Peoria council votes unanimously to reinstate 1% grocery tax to replace state pass-through

The Peoria City Council voted unanimously April 22 to adopt a municipal grocery retailer’s occupation tax and a grocery services occupation tax of 1%, a move city staff said is needed after the state’s repeal of the previous passthrough arrangement.

City Finance Director Kyle Cratty told the council staff originally estimated the loss from the state change at about $4 million; as staff refined sales-tax receipts the figure rose. “As we prepared for this agenda item and looking at, kinda how our sales taxes have come in, we believe the number is closer to 5,000,000,” Cratty said. Council members approved a separate, technical recodification of the city’s retailers’ and services occupation tax language before voting to implement the grocery tax.

The tax will be imposed locally under a city ordinance and administered through the Illinois Department of Revenue’s collection process; the council approved filing requirements intended to allow the tax to take effect Jan. 1, 2026, if all state and administrative deadlines are met. Cratty and other staff warned that failing to replace the revenue would force recurring cuts to core services.

Why it matters: City staff said the loss of the state-collected grocery tax would reduce general-fund revenue by about $5 million annually — roughly 4% of the general fund — and would accelerate the date when the city approaches its minimum reserve levels by nearly two years. Cratty presented a list of programs and positions that would likely be cut to close the gap if the city did not reinstate the tax, including the dedicated Rescue 1 unit, the police traffic division and parking enforcement, reductions in preventative road maintenance, elimination of the neighborhood mini-grant program, and an approximate 10% reduction across administrative staff.

Council members voiced the tradeoffs on the record. Council Member Vespa, who voted yes, said, "I don't like this tax, but we don't have perfect options here, and we just don't have good alternatives. So I will be a yes on this." Several members raised the tax's regressive effect on lower-income households; Cratty said the average household impact would likely range between about $70 and $150 per year, and that nonresidents who shop in Peoria also contribute to the tax base.

Alternatives considered: Staff reviewed other revenue options — raising the city’s home-rule sales tax by 0.25% or 0.5%, increasing the hotel/restaurant/amusement tax, or adding revenue to the property-tax levy — and recommended against them because of competitiveness concerns, the scale of increases required, or the disproportionate burden on homeowners. Staff also recommended against the larger tax increases because they would push Peoria's sales tax rates well above neighboring communities.

Public comment and dissent: Dozens of emailed comments and several in-person speakers urged the council not to adopt the grocery tax and instead “tax the rich” or seek other revenue sources. Justin Smeltzer, a union member and organizer, called grocery taxes “a deeply regressive form of taxation” and urged a political fight for taxes on the wealthy. Other speakers urged delay and further review of large capital projects and local contracts to find savings.

The vote and next steps: The council first approved a housekeeping ordinance to recodify retailers’ and services occupation tax language and then adopted the municipal grocery tax ordinance. Both votes were recorded as unanimous. Council Member Euler said he planned to ask the clerk to place a motion for reconsideration on the next agenda if colleagues who supported the measure wanted that option explored.

The ordinance approved by the council instructs staff to file a certified copy with the Department of Revenue in time to meet the state’s October filing deadline and to make local collection effective Jan. 1, 2026, if administrative conditions are satisfied. Council members also tabled two alternate rate options that had been on the agenda.