Chicago could lose $80M if grocery tax is eliminated

Illinois could be the next state to eliminate its tax on grocery purchases, but Gov. J.B. Pritzker is getting pushback from municipalities on his proposal.

The Illinois Municipal League (IML) has opposed the plan to cut the 1% tax because it will cost cities across the state millions in revenue. Although the tax is collected by the state, the funds are redistributed to municipalities, with the biggest beneficiaries receiving as much as $4 million a year.

The total loss to municipalities is $325 million a year, according to the Illinois Municipal League. Following the release of Pritzker’s budget proposal, IML CEO Brad Cole sent a memo to elected officials across the state, asking them to contact state representatives and oppose the tax cut.  

Cole said in the letter that the temporary elimination of the tax almost two years ago was different than the current proposal. That COVID-era tax cut was temporary and the funds, which would have gone to municipalities, were covered by the state. So, instead of forgoing the tax revenue, the state covered the bill. 

“You may recall two years ago when the state enacted a suspension of the same grocery tax, but retailers were required to continue to report their sales and the state made corresponding transfers from the state’s General Revenue Fund to municipalities, so there was no lost revenue based on actual grocery sales,” Cole said in a letter to municipal leaders in February.  

Cole, who could not immediately be reached for comment, noted that the new proposal “does not include the transfer from the state to municipalities.”

“If the state wishes to transfer General Revenue Funds again to offset the loss, IML would support the proposal…but that is not what the governor is recommending,” he said in the letter. 

According to IML, elimination of the tax would cost most cities and villages at least more than $100,000. Those hit hardest include: 

Illinois isn’t the only state where grocery taxes have faced scrutiny. Oklahoma Gov. Kevin Stitt signed a bill in late February eliminating the state’s 4.5% grocery sales tax, calling it the most regressive in the state.  

Now, only 12 states have taxes on grocery purchases – Mississippi at 7%; Kansas at 6.5%; Idaho at 6%; South Dakota at 4.5%; Tennessee, Alabama, and Hawaii at 4%; Virginia at 2.5%; Utah at 1.75%; Arkansas at 1.5%; and Missouri at 1.23%.