Naperville debates grocery tax replacement vs. local sales tax increase

Though many suburbs have already adopted a municipal 1% sales tax on groceries, some Naperville officials are mulling an alternative.

Illinois Gov. JB Pritzker last year signed into law a measure repealing a state-imposed tax on grocery items, but also granting municipalities the authority to simply enact their own and essentially maintain the status quo.

However, some Naperville City Council members are weighing the possibility of a home-rule sales tax increase to offset the loss of revenue from the elimination of the statewide grocery tax.

Without replacement revenue, the city estimates a $6.5 million hit to its general fund beginning in 2026.

“We are a destination for grocery shopping with a wide variety and large volume of retail locations, including two Costco warehouses, various big box retailers and specialty ethnic grocers that can't be found elsewhere,” Naperville Finance Director Raymond Munch said. “The result is that Naperville generates significantly higher revenue in this category than most other towns.”

Other towns — Wheaton, Glen Ellyn and Lombard, to name a few — have established a local grocery tax. One outlier, Gurnee, opted to increase its home-rule sales tax to spread the cost to visitors.

“I would be interested in seeing that as an alternative option. I personally think it's a relatively close call,” Naperville Councilman Patrick Kelly said Tuesday night.

The city’s financial advisory board — by a 5-1 vote — recommended establishing a replacement 1% grocery tax. Customer receipts would not change, with shoppers paying $1 for every $100 spent on groceries, Munch noted in a memo.

The advisory board also considered a 0.25% increase to the home-rule sales tax. According to Munch, a home-rule sales tax increase would generate a similar amount, estimated at $6.57 million.

“People on SNAP benefits, or what used to be referred to as food stamps, don't pay the grocery tax. So when we looked at the home-rule sales tax increase, we sort of viewed that as it would be a true tax increase, because now those people don't get a break,” he said.

“They pay a quarter percent higher on everything else you buy at the grocery store, which is your paper towels and toilet paper, your toiletries,” Munch added. “It's a meal at McDonald's or a cup of coffee at Starbucks.”

The Naperville Development Partnership also wrote a letter to the council raising concerns that increasing the home-rule sales tax by .25% would create a higher cost for items such as furniture, electronics and jewelry.

“If you're talking about taxing goods that are slightly more discretionary versus food, which really isn't, from a resident perspective, it just makes more sense to me to tax those potentially discretionary items,” Kelly said.

Groceries, though, represent a more stable sales category than home-rule-sales-tax-eligible items, “thus limiting a negative revenue impact during an economic slowdown,” Munch wrote in his memo.

“When putting together a budget for things that we have to pay for, cops, fire, public works, it's nice to know that you have a consistent revenue source, and the home rule sales tax can be volatile,” Councilman Josh McBroom said.

Councilwoman Mary Gibson said both would fill the budget shortfall “about the same.”

“So what it comes down to me is, are we taxing essential items like bread, milk, meat, or Councilman Kelly used the term sometimes discretionary items … and how our taxing decisions affect the lower-income families in Naperville,” she said.

The state requires that a grocery tax ordinance must be passed by Oct. 1, Munch noted, to ensure the collection of the revenue takes effect on Jan. 1.

“So if you were to file either a grocery or home rule sales tax ordinance with the Department of Revenue after Oct. 1, you would miss the first three months of the year in collecting that revenue,” he told the council.

- Daily Herald staff writer Mick Zawislak contributed to this report