CITY COUNCIL AGENDA ITEM
ACTION REQUESTED:
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Pass the ordinance amending Section 11 of Chapter 1 Title 3 and Section 9 of Chapter 1 Title 3 of the Naperville Municipal Code increasing the Home Rule Sales Tax by .25% and decreasing the Downtown Food and Beverage Tax by the corresponding percentage
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DEPARTMENT: Finance Department
SUBMITTED BY: Raymond Munch, Director of Finance
BOARD/COMMISSION REVIEW:
The Financial Advisory Board (FAB) held two meetings, April 28 and May 19, to discuss and recommend the implementation of a replacement revenue source for the grocery tax. 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 budget, the governor of Illinois 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.
On June 18, staff presented an ordinance to establish a replacement local grocery tax for first reading. At that meeting, several City Counc...
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