CITY COUNCIL AGENDA ITEM
ACTION REQUESTED:
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Conduct the first reading of an ordinance amending Chapter 1, Title 3 of the Naperville Municipal Code to establish a Municipal Grocery Retailers' Occupation Tax and a Municipal Grocery Service Occupation Tax
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DEPARTMENT: Finance Department
SUBMITTED BY: Raymond Munch, Finance Director
BOARD/COMMISSION REVIEW:
The Financial Advisory Board (FAB) held two meetings on April 28 and May 19 to discuss and recommend the implementation of a replacement revenue source for the City Council's consideration.
FAB voted 5-1 in favor of recommending that the City Council implement a 1% local grocery tax; the dissenting vote was in favor of replacement revenue in the form of a Home Rule Sales Tax (HRST) increase.
BACKGROUND:
The State of Illinois has traditionally imposed and collected a 6.25% sales tax on general merchandise and a 1% sales tax on qualifying food, drugs, and medical appliances. The 1% sales tax is known informally as a "grocery tax" because it is charged on food traditionally purchased at a grocery store to take home, prepare, and consume. This tax does not apply to paper products, home goods or other non-food items sold in a grocery store. While collected by the state, the grocery tax revenue is passed through to local municipalities.
In 2024, as part of the Fiscal Year 2025 State of Illinois budget, the governor signed a bill into law eliminating the grocery tax on qualifying food items effective Jan. 1, 2026. The legislation also allowed municipalities to implement their own 1% local grocery tax, essentially serving as a one-for-one replacement for the otherwise lost tax revenue.
Without an identified replacement revenue for the state grocery tax, staff estimates a revenue loss of $6.5 million in the General Fund beginning in 2026.
DISCUSSION:
Despite the City's revenue diversification and conservative budgeting practices, the $6.5 million revenue reduction, which would compound yearly because ...
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