CITY COUNCIL AGENDA ITEM
ACTION REQUESTED:
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Option A: Concur with the Financial Advisory Board and staff to pass the 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; or
Option B: Conduct the first reading of an ordinance amending the Home Rule Sales Tax and Downtown Food and Beverage Tax by amending Section 11 of Chapter 1, Title 3 and Section 9 of Chapter 1, Title 3 of the Naperville Municipal Code
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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. 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 esti...
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