Can a municipality impose its own tax on gas distributors and on cigarette retailers, and who actually pays that tax?

Plain-English summary

A representative of a municipality wrote to the Illinois Department of Revenue asking for clarification on excise taxes the city could impose, specifically a gas tax and a cigarette tax, and on whom those taxes actually fall.

The Department explained that the State's own Gas Revenue Tax Act (35 ILCS 615/2; 86 Ill. Adm. Code 470.110) taxes businesses that distribute, supply, furnish, or sell gas for use or consumption (not resale) at 2.4 cents per therm or 5% of gross receipts per customer, whichever is lower. That tax is a state-level tax, and its proceeds go to the State Treasury — it does not give local governments the authority to impose their own gas tax.

Separately, the Illinois Municipal Code (65 ILCS 5/8-11-2) lets the corporate authorities of a municipality of 500,000 or fewer people impose their own tax on gas businesses — up to 5% of gross receipts from each customer — for gas distributed, supplied, furnished, or sold for use within the city limits and not for resale. This municipal gas tax is legally imposed on the gas business, not the consumer, though the business may pass the cost on to customers as long as invoices describe it as a "reimbursement" of the tax rather than as a tax itself. The Municipal Code also lets a municipality (65 ILCS 5/8-11-3) tax retail cigarette sellers up to one cent per pack of 20 cigarettes, with additional administration, enforcement, and collection provisions and possible variations described in that section.

What this means for you

If you administer a municipality's finances

A city may adopt its own gas tax ordinance under 65 ILCS 5/8-11-2 (population 500,000 or fewer), capped at 5% of gross receipts per customer, and/or a cigarette retailers' tax under 65 ILCS 5/8-11-3, capped at one cent per pack of 20. Both taxes are imposed on the businesses (gas suppliers, cigarette retailers) rather than directly on residents, even though the cost is typically passed through in the price or billed as a reimbursement.

If you operate a gas or cigarette business in a municipality

You may owe both a state Gas Revenue Tax (on gas sold for consumption, not resale) and a separate municipal gas tax if your city has adopted one under the Municipal Code. If you pass the municipal tax cost on to customers, your invoices should identify the amount as a reimbursement of the tax you paid, not as a tax charged directly to the customer.

Common questions

Does the state Gas Revenue Tax Act let a city impose its own gas tax?
No. The Gas Revenue Tax Act (35 ILCS 615/2) is a state tax whose proceeds go to the State Treasury; it does not authorize units of local government to impose a tax on gas distributors, suppliers, or sellers.

Who legally owes a municipal gas tax under 65 ILCS 5/8-11-2 — the gas company or the customer?
The tax is imposed on the persons engaged in the business of distributing, supplying, furnishing, or selling gas for use or consumption, not on the consumer. The business is not prohibited from seeking reimbursement from customers, but invoices should describe any such amount as a reimbursement, not as a tax.

Can a municipality tax cigarette sales, and how much?
Yes. Under 65 ILCS 5/8-11-3, a municipality may tax persons engaged in the business of selling cigarettes at retail, at a rate not exceeding one cent per package of 20 cigarettes, and may provide for administration, enforcement, and collection of that tax.

Citations and references

• 35 ILCS 615/2 — Gas Revenue Tax Act (state-level gas tax; does not authorize local gas taxes)
• 86 Ill. Adm. Code 470.110 — Gas Revenue Tax Act regulation
• 65 ILCS 5/8-11-2 — Illinois Municipal Code (municipal gas tax authority, 500,000-or-fewer population cities, up to 5% of gross receipts)
• 65 ILCS 5/8-11-3 — Illinois Municipal Code (municipal cigarette retailers' tax, up to 1 cent per pack of 20)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2017.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2017/st-17-0013-gil.pdf

Original ruling text

ST 17-0013-GIL 05/30/2017 MUNICIPALITIES
The corporate authorities of any municipality may tax persons engaged in the business of
distributing, supplying, furnishing, or selling gas for use or consumption within the corporate
limits of a municipality of 500,000 or fewer population, and not for resale, at a rate not to
exceed 5% of the gross receipts therefrom. 65 ILCS 5/8-11-2.

May 30, 2017

Dear Xxxxx:
This letter is in response to your letter received February 21, 2017, in which you requested
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
I am requesting clarification on some excise taxes and what the CITY needs to do as far
as imposing them.
According to 35 ILCS 615/2) (from Ch. 120, par. 467.17) It states a municipality can
impose a 5% gas use tax. Is this for customers who purchase gas from the city and
then distribute it? Or does this allow the city to impose a tax on the gas customers
living in CITY?
Would a gas occupation tax be the same thing as above? Section 8-11-2 of Illinois
Municipal code (65 ILCS 5/8-11-2). Would a municipality be allowed to impose this on
the residents of CITY or would this tax be for a customer who purchases gas from the
city then distributes it?
Last question pertains to 65 ILCS 5/8-11-3) (from Ch.24, par. 8-11-3) and the tax on
cigarettes. Would the CITY be allowed to impose a .01¢ on cigarettes sold by retailers
in the CITY? If so how would be enact that?

ST 17-0013-GIL
Page 2

DEPARTMENT’S RESPONSE:
Gas Revenue Tax Act
The Gas Revenue Tax Act imposes a tax on persons engaged in the business of distributing,
supplying, furnishing or selling gas to persons for use or consumption and not for resale at the rate of
2.4 cents per therm of all gas which is so distributed, supplied, furnished, sold or transported to or for
each customer in the course of such business, or 5% of the gross receipts received from each
customer, whichever is the lower rate as applied to each customer for that customer's billing period.
See 35 ILCS 615/2 and 86 Ill. Adm. Code 470.110. The tax is imposed by the State and the funds
deposited into the State Treasury. The Act does not authorize units of local government authority to
impose a tax on persons engaged in the business of distributing, supplying, furnishing or selling gas
to persons for use or consumption.
Illinois Municipal Code
The corporate authorities of any municipality may tax persons engaged in the business of
distributing, supplying, furnishing, or selling gas for use or consumption within the corporate limits of a
municipality of 500,000 or fewer population, and not for resale, at a rate not to exceed 5% of the
gross receipts therefrom. 65 ILCS 5/8-11-2. The tax is imposed on the persons engaged in the
business of distributing, supplying, furnishing, or selling gas for use or consumption, not the
consumer of the gas. Persons engaged in such businesses are not prohibited by the Act from
seeking reimbursement of the tax from their customers; however, customers’ invoices should properly
identify any amounts being recovered from the customers as reimbursements of the tax, not a tax.
Section 8-11-3 of the Municipal Code permits the corporate authorities of any municipality to
tax persons engaged in the business of selling cigarettes at retail, at a rate of not exceeding one cent
per package of 20 cigarettes and may provide for the administration, enforcement and collection of
such tax. Variations and limitations may apply as described in Section 8-11-3.
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.

Very truly yours,

Richard S. Wolters
Associate Counsel

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