Just a reminder that the “floor tax return” for the Chicago Bag Tax is due this Friday. Don’t risk a $100 fine — take a look at my comprehensive guide to the bag tax and get this off your “to-do” list asap. Please share far and wide with other small business retailers in Chicago; I’ve found very few how-to resources, and none that break it down step-by-step, and I’d love for my research for my own clients to be of use to other small business owners.
UPDATE 2/17/17 — I spoke to Jennifer at the City of Chicago, and she was able to answer many of my outstanding questions. I’ve updated the original post with these edits.
UPDATE 2/12/17 — a retail client highly recommends buying bags wholesale from Howard Packaging in Skokie; her sales rep is Marc Moder. She says, “My vendor is charging the tax… I will happily refer anyone to them. The owner of the company apparently loves dealing with small businesses and undercutting Uline prices.”
I’m all for taxation as a way to effect public policy. But it has to be manageable. It’s amazing how challenging it can be to follow the rules for collecting and remitting a particular tax. Take the City of Chicago’s new “checkout bag tax”, for example. Great idea — encourage folks to bring their own bags by making it more expensive to use a bag given to them by the store.
This new tax replaces a ban on “flimsy” plastic bags which targeted chain stores, who quickly found a loophole in providing higher-quality “reusable” plastic bags. But now it affects paper as well as plastic, and small business as well as big box chains. (See a great DNA Info article on the topic, here.)
And unfortunately, the rules surrounding this new ordinance are complex, and for most businesses, will be impossible to follow to the letter.
Here’s what I understand about how it’s supposed to work (please note that I’m not an expert and don’t work for the city — but unlike most folks, I forced myself to read the entire ordinance and all the information I could get my hands on, as well as called the City of Chicago’s Department of Finance to get clarification):
(Steps One and Two are to get retailers “caught up” with the tax for bags that are already in stock.)
1. For starters, each retailer must count all their bags — paper AND plastic — in stock at the end of day on January 31, 2017.
2. Then retailers pay the tax in advance on this existing inventory.
Supposedly, licensed retailers were mailed a “Floor Tax Return” by the City before December 31, 2016. If you did not receive one, but you do use bags, email revenuedatabase@cityofchicago.
A couple of important notes when filling out this return —
a) Once they get a copy of the return to you, you’ll see that you have to include your “Department of Finance Tax Account Number”. This is located in the bottom-left corner of your business license, under the mayor’s signature.
b) On Page 1, Section 1, Line 1, where it asks for the number of checkout bags on-hand, only note the number of bags that a) you intend to use in the City (if you sell at conventions in the suburbs, for example, don’t count those), and b) don’t fall under one of the exceptions (e.g., separating frozen goods, produce or bulk items, household products; selling to SNAP recipients — see #6 below).
c) If you’ve called your bag wholesaler and have determined that they either do or do not intend to charge the city bag tax moving forward, it’s a good idea to note this information on the bottom of Page 1 of the Floor Tax Return, in Section 2, where they ask for the wholesaler’s information. The city will be following up with these vendors, trying to convince them to charge the tax.
Fill out and mail in the Floor Tax Return with a payment of 5-cents per bag by March 3, 2017 (7-cent tax minus a 2-cent credit for your troubles). It’s a $100 fine if filed late — even if you had zero bags in stock at that point (but you do use them); even if your store did not sell or use checkout bags prior to February 1, 2017 (but you plan to in the future); and even if the store decides NOT to use any bags moving forward (but you used to). If you didn’t use bags before the tax and won’t use them moving forward, you’re exempt from filing the form.
The floor tax return, site schedules (a page for each of the retailer’s various locations — must be filled out even if there is only one), and payment must be mailed to:
Chicago Department of Finance
City Hall, Room 107
121 North LaSalle Street
Chicago, IL 60602
(The rest of the steps are how this will work moving forward.)
3. Wholesalers of paper AND/OR plastic bags (not retailers) must register with the City by February 1, 2017.
4. Wholesalers of paper AND/OR plastic bags (not retailers) must charge their customers (the retailers) 7-cents-per-bag minus a 2-cent credit for the retailer’s effort, and remit that 5-cents-per-bag to the City using Form 2737. (I don’t know of any clients who received this, and I cannot find a copy online; I presume the City only sends it out if they determine you are a bag wholesaler.)
5. The retailers pay this net 5-cents-per-bag tax as part of the invoices from the wholesalers for buying paper AND/OR plastic bags.
(This is where it gets complicated.)
6. There are a million exceptions for bags that are exempt from the tax — so the retailer will need to apply to the wholesaler for a credit for each of these exceptions, to be applied to the next invoice — but how in the world are they going to be able to track them or document them in case of a City audit? Examples include:
Paper and plastic bags ordinarily intended and designed for use by customers inside a store to:
– package loose bulk items, such as fruit, vegetables, nuts, grains, candy, cookies or small hardware items
– contain or wrap frozen foods, meat or fish, whether prepackaged or not
– contain or wrap flowers, potted plants or other damp items
– segregate food or merchandise that could damage or contaminate other food or merchandise when placed together in a bag
– contain unwrapped prepared foods or bakery goods
As well as:
– plastic bags with a retail price of at least fifty cents ($0.50) each
– bags that are used to carry items purchased with SNAP (food stamps)
Retailers should take a credit for these tax-exempt paper and plastic bags on the next bill received from their wholesalers. The wholesaler in turn should claim a credit for the tax amount refunded to their retailers on the next monthly payment to the City. On this topic, the City says, “It shall be presumed that checkout bags sold or used by wholesalers and stores are subject to the tax imposed under this chapter until the contrary is established. The burden of proving that such checkout bags are not taxable hereunder shall be upon the person so claiming.”
7. The retailer is permitted to pass along the 7-cents-per-bag tax to the end consumer, in which case the bag tax needs to be stated separately on the receipt to the consumer; I recommend that retailers work with their accountants or bookkeepers to make sure this is set up correctly in their POS systems. The City has provided a lovely placard to post for your customers so they understand what’s going on.
(Remember, this is a 7-cent tax minus a 2-cent credit for the retailer’s troubles, so the amount collected from consumers is 7-cents, but the amount remitted to wholesale bag sellers or, in many cases, directly to the City, is a net 5-cents.)
8. However, the retailer may choose to absorb the cost themselves, in which case it does not have to be stated separately on the receipt.
(This is where it gets even more complicated.)
9. However, either way, it is the retailer’s responsibility to make sure that their wholesalers who sell them bags are in fact charging them the bag tax. But this has a couple serious drawbacks:
(a) If the retailer buys bags online or in a non-traditional outlet, the chances are pretty low that the wholesaler will be registered to collect and remit sales tax, leaving the retailer in the position where they have to do all of it voluntarily, filing Form 2737 with the City, which is even more time-consuming than the rules and process I noted above.
(Note: if you are a retailer in this situation, you must contact the City of Chicago’s Business Contact Center at 312-747-4747 or by e-mail at RevenueDatabase@cityofchicago.org to register to collect and remit the bag tax. However, I was told by the City Department of Finance that they would prefer not to have thousands of small businesses registering with them; they’d rather convince the wholesalers to charge the tax. They said if you don’t receive an affidavit from the City asking you to register, you’re off the hook as long as you’ve declared your wholesaler to them on the Floor Tax Return, step #2 above.)
However, to be safe — in the case where your wholesaler refuses to charge the tax — I recommend switching vendors. A client has recommended Howard Packaging in Skokie as one who both charges the tax and values working with small businesses.
(b) If the retailer isn’t passing the tax along to customers, then the entire point of the tax — to create an incentive for consumers to bring their own bags — is moot. It will just be a revenue-raiser for the City and nothing more.
Supposedly, there are ways to pay this tax through aldermanic offices and chambers of commerce (I will be shocked if this turns out to be true — please let me know in the comments section below if you hear of it), and those same groups have free reusable “ChiBags” available for retailers to give away to customers throughout February and March.
For the record, other non-taxable examples of bags and bag usage include:
– bags provided by a dine-in or take-out restaurant to contain food or drink purchased by the restaurant’s customers
– bags provided by a pharmacist to contain prescription drugs
– bags sold in packages containing multiple bags intended for use as garbage bags, pet waste bags or yard waste bags
– bags of any type that customers bring to a store for their own use or to carry away from the store goods that are not placed in a bag provided by the store
– newspaper bags
– dry cleaning or garment bags
– plastic liners that are permanently affixed, or designed and intended to be permanently affixed, to the inside of a particular bag
And if you’re interested in the history of this fiasco, as well as how it affects small businesses, contributes to income inequality, and lines the pockets of the city and of big box stores — well, there’s lots of that here:
– Excellent “DNA Info” article on the topic
– Daily Herald article discussing policy matters
– Fuller Tax Blog “Complete Guide” to the bag tax
– Chicago Tribune article
Just read a well-written article about how some restaurants are dealing with the quickly-rising (after years of stagnation) local minimum wage, which was shared by one of my most respected restaurant accounting colleagues, Stacey Byrne. It hit home, as we’re dealing with many of the same issues in Chicago: my small business restaurant clients are committed to living wages and benefits for their workers, as well as a safe and inclusive work space, but their margins are already so narrow, in what is a famously competitive and labor-intensive industry; also, the discrepancy between the massive amounts front-of-house are taking home and the paltry amounts back-of-house are taking home is painful — many chef-owners make substantially less than their FOH staff, or are committed to trying to even out this inequity and internal struggle. Many of them are switching to service charges instead of tipping, or re-structuring so that back-of-house workers have customer interaction, and can therefore participate in tip pooling.
Definitely worth a read: California Restaurants Add Surcharge After Minimum Wage Hike.
And for a reminder on how tipping works, an earlier blog post: Restaurant Tipping — How It Works.
Do you have a small business in Chicago along Milwaukee Ave. from Armitage to Belmont? Please come to a meeting this Thursday from 9:30-10:30 am at Hairpin Lofts to learn about city grants to help pay for capital improvements!
A map of the TIF district is here — http://www.cityofchicago.org/city/en/depts/dcd/supp_info/tif/fullerton_milwaukeetif.html
Please spread the word.
|Business Workshops for February|
All workshops are free and are located at the City of Chicago Department of Business Affairs & Consumer Protection – City Hall, 121 N. LaSalle St., Chicago, Room 805.
2/10: How to Obtain a Sidewalk Cafe Permit
3:00 to 4:30 p.m.
Presented by BACP, Small Business Center (SBC) – Public Way Use (PWU) Unit, Anthony Bertuca
Attendees will learn the Sidewalk Cafe Permit Application process, and the requirements which will assist in preparation to submit an application. The entire application process may take 30 – 45 days, and the 2016 Sidewalk Cafe Season begins on March 1st.
2/17: Understanding Employee Classification: Hourly vs. Salaried & Contractors vs. Employees
3:00 to 4:30 p.m.
Presented by Charles Krugel, a Management Side Labor, Employment & Human Resources Attorney
There are changes coming to the definitions of hourly & salaried employees (overtime eligible vs. not) & independent contractors vs. employees (W2 vs. 1099). Over the next few years, fewer businesses will be able to avoid overtime & classifying workers as W2 employees. Management side labor & employment attorney Charles Krugel will discuss these proposals, including enforcement, & answer any of your questions concerning these topics.
2/19: Setting the Groundwork
9:30 to 11:00 a.m.
Presented by Lema Khorshid, Fuksa Khorshid, LLC
There are many legal considerations to keep at the forefront of your mind before starting your new business. This presentation explores different sources to fund your business venture, basic principles of how to protect yourself in the claws of litigation, employment laws, lease agreements and how to implement a solid intellectual property plan.
2/24: C Corp, S Corp, LLC – Which Is Right for My Business?
3:00 to 4:30 p.m.
Presented by The Law Project
The Law Project’s Small Business Program offers legal support to entrepreneurs who are starting or have their own small businesses as a strategy to create financial independence. Since most entrepreneurs operate on a shoestring budget, obtaining legal advice is often unaffordable. This workshop will provide entrepreneurs with information about choosing the correct corporate structure for their business.
2/26: Tax Issues for Self-Employed Individuals & Businesses
9:30 to 11:00 a.m.
Presented by Eric Sternberg of the Center for Economic Progress & Yolanda Ruiz of the Internal Revenue Service
This workshop will give an introductory understanding of common tax issues that self-employed individuals often encounter. Participants will learn when they must file a tax return, how to identify worker classifications, how to prepare for an IRS audit, how to make quarterly estimated payments, and how to navigate the IRS website. Participants will benefit from the perspectives of both the individual taxpayer and the Internal Revenue Service.
Click here to view a full monthly calendar.
Information on tax return due dates, some answers to the most-commonly-asked questions from clients during tax season, and some additional resources I’d recommend; enjoy!
The IRS will begin accepting individual tax returns on January 19. Of course, most taxpayers won’t receive their information returns (Forms W-2, 1099, 1098, 1095, etc.) until the first week of February, so at our firm (which specializes in small businesses and more complex individual returns) we typically wait to file until February 6th.
Corporate tax returns (both C- and S-Corps) are due by March 15, and partnership tax returns are due April 18th. (Spoiler alert: stay tuned for an upcoming post on due date changes for next year that will line these up better with individual tax due dates and extensions.)
Individual tax returns are due April 18 (Saturday, April 16, 2016 is Emancipation Day in the District of Columbia, and the holiday is observed on Friday, April 15… this pushes the tax deadline to Monday, April 18, since the IRS deadlines never land on weekends).
Some important tax-time resources for IRS and Illinois taxpayers:
Look Up IDOR Estimated/Extension Tax Payments — https://mytax.illinois.gov –> Click on Individuals –> Click on “Look up my estimated/extension payments”
Make An Online Payment to the IRS — https://www.irs.gov/uac/EFTPS-The-Electronic-Federal-Tax-Payment-System
Make An Online Payment to IDOR — https://mytax.illinois.gov –> Click on Individuals –> Click on “Make an IL-1040, IL-1040-ES, or IL-505-I payment”
Where’s My IRS Amended Return — https://www.irs.gov/Filing/Individuals/Amended-Returns-(Form-1040-X)/Wheres-My-Amended-Return-1
2016 Standard Mileage Rates — https://www.irs.gov/uac/Newsroom/2016-Standard-Mileage-Rates-for-Business-Medical-and-Moving-Announced
The Affordable Care Act and your tax return — https://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/Health-Care-Law-and-Your-Tax-Return
Contact the IRS by phone — https://www.irs.gov/uac/Telephone-Assistance
Contact your local IRS Office (long lines; don’t recommend it) — https://www.irs.gov/uac/Contact-Your-Local-IRS-Office-1
In recent discussions with clients and friends about this year’s change in Chicago minimum wage for tipped versus non-tipped employees (and how that intersects with minimum wage rules for tipped employees at the Federal level or in other states), as well as conversations about restaurant “service charges”, and how they differ from tips… I realized that many folks — even restaurant owners — don’t understand how tipping works from a business perspective, and may not be reporting their tips — or paying their employees — appropriately. I found this particular Chicago Tribune article from last year to give an especially good overview explanation:
Another site, the “Wiser Waitress,” writes from the perspective of employees — who unfortunately, often are misinformed or uninformed about their rights, about tip pools, about tracking and reporting and paying taxes on their tips. This site is not as well-written, and it’s not an Illinois-specific set of information, but it does cover many of the issues that tend to be sticky points. I also find it helpful to read from the angle of someone who is being taken advantage of — because, in my business, we’re always looking at the poor restaurant owner, who has to pay their employees more than they pay themselves. It’s interesting to see how waitstaff see it.
Lastly, but in some ways most importantly, the Illinois Restaurant Association has an excellent FAQ regarding various governmental, tax, and labor requirements that apply to restaurants. This organization is well-worth a membership if you are a restaurant owner or someone who works with restaurants. They offer different membership types with different benefits, and their website is quite informative:
Tipping, service charges, minimum wage, front of house, back of house… it’s all substantially more complex than you’d think. Make sure to learn the rules, track your tips (employees), tip payouts (employers), and educate others wherever you can.
LoganSquarist’s 2015 Best of Logan Square Winners + Honorable Mentions came out last week, but in my excitement about the Green Apple podcast interview, I haven’t yet made time to share! SO many deserving local businesses made the list, many of whom are clients — congratulations to these folks in particular:
Dill Pickle Food Co-op
Winner, Best Grocery Store
Winner, Best Community-Focused Business
City Lit Books
Winner, Best Bookstore
Wolfbait & B-Girls
Winner, Best Clothing Boutique
Rosetta Magdalen, Flamenco Chicago
Winner, Best Business Owner
Honorable mention, Best Community Member
Winner, Best Karaoke Venue
Honorable mention, Best Place To Work While Enjoying a Drink Or Two
Logan Square Farmers Market
Winner, Best Place to Make New Friends/Meet New People
Winner, Best Family Activity
Honorable mention, Best Unique Event
Honorable mention, Best Community Member (Paul Levin)
Honorable mention, Best Place to Get Late Night Grub
Honorable mention, Best New Restaurant
Winner (among three), Best Brunch Menu Item – Donuts
Winner, Friendliest Staff at a restaurant or bar
Honorable mention, Best Place To Take A Date at a restaurant or bar
Honorable mention, Best Business Owner (Nathan Sears)
Check out the rest of the winners — many longtime friends and favorites made the list, here!
WalletHub just released what I find to be a fascinating and well-analyzed study of state tax systems in the United States, evaluating each on many criteria that, combined, represent what a “fair” tax system might look like. (Local folks, FYI: Illinois scored near the bottom.)
With loads of great charts and graphs, this report is worth a read, if only to examine whether you agree or not with their evaluation of what makes a tax system “fair”. Interesting philosophical discussion that should be fascinating to many, not just us tax accountants.
Read the report here: 2015’s Most & Least Fair State Tax Systems | WalletHub®
The City of Chicago is going nuts with the workshops this month.
Their biggest event, Small Business Center on the Road, takes over the 12th floor of the Merchandise Mart on September 19th from 10 am-2 pm. Among the 40+ exhibitors will be various local Chambers of Commerce, the Department of Revenue and Secretary of State, as well as consultants from the Small Business Center. They’re offering a tax clinic, legal clinic, workshops on marketing, financing, and social media, and City of Chicago Business Consultants ready to help with licensing needs and answer questions. Register at chismallbizexpo.com — it’s FREE!
Also, The City of Chicago’s Outreach & Education group is offering a bunch of workshops this month. Please share with friends, family, or colleagues who could use the assistance!
How to Obtain a Mobile Food Dispenser/Prepare License
Presented by the City of Chicago Department of Business Affairs & Consumer Protection (BACP).
This workshop will give you all the information you need to become either a Mobile Food Dispenser (MFD) or Mobile Food Preparer (MFP) licensed food truck operator. We will walk you through the MFD/MFP licensing process including inspections, the application, mobile food vehicle, and operational requirements, as well as the optional pre-application Mobile Food Vehicle Assessment.
Wednesday, September 16th
3:00 p.m. to 4:30 p.m.
121 N. LaSalle
8th Floor – Room 805
Small Business Success
Presented by YWCA Metropolitan Chicago
Learn the ins and outs of starting a small business and gain insight that will help you reach your goals. This workshop will cover starting your entity, marketing it for success and the intangibles of navigating the start-up arena.
Friday, September 18th
9:30 a.m. to 11:00 a.m.
121 N. LaSalle
8th Floor – Room 805
How to Efficiently Manage Business Operations
Presented by Illinois SBDC at the Chicagoland Chamber of Commerce and Blackwell Energies
This workshop will focus on operations management and how to find savings at the operational level. It will cover operations management, energy and utilities, and other areas where savings can be obtained in the operation of a business. You will learn techniques that can quickly result in savings on operational costs and fatten your bottom line in the process!
Wednesday, September 23rd
3:00 a.m. to 4:30 p.m.
121 N. LaSalle
8th Floor – Room 805
LinkedIn: Converting Connections to New Business
Presented by Digital Professional Institute and Dean DeLisle, Founder and CEO of Forward Progress
Dean DeLisle, Founder and CEO of Forward Progress, will take proven steps from our Social Selling Boot Camp and show you the most effective methods of connecting with your targets, gaining quality appointments, and finding the potential new clients in your network. You will also see what it takes to get THEM to find YOU by using LinkedIn for less than 20 minutes a day! Topics include optimize your profile, attract new prospects, leverage your connections to close business, increase targeted referrals, gain more powerful introductions, expand your pipeline and find new business channels.
Friday, September 25th
9:30am to 11:00am
121 N. LaSalle
8th Floor – Room 805
Protecting your Tech Start Up: Legal Considerations
Presented by Lema Khorshid, Fuksa Khorshid, LLC
Before opening the doors to your new technology concept, it’s important to be aware of legal risks that exist so you can properly protect your business. This workshop will explore different sources to fund your business venture and teach you some basic principles of how to protect yourself in litigation. We will also discuss intellectual property laws and provide practical approaches on how to implement a solid intellectual property plan. Also, we will talk about important employment laws as well as review lease agreements to help demystify confusing legalese.
Wednesday, September 30th
3:00pm to 4:30pm
121 N. LaSalle
8th Floor – Room 805