Chief Justice John Roberts’ dissent in Wayfair v. South Dakota, which the U.S. Supreme Court decided June 21, offers a glimpse at Illinois’ unfair and complicated tax code. His example? The different sales tax rates imposed on “chocolate-and-caramel confections usually displayed side-by-side in the candy aisle.”
In his dissenting opinion in Wayfair, Roberts discusses the difficulties for out-of-state sellers in complying with a complicated patchwork of state sales tax regulations throughout the U.S. The chief justice points to Illinois, noting the Prairie State subjects candy such as Snickers bars to the state’s 6.25 percent sales tax rate, but taxes Twix bars at a lower rate.
Why do Snickers bars fall under Illinois’ regular sales tax rate while Twix bars do not?
Candy that contains flour as an ingredient and does not require refrigeration – such as Twix – is exempt from Illinois’ 6.25 percent sales tax and taxed at a 1 percent rate instead. So, Three Musketeers are subject to full sales tax, but not Twizzlers, and ice cream Snickers are presumably not taxed at the general sales tax rate because they require refrigeration. The Illinois Department of Revenue devotes more than two pages to the definition of candy in its regulations.
These sales tax inclusions and exemptions reveal how arbitrary and complicated Illinois’ state and local tax policies can be. From Chicago’s 7-cent plastic bag tax, to Chicago’s now-repealed soda tax, which advocates promoted as a measure to address obesity and diabetes, to Illinois’ harmful corporate franchise tax – a tax on investment and capital formation in a state where investment is desperately needed – Illinois is rife with taxes that have unintended consequences.
The Journal of Accountancy has described the American Institute of Certified Public Accountants’ 10 guiding principles of sound tax policy, and Illinois’ complicated, distortionary sales tax laws violate several of them, such as simplicity and neutrality with respect to consumers’ behavioral choices.
A proliferation of special sales tax exemptions also makes Illinois’ tax code vulnerable to special interest lobbying, which gives the well-connected an unfair advantage over competitors.
The sales tax is just one more example of Illinois’ need for pro-growth tax reform with broad tax bases and low rates.