Key takeaways
- The following tax and revenue bills were recently passed by the Illinois General Assembly and are now before Governor Pritzker for signature:
- HB 3144 (the Governor's “grocery tax”) would repeal (eff. Jan. 1, 2026) the state’s 1% tax on groceries and authorize municipalities and counties to impose their own local 1% grocery tax.
- HB 4951 would make significant changes to a number of Illinois’ tax laws, including:
- allowing lessors to charge sales tax on the lease or rental stream of property, as opposed to paying tax on the upfront cost of property acquired to lease;
- extending the state’s net operating loss cap for three more years, with an increase of the cap from $100,000 to $500,000;
- capping the sales tax vendor discount (1.75% of sales/use tax collected) at $1,000 per month;
- increasing the franchise tax exemption to $10,000 next year; and
- changing how financial organizations apportion their investment and trading activities to Illinois.
- SB 3362 would “re-level” the playing field by requiring out-of-state retailers currently collecting Illinois use tax (i.e., those that have nexus with Illinois) to start collecting local taxes using destination rates.
Significant Tax Legislation Passed by the Illinois Legislature
HB 3144
- HB 3144 would repeal the state's 1% tax on groceries and authorize counties and municipalities to impose their own local 1% tax on groceries, effective January 1, 2026.
- Groceries no longer subject to the tax would include any food for human consumption that is to be consumed off the premises where is it sold. Food prepared for immediate consumption, alcoholic beverages, soft drinks, candy items, and food infused with cannabis, would still be subject to the state's full sales tax rate.
- Any local grocery taxes enacted by ordinance will be administered and enforced by the Illinois Department of Revenue.
- NOTE: Because the law change would take effect in 2026, it remains possible the state could repeal the elimination of the tax prior to its effective date. However, if the tax on groceries is eliminated as budgeted for fiscal year 2025, retailers selling grocery items should review their internal procedures prior to the effective date to ensure state sales tax is no longer collected on previously taxable items to avoid any qui tam and consumer fraud actions. Retailers should also closely monitor their local tax laws to avoid missing periods in which collection and remittance is required and potential penalties and interest.