The Naperville Financial Advisory Board has recommended implementing a local 1% tax to replace the current state grocery tax, which is set to end on Jan. 1, 2026.
City staff estimates losing the state tax could result in a $6.5 million reduction in general fund revenue.
Why is the Illinois state grocery tax ending in 2026?
Last August, Governor J.B. Pritzker signed HB3144, a local government tax omnibus bill that eliminates the 1% state tax on grocery items beginning next January.
While the statewide tax will be removed, local governments can still apply a 1% grocery tax through a local ordinance.
Financial Advisory Board recommends a one-to-one replacement
At a special meeting on Monday, board members voted five to one in favor of recommending a local 1% grocery tax to the Naperville City Council.
This would be a one-to-one replacement of the state tax, meaning consumers would continue to pay $1 for every $100 spent on grocery items intended for off-premise consumption.
Over 50 communities have already filed to adopt this approach, according to a presentation at Monday’s meeting.
Data pulled from PlacerAI by the Naperville Development Partnership, which was also shared at the meeting, showed that 52% of shoppers at Naperville’s top 10 grocery stores live outside the city. Some board members supported the local 1% grocery tax for that reason.
“The [grocery tax] captures people who are not Naperville residents. Therefore, we’re benefiting from that,” said board member Thomas Gavin.
Board member Jignesh Patel cast the lone dissenting vote, instead favoring the second proposed method.
That option would increase the home rule sales tax from 0.75% to 1%, meaning consumers would pay an additional $0.25 for every $100 spent on general merchandise and food for immediate consumption, such as restaurant meals.
“I do like the fact that if we were to remove [the grocery tax,] it would align with the majority of the country. We said there are only 13 states that still have this grocery sales tax, right?” said Patel. “That would be my suggestion for removing the 1% sales tax and leaning more towards the home rule sales tax.”
Though city staff believe this would generate a similar amount of revenue as a local grocery tax, some board members shared concerns over this method.
“If we go with home rule sales tax, and then we go into a deep recession over the next six to seven months, people aren’t going to go out. They’re not going to go to bars. They’re not going to spend their money,” said chairperson Edward Harvey.
“The thing that makes me nervous about the home rule sales tax is we’re using it as a substitution, but it’s really not a one-for-one substitution in the sense that it’s going to be consistent,” Harvey added.
What would happen without a tax replacement?
One key topic discussed at Monday’s meeting was whether the loss in revenue from the state grocery tax would result in reduced services.
Raymond Munch, the city’s finance director, said staff believe that the loss “would really require some level of service level disruption in order to achieve a balanced budget.”
The majority of the general fund pays for operating personnel and services. With the loss of $6.5 million, the city would need to focus cuts on major parts of the budget, which include public safety and public works.
Munch said service cuts would probably start with newer programs, like the fire department’s Community Advocate Response Team and recently added police officers who focus on downtown Naperville. But he emphasized that these cuts are not recommended.
“So those would be the logical starting points for rolling backwards. But particularly in the public safety space, what we’ve heard is there’s no desire for that,” said Munch.
Next steps
The Financial Advisory Board’s recommendation for a local 1% grocery tax will be brought to the Naperville City Council for consideration at its June 17 meeting.
If the state grocery tax is replaced with a similar local tax, the city anticipates a $2.5 million gap in the general fund—a gap size that Munch said staff routinely manage as part of the budget process.
If no replacement tax is implemented, the gap would grow to $9 million, likely resulting in personnel and service cuts.
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