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Tuesday, June 18, 2024

General Assembly Sends Major Changes to Sales Tax Laws to the Governor

As part of Governor Pritzker’s proposed budget, he lobbied for the elimination of the “grocery tax,” which the Governor argues is a regressive tax which disproportionately affects members of the community with the lowest income. The grocery tax is a part of the State’s sales tax that applies to “food purchased for consumption off the premises where it is sold,” or groceries. By comparison, a “food and beverage tax” applies to food purchased for immediate consumption on the premises from where it is purchased – like from a restaurant.  Because the grocery tax comprises a part of the tax revenue the State shares with cities and villages, the elimination of the grocery tax would result in a reduction of local revenues.

House Bill 3144 was adopted by the General Assembly on June 3, 2024, and would eliminate the grocery tax as of January 1, 2026. HB 3144 would also create the Municipal Grocery Occupation Tax Law that permits all Illinois municipalities to levy a local grocery tax of up to 1% beginning after January 1, 2026. The Municipal Grocery Occupation Tax would be administered, collected, and distributed by the State, as with other local sales taxes. October 1, 2025 is the proposed deadline for municipalities to adopt and file a tax ordinance with the Department of Revenue if they want to begin collecting the local grocery tax on January 1, 2026.

While the local grocery tax is designed to achieve revenue neutrality, House Bill 3144 makes an even more important change for non-home rule cities and villages. Currently, Section 8-11.1-1 of the Illinois Municipal Code requires non-home rule municipalities to obtain referendum approval as a condition of levying a local sales tax. Upon the enactment of HB 3144 into law, non-home rule municipalities will be able to levy a local sales tax without voter approval. The non-home rule sales tax can be levied in 0.25% increments and remains capped at 1%. The local sales tax can be commenced either January 1 or July 1 each year, provided the ordinance enacting the tax is filed with the State by October 1 or April 1, respectively. 

Keep an eye on the status of HB 3144 to see whether the Governor approves this legislation.

Post Authored by Adam Simon, Ancel Glink


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