Chicago closes loophole

Chicago closes loophole, taxes remote DTC wine sales starting July 2020

Source:  <https://www.avalara.com/> https://www.avalara.com/

Gail Cole

Jun 30, 2020 

As of July 1, 2020, wineries are required to collect Chicago liquor tax on
sales made directly to consumers with a Chicago address. This is a
significant departure from previous policy: Chicago liquor tax applied only
to sales made physically in the city through June 30, 2020. 

The change to the Chicago liquor tax policy only affects wineries and other
wine sellers, because breweries and distilleries aren't permitted to ship
directly to consumers (DTC) in Illinois. Yet it will affect a lot of
wineries - over one third of all DTC wine sales in Illinois are shipped to a
Chicago address, according to Avalara data. 

Closing a loophole

The policy change is due to Ordinance O2020-801, which was introduced by
Chicago Mayor Lori Lightfoot at the request of City Comptroller Reshma Soni
and unanimously approved by the City Council on April 24. Ordinance
O2020-801 extends the Chicago liquor tax to businesses located outside
Chicago that make DTC sales in Chicago. 

Soni wanted to close a loophole: "It shouldn't be that you go to the liquor
store near your house and you pay the tax, but you get liquor shipped to
your house and you don't." That loophole was closed for many other sales on
October 1, 2018, when Illinois began requiring out-of-state sellers doing a
certain amount of business in the state to collect and remit applicable
state and local sales taxes under its economic nexus law. 

Nonetheless, it's unusual for a city to require out-of-city sellers to
collect local excise tax. In most cities, local excise taxes apply only to
sales by businesses with a physical presence in the locality. 

The city's move is also unusual in that it's requiring all remote wine
sellers shipping DTC into Chicago to collect and remit Chicago liquor tax.
Most state economic nexus laws provide an exception for small remote
sellers, requiring them to register only if their sales into the state
exceed a certain threshold (e.g., $100,000 in sales or 200 transactions).
But according to the Chicago ordinance, the liquor tax applies to "any
person who engages in the business of retail sale of alcoholic beverages in
the City of Chicago or to purchasers in the City." 

Registration requirements for out-of-state wine sellers

All wineries selling DTC in Illinois are required to register with the
Illinois Department of Revenue and obtain an Illinois Winery Shipper's
License prior to making sales to consumers in the Land of Lincoln. Wineries
are permitted to ship up to 12 cases of wine for personal consumption per
adult resident (aged 21 or over) per year. The cost of the license depends
on the volume of wine produced annually; see the Illinois Liquor Control
Commission for more details.

Generally, businesses are required to register with a tax authority prior to
making any sales into a district. Interestingly, wineries with no physical
presence in Chicago are required to register with the Chicago Department of
Finance for a Chicago liquor tax account for direct wine shippers only after
making a sale and shipment into Chicago. Wine Institute has confirmed:
"Winery shipper's licensees outside of Chicago are advised to wait to submit
a new account registration application until after they have made a sale to
a consumer in Chicago."

However, businesses that were making DTC wine sales in Chicago prior to July
1, 2020, are required to register with the Chicago Department of Finance and
collect the Chicago liquor tax as of July 1.

Collection requirements for remote wine sellers

Rates for the Chicago liquor tax vary by alcohol content. The rates for wine
are as follows:

$0.36 per gallon of liquor containing 14% or less alcohol by volume

$0.89 per gallon for liquor containing more than 14% and less than 20% of
alcohol by volume

Filing requirements for remote wine sellers

Remote wineries are not required to submit a return to the City of Chicago
for any month in which no sales into Chicago were made. In other words, zero
returns are not required. 

For months during which sales were made, returns and payments must be
submitted through the Chicago Business Direct portal. Returns and payments
for July sales are due August 15, 2020. 

More information about the liquor tax can be found at the Chicago Department
of Finance. Detailed instructions?and links to application forms are
available from Wine Institute.

Avalara will be ready to meet the August 15 due date for customers who
confirm they have Chicago Liquor tax obligations. Indeed, Avalara for
Beverage Alcohol can help businesses manage beverage alcohol tax compliance
challenges in all states and local jurisdictions.