Local taxes can increase now with law eliminating Illinois’ grocery tax in 2026

There’s a lot more to the newly enacted law eliminating Illinois’ grocery tax in 2026. Local governments can now impose their own 1 percent tax, along with other sales tax increases. 

Gov. J.B. Pritzker announced Monday he signed House Bill 3144, touting relief he said the measure will bring. 

“Even with inflation cooling off every dollar counts, so I’m proud we’re doing what we can to make trips to the grocery store a little easier,” Pritzker said in a statement. “It’s one more important part of lifting the burden on Illinois families.”

In 2022, an election year, Pritzker proposed a 12-month reduction of the state’s grocery tax from 1% to zero. Funds were increased in the budget for that period to assist local governments impacted by the lost revenue. The tax kicked back in for fiscal year 2024.

Monday, Pritzker said taking the tax from 1% to zero in conjunction with separate policies like a child tax credit “are not esoteric policy proposals but actually do lift burdens everyday Illinoisans face.”

But the elimination of the statewide grocery tax doesn’t go into effect until Jan. 1, 2026. The measure does other things, like allowing local governments to impose a grocery tax and increase other sales taxes, not through voter referendum, but through ordinance. That takes effect immediately. 

State Sen. Don DeWitte, R-St. Charles, said the legislature had a chance to benefit taxpayers by backfilling the revenue for local governments with other taxes the state already collects for the Local Government Distributive Fund. DeWitte had that idea two years ago. But, he told The Center Square Monday the General Assembly decided to shift the tax burden to local governments. 

“A tax cut that has a net zero effect is not a tax cut,” DeWitte said. “All he did is put the burden on local governments and now they’re going to have to deal with that.” 

DeWitte said he knows some local elected officials happy the grocery tax elimination is put off until 2026 so they can get through next year’s municipal elections without having to tackle the controversial issue.  

When the statewide tax is eliminated, that could mean up to $420 million less from the state to local governments, DeWitte said. 

“Take Sugar Grove, Illinois, a little community of about 12,000 people, the effect on them is going to be about $300,000. But you get to a community like my hometown in St. Charles, it’s $1.3 million, you get to Algonquin, it’s 1.6 [million dollars], you get to a community like Schaumburg, it’s $6.4 million in lost revenue unless they pass that tax burden onto their residents,” DeWitte said. 

He suggests to mayors to put a non-binding referendum on the ballots for voters to decide whether to live with fewer services or higher local taxes. The measure doesn’t require a voter referendum. The law Pritzker enacted allows increased taxes by ordinance. 

“I think this was a real opportunity to make something good happen for taxpayers who are dealing with cost of living increases for groceries and everything else,” DeWitte said. “He could have taken that LGDF revenue he was already sweeping, made everyone whole and everyone could have been happy.”  

Also included in the measure effective immediately, Chicago can impose up to a 9% 911 tax on prepaid wireless plans and Sangamon County can impose up to a 3% hotel, motel tax.