Naperville will collect an additional $1.8 million in utility tax income next year now that a software system billing error has been found and corrected.

Naperville Finance Director Ray Munch said the problem was discovered this summer as city staff was preparing the tentative 2026 budget. In looking more closely into city finances for ways to close a potential $4 million shortfall, it was noticed that revenue from the city’s electric use tax wasn’t adding up.

A software issue caused about 3,000 commercial customers to be billed at the wrong rate from out of the city’s total of 60,000 electric customers.

Ray Munch is the city of Naperville’s finance director. (City of Naperville)

Municipal code allows for two electric use tax calculations: one for customers of the Naperville Electric Utility and the other for customers of other entities like ComEd.

“The city of Naperville use tax is 5% of your electric charges and it’s the same for all customers of the (Naperville) electric utility,” said Munch, meaning that both commercial and residential customers pay the same percentage.

Customers who get their electricty from entities like ComEd are taxed under a “graduated rate that is slightly less than the 5% of gross receipts,” he said.

City staff initially noticed that the electric use tax the city was collecting each year was not 5% of gross receipts of the electric utility. An investigation determined that the software system was charging some customers the wrong rate, Munch said..

“Let’s say you open an account with the city, You would have to go in and select all of the billing lines that apply to the account,” he said. “And so you apply the commercial electric tax to this account. Well, all it was is that electric commercial tax was programmed according to that incorrect section of the municipal code.”

Munch did not know how long the mistake had been in place or how much money the city lost as a result of the error, but said at Tuesday’s budget meeting workshop that it’s likely been years and the total could be “quite significant.”

Affected customers were notified about the error in late August and the correction was made in the October.

Munch noted the city could have back-billed customers for up to two years but chose not to do so out of fairness.

“It was an error on the city’s side so to hold people responsible for that didn’t seem like the best practice,” he said. “The other thing about that is businesses move in and move out all the time and you couldn’t go back and capture that from an account that had been closed so you’d be back-billing some people and not others.”

When asked why the city did not catch the error sooner, Munch said that unlike some of the city’s other rates, which change every year and are set by an ordinance, these two taxes had been codified in the city’s municipal code for so long that “there hadn’t been a need to change it for many years.”

After the error was discovered, city staff examined other utilities and taxes to ensure everything in the billing system was correct, he said. No other errors were found.

Third-party auditors also check the city’s financial records every year, but Munch said they’re typically looking for “things more along the lines of fraud.”

“A financial audit wouldn’t necessarily catch the fact that a tax wasn’t being calculated properly in a billing system,” he said. “It would potentially catch if we were taxing one customer and not another, giving somebody preferential treatment, something like that. But if the calculation was incorrect in a system, it wouldn’t necessarily capture that because there was no ill intent.”

cstein@chicagotribune.com

https://www.chicagotribune.com/2025/10/31/naperville-error-utility-tax-billing-munch/