June 30, 2017 Toni Preckwinkle Cook County Board President Cook County Board of Commissioners 118 North Clark Street Room 537 Chicago, IL 60602 VIA E-MAIL Dear President Preckwinkle and Commissioners: I write to express the concerns of the Illinois Liquor Control Commission (ILCC) related to the procedure for collection of refunds or provision of credits for sales tax collected under the Sweetened Beverage Tax (the Tax) for purchases made by individuals using EBT cards provided by the State of Illinois ‘Supplemental Nutrition Assistance Program (SNAP). As the ILCC understands the procedure, because SNAP purchases are exempt from the Tax, retailers who make sales of products subject to the Tax to individuals who use SNAP funds may seek a refund or credit from the distributor which provided the products to the retailer. The distributor, then, may seek a refund from the county for the amount of the Tax that the distributor refunded or credited to the retailer. ‘We are concerned that the aforementioned procedures may lead to practices that violate the Illinois Liquor Control Act (the ILCA). Under the ILCA, licensed Illinois distributors are prohibited from providing anything “of value” to a licensed Illinois retailer. 235 ILCS 5/6-5. Because multiple Illinois distributors carry and sell both alcoholic beverages and products subject to the Tax to licensed Illinois retailers, the procedure described above will result in ongoing and consistent “of value” violations, as distributors will be required to provide refunds or credits to retailers on a regular basis. Those refunds or credits are something “of value” and are not exempt under the ILCA. Accordingly, every transaction would constitute a per se violation of the ILCA. Even if the refunds or credits are exempted by statute from constituting “of value” violations, which they are not at this time, the opportunity for potential abuse by either the licensed Illinois distributors or licensed Iinois retailers to violate the “of value” prohibition will be very high, and the ILCC simply does not have the resources to examine every credit memo issued by a distributor to a retailer for potential “of value” violations on each exempt transaction. The process to audit each transaction and credit memo will result in exorbitant costs and outlay of resources for the ILCC, distributors, and the county. Further, the procedure for collection of a refund or credit described above may result in situations whereby retailers will factor in the cost of the rebates or credits and short pay their distributors for the products ‘when delivered rather than after the products are sold, Under the ILCA, distributors are required to report as delinquent to the ILCC any retailer who does not pay for deliveries in full. 235 ILCS 5/6-5. The ILCC, after receiving a delinquency report related to a retailer, is required to include that retailer on a2 delinquency list, which prevents all distributors from providing any alcoholic beverages to that retailer and any retailer owned by the same individual or entity. Id. For example, because grocery store chains conduct high amounts of SNAP transactions, ifa single grocery store were to be placed on the delinquency list because of a short payment to a distributor, in an attempt to factor in future rebates or credits for exempt purchases, all grocery stores within the grocery store chain statewide would be placed on the delinquency list and could not receive delivery of any alcoholic beverages from any distributors until the delinquency was cured. ‘As described above, the ILCC is concemed that the unintended consequences of the refuund and credit procedure for the Sweetened Beverage Tax would result in ongoing, continuous violations of existing law, extreme costs of enforcement and audit, and the potential for mandatory denial of deliveries to retailers. I would welcome the opportunity to discuss these and other concerns regarding the refund and credit procedure for the Sweetened Beverage Tax at your convenience. le fo Donovan Borvan ILCC Executive Director CC: Commissioner Luis Arroyo, Jr. Commissioner Richard Boykin Commissioner Jerry Butler Commissioner John Daley Commissioner John Fritchey Commissioner Bridget Gainer Commissioner Jesus Garcia Commissioner Gregg Goslin Commissioner Edward Moody ‘Commissioner Stanley Moore ‘Commissioner Sean Morrison Commissioner Timothy Schneider Commissioner Peter Silvestri Commissioner Deborah Sims Commissioner Larry Suftiedin Commissioner Jeffrey Tobolski