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Vernon Hills staff recommends local 1% grocery tax to replace repealed state tax; board gives direction to prepare ordinance
Summary
After presentation of options, staff recommended and trustees favored enacting a local 1% grocery tax to replace the state 1% tax being repealed; staff estimated the tax currently yields about $2 million annually to the village and will prepare ordinances for adoption.
Village staff told trustees that House Bill 3144 will eliminate a 1% state grocery tax effective Jan. 1 and recommended enacting a local 1% grocery tax to replace the lost revenue.
Director Lyons said the state grocery tax currently contributes about $2,000,000 annually to Vernon Hills (about 5% of general fund revenue). He explained the tax covers groceries intended for off‑premises consumption and noted that the Regional Transportation Authority (RTA) tax of 0.75% would remain whether or not the village enacts a local tax.
Staff presented two principal options: (1) adopt a local 1% grocery tax that would mirror current collections and would not incur an administrative fee from the state; or (2) increase the village’s home‑rule sales tax by 0.25 percentage points. Lyons told the board the grocery tax is more stable and is effectively a zero‑sum continuation for consumers and retailers because it mirrors the prior state tax.
Trustees asked about distribution of grocery shoppers (staff showed store foot‑traffic breakdowns and noted many grocery customers come from outside Vernon Hills) and about alternative revenue sources. Manager Timoney reminded the board staff also looks for expense reductions but said the fiscal 2026 budget assumes replacement of the revenue.
Several trustees said they favored the local grocery tax because it preserves revenue without increasing the overall tax burden on many residents and because a significant share of the grocery sales tax is paid by non‑residents who shop in Vernon Hills. Staff said they will prepare necessary ordinances for board consideration.
No ordinance was adopted at the May 20 meeting; the board provided direction to staff to return proposed ordinance language for further consideration.
