Taxing an Essential

The most disturbing trend is the use of this issue as an excuse to levy a new tax. That is what the City of Chicago has done. It applies a tax of five cents per bottle of water, regardless of size. Each bottle in a case is taxed separately, which means for the typical case of 24 bottles costing about $3.99, the tax comes to about 30 percent.

Chicago officials have used the hype about bottled water’s adverse impact on the environment as an excuse to enrich city coffers and help cover considerable shortfalls. But they would have had a better chance of meeting their goals of a balanced budget if they had cut spending instead. According to news reports, the tax is bringing in about half of what the city projected. Apparently, city residents would rather cross into the suburbs to buy tax-free bottled water.

In fact, stores just outside the city say they are seeing increased sales of bottled water. One store reported a 20 percent increase in sales of bottled water by the case. A Sam’s Club employee told the press: “It increased pretty well especially since we’re right across the street (from Chicago).” “There’s no reason someone is gonna pay $1.20 extra for a $4 dollar case of water when they can go to the suburbs to buy it without that,” David Vite, president of the Illinois Retail Merchants Association, pointed out in a press report. (Fran Spielman, “Bottled Water Tax Take Falls Far Short Trickle Could Contribute to More City Cuts,” Chicago Sun Times, June 19, 2008, 7)

Jim Tobin of the National Taxpayers United of Illinois notes in a letter to the editor some pitfalls of Chicago’s new tax. He points out that the city is collecting much less than expected because people leave the city to shop where there are lower taxes. He notes, when residents go outside the city to buy cheaper bottled water, they also buy other items. As a result, the economic effects for Chicago are bigger than simply losing bottled water sales. Tobin points out further that it hurts supermarkets, convenience stores, and employment. (See: Jim Tobin, “Bottled Water Tax a Failure,” Chicago Sun Times, June 24, 2008, 20.)

In January 2008, the International Bottled Water Association and several other trade groups filed a lawsuit to challenge this silly tax, seeking to have the tax voided on the grounds that bottled water is a food item. The city lacks the authority to tax food items according to state laws. The trade group also contends that the bottled water tax violates the state’s constitution, which includes a clause prohibiting lawmakers from singling out a specific product for a tax while ignoring similar products. Since the tax excludes bottles containing soda, sparking water, and the like—these groups claim the law violates this uniformity clause. Other plaintiffs include the Illinois Retail Merchants Association, the Illinois Food Retailers Association, and the American Beverage Association.