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TO: Mayor John Laesch
FROM: Stacey Peterson, Director of Financial Operations
Christopher Minick, CFO/City Treasurer
DATE: June 26, 2025
SUBJECT:
An Ordinance Enacting a Municipal Grocery Retailers' Occupation Tax and A Municipal Grocery Service Occupation Tax.
PURPOSE:
The Illinois state grocery tax of 1% is set to be eliminated effective January 1, 2026, as per Public Act 103-0781, and provides municipalities the authority to enact a local sales tax on grocery items. We wish to implement the local grocery tax effective on January 1, 2026 to avoid revenue loss and service cuts as a result of the State action.
BACKGROUND:
The grocery tax in Illinois refers to the 1% sales tax on groceries that has been in place since the 1990 sales tax reform. The 1990 reform eliminated state taxation on groceries but provided for a 1% grocery tax imposed and administered by the State but distributed to local governments. It also standardized tax collection.
Public Act 103-0781 called for elimination of the State tax on groceries effective on January 1, 2026 but allowed the option for individual units of government to pass an ordinance allowing for the continued collection of the Grocery Tax via a locally imposed and administered tax of 1% on grocery items. The City would lose an estimated $4.5 million annually should it decide not to continue to collect the tax.
The proceeds of the tax will be distributed to the City by the state. The City records these revenues in the General Fund and they are utilized to provide services such as Police, Fire, Public Works, and other governmental services.
It is important to note that this is not an imposition of a new tax. Passing the ordinance continues the current practice of collecting a 1% tax on the sale of grocery items that has been in place for 35 years.
DISCUSSION:
The grocery tax is collected from everyone that purchases grocery items in the community, including non-residents. The Grocery Tax is applied to food that is not intended for immediate consumption, but is anticipated to be taken away from the premises where purchased, prepared, and consumed at a later time. A tax of 1% of the sales price of the item applies in this instance and is what we are referring to as the "Grocery Tax." As noted earlier, this is not a new tax but a tax that has been in place since 1990. Passage of the ordinance allows for continued collection of this tax, providing revenue for essential City services.
Food intended for immediate consumption and restaurant food is taxed at the regular sales tax rate (8.25%) plus the Food and Beverage Tax (1.75%) for a total rate of 10%. The tax rate for food sales for immediate consumption is not impacted by the Grocery Tax.
The City's Home Rule Sales Tax of 1.25% does not apply to items subject to the grocery tax.
If the City does not implement a grocery tax, it will lose approximately $4.5 million a year, potentially leading to budget cuts and reduced services.
As of 6/27/2025, 282 municipalities throughout the state have passed an Ordinance to impose a local tax to replace the state tax (see Exhibit A source IML). An additional reference is a Grocery Tax Frequently Asked Questions from the DuPage Mayors and Managers Conference (see Exhibit B).
To implement a grocery tax, the city must pass an ordinance and submit it to the state by October 1, 2025, to ensure it takes effect on January 1,2026.
IMPACT STATEMENT:
Consumers are already paying the 1% state grocery tax and have been for 35 years. The local tax is simply continuing the practice of collecting the 1% sales tax on food items not intended for immediate consumption.
RECOMMENDATIONS:
It is recommended the Finance Committee forward this item to Committee of the Whole for the Tuesday, July 15, 2025 meeting.
cc: Finance Committee
CITY OF AURORA, ILLINOIS
ORDINANCE NO. _________
DATE OF PASSAGE ________________
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An Ordinance Enacting a Municipal Grocery Retailers' Occupation Tax and Municipal Grocery Service Occupation Tax.
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WHEREAS, the City of Aurora has a population of more than 25,000 persons and is, therefore, a home rule unit under subsection (a) of Section 6 of Article VII of the Illinois Constitution of 1970; and
WHEREAS, subject to said Section, a home rule unit may exercise any power and perform any function pertaining to its government and affairs for the protection of the public health, safety, morals, and welfare; and
WHEREAS, the Illinois Municipal Code, 65 ILCS 5/1-2-1, provides that the corporate authorities of each municipality may pass all ordinances and make all rules and regulations proper or necessary, to carry into effect the powers granted to municipalities, with such fines or penalties as may be deemed proper; and,
WHEREAS, Section 8-11-24 of the Illinois Municipal Code (65 ILCS 5/8-11-24) provides that, beginning on January 1, 2026, all Illinois municipalities may impose a tax “upon all persons engaged in the business of selling groceries at retail in the municipality” (the “Municipal Grocery Tax”) (65 ILCS 5/8-11-24); and
WHEREAS, the Municipal Grocery Retailers’ Occupation Tax may be imposed “at the rate of 1% of the gross receipts from these sales” (65 ILCS 5/8-11-24); and,
WHEREAS, any Municipal Grocery Retailers’ Occupation Tax shall be administered, collected and enforced by the Illinois Department of Revenue; and,
WHEREAS, Section 8-11-24 of the Illinois Municipal Code (65 ILCS 5/8-11-24) requires any municipality imposing a Municipal Grocery Retailers’ Occupation Tax under Section 8-11-24 of the Illinois Municipal Code (65 ILCS 5/8-11-24) to also impose a Service Occupation Tax at the same rate, “upon all persons engaged, in the municipality, in the business of making sales of service, who, as an incident to making those sales of service, transfer groceries” as “an incident to a sale of service” (the “Municipal Grocery Service Occupation Tax”) (65 ILCS 5/8-11-24); and,
WHEREAS, any Municipal Grocery Service Occupation Tax shall be administered, collected and enforced by the Illinois Department of Revenue; and,
WHEREAS, the City Council of the City of Aurora believes that it is appropriate, necessary and in the best interests of the City of Aurora and its residents, that the City of Aurora levy a Municipal Grocery Retailers’ Occupation Tax as permitted by Section 8-11-24 of the Illinois Municipal Code (65 ILCS 5/8-11-24); and,
NOW, THEREFORE, BE IT ORDAINED by the City Council of the City of Aurora, Illinois, as follows:
Section 1. Incorporation of Recitals. The foregoing recitals shall be and are hereby incorporated as findings of fact as if said recitals were fully set forth herein.
Section 2. Municipal Grocery Retailers’ Occupation Tax Imposed. A tax is hereby imposed upon all persons engaged in the business of selling groceries at retail in this municipality at the rate of 1% of the gross receipts from such sales made in the course of such business while this Ordinance is in effect. The imposition of this tax is in accordance with and subject to the provisions of Section 8-11-24 of the Illinois Municipal Code (65 ILCS 5/8-11-24).
Section 3. Municipal Grocery Service Occupation Tax. A tax is hereby imposed upon all persons engaged in this municipality in the business of making sales of service, who, as an incident to making those sales of service, transfer groceries as an incident to a sale of service. The rate of this tax shall be the same rate identified in Section 2, above. The imposition of this tax is in accordance with and subject to the provisions of Section 8-11-24 of the Illinois Municipal Code (65 ILCS 5/8-11-24).
Section 4. Illinois Department of Revenue to Administer Both Taxes. The taxes hereby imposed, and all civil penalties that may be assessed as an incident thereto, shall be collected and enforced by the Department of Revenue of the State of Illinois. The Illinois Department of Revenue shall have full power to administer and enforce the provisions of this Ordinance.
Section 5. Clerk to file Ordinance with Illinois Department of Revenue. As required under Section 8-11-24 of the Illinois Municipal Code (65 ILCS 5/8-11-24), the Clerk is hereby directed to file a certified copy of this Ordinance with the Illinois Department of Revenue on or before October 1, 2025.
Section 6. Effective Date. The taxes imposed by this Ordinance shall take effect on the later of: (i) January 1, 2026; (ii) the first day of July next following the adoption and filing of this Ordinance with the Department of Revenue, if filed on or before the preceding April 1st; or, (iii) the first day of January next following the adoption and filing of this Ordinance with the Department of Revenue, if filed on or before the preceding October 1st.
Section 7. Repeal of Conflicting Provisions. All ordinances, resolutions and policies or parts thereof, in conflict with the provisions of this Ordinance are, to the extent of the conflict, expressly repealed on the effective date of this Ordinance.
Section 8. Severability. If any provision of this Ordinance or application thereof to any person or circumstances is ruled unconstitutional or otherwise invalid, such invalidity shall not affect other provisions or applications of this Ordinance that can be given effect without the invalid application or provision, and each invalid provision or invalid application of this Ordinance is severable.
Section 9. Headings/Captions. The headings/captions identifying the various sections and subsections of this Ordinance are for reference only and do not define, modify, expand or limit any of the terms or provisions of the Ordinance.
Section 10. Publication. The Clerk is directed by the corporate authorities to publish this Ordinance in pamphlet form. This Ordinance shall be in full force and effect after its passage and publication in accordance with 65 ILCS 5/1-2-4.
Section 11. The Clerk shall cause this Ordinance to be codified as part of Chapter 44 of the Code of Ordinances.