Judge blocks Cook County soda pop tax
Friday, June 30, 2017
by Becky Yerak, Robert Channick
A judge on Friday put Cook County's penny-per-ounce tax on sweetened beverages on hold at least until July 12. It was set to go into effect Saturday.
The ruling by Circuit Judge Daniel Kubasiak to grant a temporary restraining order came days after the Illinois Retail Merchants Association and several grocers filed a lawsuit against the Cook County Department of Revenue seeking to block the tax, which they argue is unconstitutional and too vague.
In recent days, a common sight at stores was consumers loading their grocery carts with soda and other beverages, stockpiling items that would be subject to a tax. Retailers outside Cook County mentioned the tax in their advertising.
County officials have said the tax is needed to pay for services and will improve the public's health over time.
How long the temporary restraining order remains in place, and whether the judge later decides to permanently block the tax on a wide variety of sugar- and artificially sweetened beverages, will determine how much the county will have to adjust its budget.
This year, the operating budget calls for spending $4.4 billion. Of that, about $67.5 million was to come from the beverage tax. That's less than $17 million a month, based on the four months of beverage taxes the county expected to flow into its coffers during the remainder of its fiscal year.
Next year, the county had planned to collect $200.6 million from the tax. Without that money, significant spending cuts would be likely — unless the county raised other taxes or fees.
"The court is fully aware of the importance of the tax to defendant's budget," Kubasiak wrote in his ruling. "However, the court believes it is necessary to maintain the status quo to protect the interests of all consumers, all taxpayers" and the affected merchants.
Cook County Board President Toni Preckwinkle said she was disappointed and planned to ask the appellate court to vacate the temporary restraining order.
"Revenue from the tax is critical to both balancing our fiscal year 2017 budget and development of our fiscal year 2018 budget," she said in a statement. Preckwinkle said she has asked the finance department to look at "all options to compensate for the revenue that would have been generated by the tax," including job cuts.
The county will "continue to aggressively defend our ordinance," she said.
Preparing for the soda tax has been a time-consuming process for Chicago grocery chain Pete's Fresh Market, which was still testing the tax's implementation on its check-out system Friday afternoon when word of the judge's ruling came down.
"It's a relief," said Vanessa Dremonas, executive officer for the family-owned chain, which has 11 of its 12 stores in Cook County.
Dremonas said getting ready for the tax on the eve of the busy July 4 weekend was "a little tricky," but not implementing it will be relatively easy. "It's all set up and ready to go, but we needed to push it through for (Saturday). So we just won't push it through," she said.
Getting ready for the soda tax required more than updating the checkout system, Dremonas said, citing a "trickle down" effect that touched everything from signage and advertising to Instacart grocery delivery.
The temporary restraining order means that the county can't impose the sweetened beverage tax until at least July 12, when a hearing is scheduled on the preliminary injunction.
Whether the tax is unconstitutional will be taken up at a later date.
The retailers have argued that, under the Illinois Constitution, similar objects should be taxed uniformly. Under the sweetened beverage tax, drinks in a bottle or from a fountain machine are taxable. But on-demand, custom-sweetened beverages, such as those mixed by a server or barista, aren't subject to the tax. Also exempt: purchases made with food stamps.
David Ruskin, the lawyer representing the retailers, told the judge at a Thursday hearing that a temporary restraining order was needed because there currently isn't a system in place for the thousands of consumers who would be due refunds, should the tax be found to be unconstitutional. That would make retailers vulnerable to class-action lawsuits by consumers.
The county had argued that if the tax is found unconstitutional, dollars collected could be refunded — which means that there would be no irreparable harm.
But it was the retailers' argument, not the county's, that appeared to resonate with the judge.
On Thursday, the judge wondered about the process by which consumers could claim refunds if the tax is thrown out, including whether they'd have to have kept their receipts.
In his Friday ruling, Kubasiak said the county's "proposal for the refund of taxes" in the event that the tax is struck down "does not provide a reasonable procedure to return the collected money to the taxpayers," he wrote. The retailers will be "irreparably harmed" if the tax goes into effect but is later found unconstitutional because they'd be unlikely to recoup what were "greatly increased administrative and overhead costs," the judge said.
Kubasiak also said that the retailers "have persuaded the court that a fair question exists as to the constitutionality of the sweetened beverage tax."