Cook County's sweetened beverage tax has landed the state in hot water with the feds, potentially causing roughly $87 million in federal food stamp money to be withheld, Illinois officials said Thursday.
The problem: Purchases made with federal food stamp benefits are exempt from the soda tax under federal law, but Cook County has allowed retailers to tax those purchases and provide refunds as a workaround for stores that haven't been able to program their point-of-sale systems.
Earlier this week, the U.S. Department of Agriculture's Food and Nutrition Services, the federal agency overseeing the SNAP food stamp program -- officially known as the Supplemental Nutrition Assistance Program -- warned Illinois that federal money could be withheld if the problem isn't fixed.
USDA officials told the county the regulation was "unacceptable" in a phone call in late June, according to its memo to the state.
"It is (Food and Nutrition Services') strict interpretation that retailers may not charge the tax to SNAP recipients at any time and that providing an immediate subsequent refund at a customer service does not cure the problem or the violation of the law," said James Dimas, secretary of the Illinois state Department of Human Services, in his memo relaying the message to Cook County President Toni Preckwinkle on Wednesday.
Preckwinkle spoke at the Cook County Democratic Party's slating event Thursday. Asked about the memo afterward, she declined to comment because she hadn't yet reviewed it.
Later in the day, county spokesman Frank Shuftan said in a statement that the county was unaware the USDA considered the county's regulation to be unacceptable after that June phone conversation. The county believed USDA was considering the policy and would follow up with any concerns, he said.
"At this time, we believe we are in compliance with existing SNAP rules. We do however recognize that USDA's powers against the state in this regard are substantial and we will work collaboratively with both the state and USDA to address USDA's concerns," Shuftan said in the statement.
As of Thursday, a sweetened beverage tax regulation allowing the refunds was still posted on the county website. It's not known how many Cook County retailers are applying the tax to SNAP purchases and then offering refunds.
To avoid having the federal SNAP funds withheld, the state human services department has until Aug. 21 to submit a plan that either details how the county tax regulation will be fixed or confirm a delay of the tax to allow retailers more time to program their point-of-sale systems.
Under federal law, SNAP purchases are exempt from state and local sales tax. Cook County officials were hopeful they'd be able to apply the tax universally by having retailers fold the cost of the tax into the selling price of the products instead of tacking it on at checkout.
But the state Department of Revenue said that would constitute an "overcollection" because the higher selling price would then be subject to sales tax. On June 6 -- less than a month from the planned July 1 start date -- the county announced the tax would primarily be applied at the point of sale, thus rendering SNAP purchases exempt.
The Illinois Retail Merchants Association's lawsuit challenging the county's tax, now in the appeals court, outlined concerns about the tax putting retailers at risk of violating SNAP rules, among other allegations.
The tax has rolled out with some minor bumps at Fresh Market Place on North Western Avenue, said general manager Danny Drossos. Implementing such a complex tax doesn't happen flawlessly overnight.
"We have had a few instances where (SNAP recipients) were charged, and we made sure we took it out," he said. "It's going to take some time to make sure we dot the i's, as they say, and cross the t's."
Even at Jewel-Osco, Chicago's largest traditional grocery chain, there's ample room for human error.
"Due to the many taxes applied at the retail level Jewel-Osco is not able to program the register to automatically remove the tax. Instead the cashier must remove it manually once they are aware the customer is paying with a Link card," said Jewel-Osco spokeswoman Mary Frances Trucco in an email, referring to the card used to access SNAP benefits.
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