As of July 1, 2020, wineries making direct-to-consumer (DtC) shipments of wine into the city of Chicago will face an additional tax burden. Under Chicago ordinance O2020-801, the city’s Liquor Tax will now apply to all sales of alcohol to consumers in the city.
What Is The Chicago Liquor Tax?
Chicago has long imposed an excise tax on sales of alcoholic beverages within city limits.
The tax rate is $0.36 per gallon for wines with an alcohol by volume content of 14% or less, and $0.89 per gallon for wines with an ABV between 14% and 20%.
Previously, this tax only applied to sales that were made at stores physically located in Chicago, but the rule change was specifically intended to encompass all remote sales that finalize within the city. Since Chicago is by far the largest destination in Illinois for DtC shipments of wine, this will likely have a large impact on DtC wine shippers. (Illinois currently does not permit DtC shipping of beer or spirits, so while the Chicago Liquor Tax does broadly apply to all alcoholic beverages, this change only specifically affects wine shippers.)
What Do I Need to Do to Comply?
Going forward, wineries making DtC shipments into Chicago will be required to register with the City of Chicago Finance Department and file a monthly remittance of the Liquor Tax on their shipments into the city. Tax returns are not due for any month where sales were not made (i.e., $0 returns are not required), and the first tax filings will not be due until August 15 at the earliest.
The Chicago Finance Department has made it clear that wineries should not register for the Liquor Tax until after they have made a shipment of wine to Chicago after the effective date of July 1. This is a departure from most other taxes, which usually require registration in advance of sales. The Finance Department has indicated they will not accept any registrations from wineries that have not yet made sales into Chicago after July 1, 2020.
Further, there are no minimum thresholds for when this tax will apply. Any and all sales of DtC shipped wine into Chicago will require remittance of the Liquor Tax.
The Registration Process
Once a winery has made a DtC shipment into Chicago, they will be required to submit a tax registration form with the Finance Department. There are two versions of the Tax Registration Application, one for Corporations, LLCs, and Partnerships, and another for Sole Proprietorships. Once completed, these forms should be submitted by email to Daniel.firstname.lastname@example.org at the Finance Department for review, using the subject line “Wine Provider Registration.”
Businesses not located in Chicago are not required to receive a city business license. However, this does then mean that remote businesses are required to use the paper registration forms linked above rather than register through the Chicago Business Portal.
The Finance Department will process the application and should issue an approval within a few days. Once this approval has been received, the winery will then need to fill out and submit the Affidavit for Initial Tax Period Form, and submit it to the Finance Department by email with the subject line “Wine Provider Registration.” This form may also require the inclusion of a Power of Attorney form. During the COVID crisis, the Finance Department is temporarily relieving the notarization requirement under the guidance that a notarized affidavit can be submitted later on.
Finally, the winery will receive notice from the Finance Department that their application has been processed and that a Business Direct account has been created for them. They should then go to Chicago Business Direct and complete setting up their account.
Within their Chicago Business Direct account, a user can link to their Chicago tax account using the “Manage Business Account Access” page. Through this page, a user can also create additional user profiles that can be accessed by additional employees or third parties.
Thereafter, the winery will be required to remit the Liquor Tax on their DtC shipments to Chicago using the online-only Liquor Tax Return (Form 7573), which is due by the 15th of each month for when sales were made. In addition, an annual return must be submitted, which will summarize the yearly sales made by the filer.
The Chicago Finance Department only manages city taxes and sales made in or into the city limits. Therefore no other state, county, or non-Chicago tax is implicated by this change, nor will the Chicago Finance Department manage the remittance of these taxes.
Sovos ShipCompliant is currently working to develop the 7573 Liquor Tax Return to enable users to file by the first due date of August 15.
The application of the Chicago Liquor Tax is a departure from standard tax obligations for DtC wine shippers, who generally have only been burdened with state and state-administered local taxes. (An example of that is Louisiana, where local sales taxes only apply for wineries with economic nexus in the state and that is itself a very recent change following efforts by the state to simplify how it manages local tax collections.)
Of course, cities are as concerned as any other governmental body in maximizing their tax returns, and Chicago’s actions follow years of debate on whether the Liquor Tax could apply to remote sales as initially written. Whether this imposition of a city excise tax is unique, or becomes part of a trend, however, remains to be seen.