For retailers and other companies doing business in the Windy City, the Chicago Checkout Bag Tax Ordinance implements a $0.07 tax on “the retail sale or use” of paper or plastic checkout bags. It goes into effect on February 1, 2017. The new tax accompanies the repeal of the city’s reusable bag ordinance.
The tax operates like a typical product stewardship fee – wholesalers of paper or plastic checkout bags must collect the tax when supplying checkout bags to stores in the city and then pass the additional cost down the supply chain. Wholesalers are responsible for remitting the tax to the city and filing required tax returns. Retailers who sell checkout bags to customers must assess the tax at checkout and separately state it on the receipt with a line item “Checkout Bag Tax.” Retailers who give checkout bags to customers must either charge the tax and separately state it on the receipt, or not charge the tax and absorb it themselves.
The city has established a webpage with information on the tax.
The tax applies to stores, which the ordinance defines as any person who “engages in the business of selling tangible personal property.” This means that anyone who sells a physical good is subject to the ordinance – unlike most existing checkout bag restrictions, Chicago’s is not limited only to grocery stores or drugstore chains.
The ordinance limits the definition of “checkout bags” to paper or plastic carryout bags “provided by a store to a customer for the purpose of carrying goods out of a store.” The ordinance exempts bags used inside the store to:
- Package loose bulk items, including fruit, vegetables, nuts, grains, candy, cookies or small hardware items
- Contain or wrap frozen foods, meat or fish
- Contain or wrap flowers, potted plants or other damp items
- Separate food or merchandise that could damage or contaminate other food or merchandise if placed together in a single bag
- Contain unwrapped prepared foods or bakery goods.
The tax also exempts the following categories:
- Prescription drug bags
- Packages of garbage bags
- Dine-in “doggie bags” or take-out restaurant bags for food or drink purchased by customers
- Newspaper bags
- Dry cleaning or garment bags
- Plastic liners permanently fixed or intended to be permanently fixed to the inside of a bag
- Plastic bags with a retail price of at least $0.50 each
- Checkout bags used to carry items under governmental food assistance programs like SNAP.
Collecting the tax
Of the $0.07 collected, retail stores may keep $0.02, while the wholesaler must remit the remaining $0.05 cents to the city. If a wholesaler does not collect from retailers, retail stores must still collect the tax, with the added burden of remitting it to the city themselves. If the wholesaler sells checkout bags to a purchaser that is not a retail store, the wholesaler must still obtain the $0.07 tax, but it is eligible to retain $0.02 per bag as a commission.
For exempt bags, the city’s FAQ states that retailers should take credits on their payments to wholesalers on a going forward basis to account for exempt bags from the prior month, and in turn wholesalers should claim a credit when submitting their tax payments.
In an added wrinkle, the ordinance requires stores to ascertain their on-hand inventory of paper and plastic checkout bags by COB on Tuesday, January 31, 2017 and pay $0.05 for the existing inventory by mail, postmarked on or before Friday, March 3, 2017 (a late fee of $100 applies). Wholesalers and retailers must keep detailed records and make them available for inspection upon request.