Chicago has become the first city in the nation to tax bottled water. The 5 cents a bottle tax took effect January 1.
The average price for a case of 24 bottles of water in Chicago is about $4, according to the Illinois Beverage Association. Multiplying 24 bottles by 5 cents each adds $1.20 in tax, for a 30 percent tax rate.
On January 4 the International Bottled Water Association (IBWA) filed a lawsuit in Cook County Circuit Court to overturn the tax. Other plaintiffs in the suit include the Illinois Retail Merchants Association, Illinois Food Retailers Association, and American Beverage Association.
“When you look at Chicago, with the taxes and regulations and bureaucracy that people have to put up with, and you hear complaints that there aren’t enough grocery stores, this tax is another reason people don’t open groceries in the city,” said Tim Bramlet, executive director of the Illinois Beverage Association.
“Store owners can go to the suburbs and don’t have to put up with this,” Bramlet said. “It’s another burden to collect and pay the tax, not to mention it will discourage sales of bottled water in the city. And that will probably reduce sales of other items that people buy with water. Anyone who lives near the boundary of the city can easily go outside the city and save money.”
The city expects to raise about $10.5 million per year through the tax. It was imposed after environmentalists started slamming bottled water containers as a pollution concern. They reason putting a tax on each bottle of water will reduce consumption and the number of containers that end up in landfills.
Local activist Rachael Albers told the Chicago Tribune, “Bottled water is an easy way to get people involved in protecting the environment. Not everyone can buy a Prius or hybrid car. But everyone can stop drinking bottled water.”
Alderman George Cardenas (D) sympathized with that argument and introduced the tax hike ordinance.
Critics of the tax, including the lawsuit plaintiffs, note none of the expected revenue is earmarked for anything related to the environment.
The bottled water and retail industries are attacking the tax on several fronts. They argue the ordinance unlawfully taxes a food product, which is expressly prohibited by Illinois law.
Furthermore, the Illinois State Constitution requires tax uniformity, meaning a specific product cannot be taxed when similar products are not. The bottled water tax does not affect other packaged beverage products that are made mostly from water.
‘Narrowly Focused, Punitive’
“This narrowly focused, punitive tax will make it more difficult for consumers to drink bottled water, and that is not in the public interest,” said IBWA President and CEO Joe Doss in a statement announcing the lawsuit.
“Bottled water is growing in popularity because of its consistent quality, taste, and convenience. And many people choose it over other beverages because it does not contain calories, caffeine, sugar, artificial flavors or colors, alcohol, or other ingredients consumers may wish to avoid or moderate,” Doss continued.
Doss added, “The bottled water tax places an unlawful burden on retailers, ranging from small, locally owned grocers to the larger chain operations that employ thousands of Chicagoans and invest in the City’s economy with jobs, taxes, and development. This tax just doesn’t make legal or fiscal sense, and it will cause consumers to shop for bottled water outside city limits, thereby hurting Chicago’s retail and wholesale businesses.”
Steve Stanek ([email protected]) is managing editor of Budget & Tax News and a research fellow at The Heartland Institute.