Illinois to eliminate state grocery tax as of January 1, 2026

The 1% Illinois grocery tax currently applies to “food for human consumption that is to be consumed off the premises where it is sold.” This includes most items you’d purchase at a grocery store, such as boxes of pasta, bags of rice, cooking oils, fruits, and vegetables.

HB 3144 specifies that “groceries” has the same meaning as “food for human consumption that is to be consumed off the premises where it is sold,” with the exceptions explained in the following section.

Food subject to the 1% rate in Illinois will be exempt from the 1% state sales and use tax starting January 1, 2026. Or, more accurately, the retailers’ occupation tax (ROT) and use tax.

None of the following products qualify for the state sales tax exemption established by HB 3144:

• Alcoholic beverages
• Candy
• Soft drinks
• Foods consisting of or infused with adult use cannabis

The Illinois grocery tax exemption will also not apply to meals consumed in a restaurant, takeout meals, or other food prepared for immediate consumption. These foods are taxed at or above the general 6.25% rate today and will be taxed at or above the 6.25% rate on and after January 1, 2026.

However, Illinois is carving out an exemption for certain licensed entities.

HB 3144 provides a sales and use tax exemption for food prepared for immediate consumption by certain licensed entities. This exemption takes effect January 1, 2026, and applies to entities licensed under the following acts:

• Assisted Living and Shared Housing Act
• Child Care Act of 1969
• Hospital Licensing Act
• ID/DD Community Care Act
• MC/DD Act
• Nursing Home Care Act
• Specialized Mental Health Rehabilitation Act of 2013

Entities holding a permit issued pursuant to the Life Care Facilities Act may also make exempt sales of food prepared for immediate consumption starting in 2026.

The bill specifies that sales of “food prepared for immediate consumption” by these entities qualify as exempt “groceries.” If you’re not sure whether your business will qualify for the Illinois licensed entity food tax exemption, we recommend consulting with a trusted tax advisor.

In addition to repealing the 1% state tax on food for human consumption in Illinois, HB 3144 authorizes any county to impose a 1% retailers’ occupation tax on gross receipts from groceries sold at retail in a county, but outside of any municipality.

Likewise, the bill authorizes municipalities to impose a gross receipts tax on all persons engaged in the business of selling groceries at retail in the municipality. If a municipality adopts such a tax by ordinance or resolution, the rate will be 1% of the gross receipts from these sales.

You might say the Illinois Legislature giveth as much as it taketh away. Or should that be taketh away as much as it giveth?

Counties that establish a local ROT on groceries must create an equivalent 1% county service occupation tax on businesses that transfer groceries incidentally while making a sale of service.

All county grocery taxes must be established by ordinance or resolution and take effect on or after January 1, 2026. The Illinois Department of Revenue will be responsible for collecting and administering local sales tax on groceries. Counties must notify the department by April or October, respectively, of a sales tax change scheduled to take effect the following July or January.

HB 3144 also establishes a new Cook County grocery tax.

A 1.25% Cook County Regional Transportation Authority Tax will apply to food for home consumption sold to be consumed off the premises where it’s sold. This 1.25% Cook County grocery tax does not apply to the usual suspects — alcoholic beverages, candy, soft drinks, foods containing adult use cannabis, or food prepared for immediate consumption (however, these items are subject to a state sales tax rate of  6.25% or higher).

Likewise, a 1.25% tax will apply to qualifying food prepared for immediate consumption and sold by any of the licensed entities listed above, provided they’re located in the Cook County metropolitan region.

Businesses subject to a county or municipal grocery tax in Illinois may reimburse themselves for the tax they pay. To do so, they must separately state the tax as an additional charge. Per HB 3144, the additional charge may be stated in combination or in a single amount with the state tax the businesses are required to collect.

You’re required to collect and remit Illinois sales and use tax, as applicable, if you have nexus with the state. Nexus is simply another word for connection.

There are several ways for a business to establish nexus with Illinois, including having:

• A physical presence in Illinois (physical presence nexus)
• Sales activity in Illinois (economic nexus)
• Referrals originating in Illinois (click-through nexus)
• Ties to affiliates in Illinois (affiliate nexus)

Click on the links above to learn more. If you don’t have a physical presence in Illinois and aren’t sure whether you have nexus, taking a sales tax risk assessment can help.

If you think the Illinois sales tax changes set to take effect on January 1, 2026, will impact your sales tax compliance, it’s not too early to start preparing. Automating sales tax collection and remittance can streamline sales tax compliance while reducing risk.

Want to know more? Watch a brief demo on how Avalara calculates tax rates and prepares sales tax returns.