Sales tax on general merchandise sold in Lake Zurich will cost a bit more beginning Jan. 1.
Village officials recently authorized a local sales tax increase of 0.5% to help defray scheduled rate increases associated with a pending switch to Lake Michigan water.
The increase will bring the municipal sales tax rate to 1% or a penny on every dollar of goods sold in town. The overall sales tax rate will increase to 8% as it is in Buffalo Grove, Deer Park, Barrington and Highland Park for comparison.
Village officials say the rate increase will generate an additional $2.5 million annually to be used for project-related expenses and debt service of the $154 million Lake Michigan water project.
“The revenue from this sales tax will cover one-third of the project’s costs, reducing the reliance on future water rate increases for utility customers to fund the project,” according to a summary of the measure. Water rate increases planned for 2025-2028 will be reduced as a result.
About 40% of retail purchases subject to sales tax in Lake Zurich are made by nonresidents, meaning out-of-towners will contribute about 15% of the total cost, according to the village.
Lake Zurich first enacted a local sales tax of 0.5% in 2011 and has used the proceeds exclusively for the village road program.
After years of consideration and studies, the village board this past March, in what were considered historic actions, joined the Central Lake County Joint Action Water Agency, which supplies Lake Michigan water and approved a route study to determine the best way to get it to town.
At the time, trustees also agreed to put a referendum on the November ballot to increase the non-home-rule sales tax to help defray costs.
But a recent change to state law now allows non-home-rule communities to adopt a local sales tax without requiring voter approval through a referendum. Kildeer also plans to increase local sales tax by 0.5% to a total of 8% and had filed to have the question on the November ballot but has asked the Lake County Clerk’s Office to remove it.
The village previously approved a series of water rate increases over the next five years to accommodate a projected $7.5 million annual debt service for 30 years starting in 2028.
“This (local sales tax increase) will eventually cover approximately one third of the debt service and allow the village to reduce those scheduled rate increases down to two-thirds of the debt service coverage,” said Village Manager Ray Keller.
Public works director Mike Brown said the route study, which focuses on refining the preferred pipeline, outreach with communities the pipe will travel through and an overview of any challenges that surface during the design stage, is ongoing.
Design is expected to start before the year end and continue through 2025, he added.