters, according to documents. Assistant State's Attorney Joseph Lulves responded that his office is not responsible for sales tax or tax collection rates and that the county board was responsible for instructing the finance director to transmit the materials.
Cannabis revenues across the state have set records. Illinois passed the $100 million milestone in tax collections between January 1 and August 31. It collected about $311 million in liquor tax revenue in fiscal 2017.
At least $16.1 million will be shared with local and county governments independent of whether they enacted a local sales tax on marijuana. Kane County received $3,000 from this local revenue share in October.
Illinois taxes recreational marijuana at a graduated rate according to potency. The cannabis purchaser tax is imposed at 10 percent on marijuana with THC content under 35 percent and at 25 percent on cannabis with THC content over 35 percent. Cannabis-infused products such as beverages and food are taxed at 20 percent. All sales are subject to the state's 6.25 percent retailers’ occupation tax, as well as the local rates for this tax — an up to 3 percent municipal tax and an up to 3.75 percent county tax. The privilege of cultivating cannabis is taxed at 7 percent of the grower’s gross receipts.