Retailers Caught in the Middle of Soda-Tax Lawsuits

By 
Steve Holtz, Editor in Chief, CSP Daily News

Lawsuits

CHICAGO -- Several lawsuits have been filed in Chicago since a 1-cent-per-ounce tax on sweetened beverages went into effect in Cook County, Ill., on Aug. 3, and more often than not, retailers and quick-service restaurants are taking the heat.

So far, 7-Eleven convenience stores, Walgreens drug stores and McDonald's restaurants, each leaders in their respective retail channels, have been caught in the fray.

Here's a look at some of the pending lawsuits and the status of an effort to eliminate the week-old tax ...

The c-store

7-Eleven store

A lawsuit filed Aug. 9 in the Circuit Court of Cook County alleges that 7-Eleven stores are charging the soda tax for every fountain cup used, even if the drink inside is unsweetened, according to an NBC5 Chicago report.

Kelly Tarrant of Chicago claims in her lawsuit that she purchased iced coffee in a Super Big Gulp cup, and was charged 28 cents for the tax on sweetened beverages, though her coffee was black.

The lawsuit seeks to get people their money back and get 7-Eleven Inc., Irving, Texas, to change its point-of-sale system to properly implement the tax. 7-Eleven did not respond to a request for comment on the issue.

“While the individual amounts are relatively small, when you add it all up, it adds up to a lot. 7-Eleven has hundreds of stores in Cook County and sells beverages to thousands of people every day,” said attorney Tom Zimmerman, who filed the lawsuit. “That little bit of overtaxing can add up.”

The QSR

McDonald's

A day earlier, Oak Brook, Ill.-based McDonald’s was accused in a lawsuit of improperly applying the tax as part of the subtotal, meaning an additional county sales tax was then applied to the amount of the soda tax, according to a Chicago Tribune report.

UPDATE: This lawsuit was dismissed Aug. 15.

The drug store

Walgreens

And as previously reported in CSP Daily News, Deerfield, Ill.-based Walgreens is accused of charging the tax on unsweetened packaged beverages.

Representatives of the Illinois Retail Merchants Association say the numerous lawsuits substantiate the group's claim that the soda tax is too vague.

“We kept saying the tax was unconstitutionally vague and difficult to understand," spokesperson Tanya Triche Dawood told NBC5. "It seems we have a combination of honest mistakes and confusion over how to collect.”

The county pulls back

Cook County Board President Toni Preckwinkle

Meanwhile, the Illinois Retail Merchants Association (IRMA) was almost the target of a soda-tax lawsuit itself.

After the IRMA's legal challenge of the constitutionality of the soda tax forced a one-month delay in enacting the tax, Cook County Board President Toni Preckwinkle, above, threatened to sue the association—and thus its retail members—for $17 million she claimed the county lost during that month.

Earlier this week, on Aug. 8, Preckwinkle withdrew the threat.

"Now that the appellate court has rejected the emergency motion that would again prevent us from collecting the sweetened-beverage tax, we believe we should move forward cooperatively and in good faith with the county's retail industry. As a result, the county has determined that withdrawing its petition for damages would serve the public interest," the county said in a statement.

County backlash

Soda cans

Meanwhile, a new effort to repeal the soda tax has cropped up among county commissioners moved by public outcry.

Commissioner Sean Morrison plans to propose a repeal of the tax Sept. 13, claiming the measure moved forward based on an initial promise of improving public health. Instead, he told CBSChicago, the effort has become all about raising money for the county's general fund.

“A lot of the commissioners, we feel, may be in a different position on how they’re going to look at this tax, especially now that we’ve seen it enacted,” he said, also referencing the extreme public outcry against the tax.

In a poll conducted Aug. 3-6 commissioned by the Illinois Manufacturers’ Association, nearly 87% of Cook County residents surveyed expressed disapproval for the tax.

The food-stamp problem

SNAP food stamps

Finally, $87 million in federal food-stamp money could be withheld from the state of Illinois if Cook County's sweetened beverage tax isn't administered differently, according to a Chicago Tribune report.

Under federal law, purchases made with food-stamp benefits are exempt from the soda tax. The county, however, allowed retailers to tax those purchases and provide refunds as a workaround for stores that haven't been able to properly update their point-of-sale systems.

As a result, the U.S. Department of Agriculture's Food and Nutrition Services, the federal agency overseeing the food stamp program the Supplemental Nutrition Assistance Program, or SNAP, warned the Illinois Department of Human Services that federal money could be withheld. The state passed along that warning to the county on Wednesday.

The county is reviewing the matter, the report said.