Northbrook has joined a long line of municipalities enacting their own 1% grocery tax when the state’s 25-year-old tax for the same amount ends Jan. 1.
Officials said without creating the village’s own tax, Northbrook would lose up to $1.8 million in revenue annually.
“We would need to make up that lost revenue elsewhere, most likely through an increase in property taxes or other new taxes and fees,” Trustee Robert Israel said.
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“Since the local grocery tax would be paid by Northbrook and non-Northbrook residents alike, it is in our best interest to adopt the local 1% tax.”
The Village Board voted unanimously to adopt the tax at its Aug. 26 meeting and then to tweak wording in the ordinance as recommended by the village attorney at its Sept. 9 meeting.
Trustee Heather Ross raised concerns that the tax will have a greater impact on buyers with lower incomes than those with higher incomes, even though exceptions are provided for buyers using food stamps.
“I have struggled with this for a little bit,” Ross said. “A grocery tax can be regressive. Certainly, everyone needs to eat.”
However, Ross said that Chief Financial Officer Steve Drazner walked her through various other options for making up the potentially lost revenue “that did not seem like the right move now,” especially with Northbrook planning to rebuild and remodel several public works and public safety buildings.
“Coupled with concerns about potential changes in state policies and state funds, we need to have this revenue coming in when we’re doing all these new facilities,” she said.
Ross suggested the board could review the tax in one year and consider the possibility of repealing the tax, if desired.
“I’m comfortable moving forward but I would like to continue to think of other creative ways and revisit this in a year from now,” she said. “At any point we could opt out of it.”
Israel said the Illinois grocery tax was created in 1990 when the state chose to stop keeping grocery tax revenue and give the revenue to local governments.
“It was designed to end the proliferation of grocery taxes and create a more unified style across the state,” he said.
Illinois decided to repeal the 1% tax effective Jan. 1, but allow municipalities to enact their own grocery tax to offset the loss of revenue, Israel said. As of Aug. 19, 424 municipalities had enacted their own 1% tax, he said.
The most recent available data shows that Northbrook receives about $1.6 million a year from the state tax, but that amount is expected to increase to between $1.7 million and $1.8 million a year, Israel said.
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“Unless we take action and adopt a 1% tax for Northbrook, it is a certainty that our revenue will drop significantly, about $1.8 million a year,” he said.
New local grocery taxes must be submitted to the Illinois Department of Revenue by Oct. 1 in order to take effect on Jan. 1, Israel said.
In a report recommending enacting the new tax, Drazner said Northbrook’s grocery tax revenue is projected to hit about $1.8 million a year, thanks to the recent addition of a new grocery store. The Fresh Market, 163 Skokie Blvd., opened on Feb. 26.
The current grocery tax accounts for 13% of the sales taxes collected in Northbrook, Drazner said. The overall 1% sales tax the village receives, not including its home rule sales tax, is the largest revenue stream in the general fund with about $12.3 million annually, he said.
“Reduction in general fund services would be required if the tax were not continued nor a replacement tax identified,” Drazner said.