Updates on Chicago Lawsuit and California Tobacco Sales Ban Bill

Summary judgment hearing for Chicago OTP tax lawsuit set for September

Thomas A. Briant, NATO Executive Director

MINNEAPOLIS -- On May 31, 2016, seven organizations, including NATO, filed a lawsuit against the City of Chicago seeking a preliminary and permanent injunction against the enforcement and imposition of a tax on other tobacco products, which includes cigars, pipe tobacco, smoking tobacco and smokeless tobacco products.
Bringing the lawsuit along with NATO are Chicago retail location Iwan Ries & Co., the Cigar Association of America, the Illinois Association of Wholesale Distributors, the Illinois Retail Merchants Association, the International Premium Cigar and Pipe Retailers Association and Arangold Corporation dba Arango Cigar Co.
The lawsuit’s primary claim is that the new Chicago tax on other tobacco products is pre-empted by Illinois state law. Illinois statutes provide that a home rule charter city can adopt a tax on cigarettes or tobacco products provided that the city adopted such a tax on cigarettes or tobacco products prior to July 1, 1993. The City of Chicago enacted a cigarette tax before July 1, 1993, but not an OTP tax. Therefore, the city should be pre-empted from adopting an OTP tax, the lawsuit claims.
The plaintiffs, along with the City of Chicago, have signed and filed with the Circuit Court of Cook County, Illinois, an “Agreed Order” that delays the collection and payment of the new excise tax on other tobacco products to 60 days after the Circuit Court of Cook County judge issues a decision on whether the OTP tax is pre-empted by state law. This means that the Chicago OTP tax will not go into effect July 1, 2016; that no retailer, manufacturer, wholesaler, purchaser or consumer will be required to collect and/or pay the OTP tax; and that OTP tax returns will not need to be filed. The agreed upon order also sets a summary judgment motion hearing for Sept. 14, 2016. 

California Sales Ban Bill

NATO is engaging its retail members to oppose California Senate Bill 1400, which bans the sale of tobacco products in all convenience stores, grocery stores, liquor stores, gas stations and drug stores as of Jan. 1, 2019. This is a first-of-its-kind prohibition bill that would allow tobacco product sales only in retail stores that generate more than 60% of gross revenue from the sale of tobacco and tobacco accessories.

The most directly affected retailers will be the 11,540 convenience stores that operate in California, many being independent, family-owned businesses. Besides activating its retail members in California to oppose this legislation, NATO is also sending letters to every California state senator and assembly member opposing Senate Bill 1400.

The California Assembly Business and Professions Committee will hold a hearing on Senate Bill 1400 on June 28, 2016.