FINANCIAL ADVISORY BOARD AGENDA ITEM
ACTION REQUESTED:
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Receive the report regarding the local impact of the State of Illinois' grocery tax elimination and provide a board recommendation regarding revenue replacement
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DEPARTMENT: Finance Department
SUBMITTED BY: Raymond Munch, Finance Director
BOARD/COMMISSION REVIEW:
N/A
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 Illinois 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.
DISCUSSION:
Revenue from state and local taxes is an important component of Naperville's revenue diversification philosophy, which balances economically sensitive revenue streams with stable ones so as not to be overly dependent on any one funding source. State grocery tax revenue flows into the City's General Fund, which has a much broader mix of revenues than most other funds. This balance has traditionally allowed city services paid for out of the General Fund - including police, fire, and public works - to be funded by all who may use these services, including residents, businesses, and visitors.
Without an identified replacement revenue for the state grocery tax, staff estimates a revenue loss of $6.5 million in the General Fund beginning...
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