Business District
A Business District is an effective tool that communities choose to use independently or with other economic development programs. Business Districts allow a community to designate a qualifying area and impose a tax that can be used to fund much-needed projects within that blighted area. Moran Economic Development has assisted in the establishment and amendment of over 80 Business Districts throughout Illinois and is experienced in navigating your community through the process.
What is a Business District?
The Business District Development and Redevelopment Law authorizes a municipality to have certain powers in a designated area to facilitate economic development. The most notable of those powers is the ability to impose a tax to fund the development or redevelopment of certain designated areas within a municipality. The municipality may impose this tax if it has a development or redevelopment plan for an area of the municipality that:
- Is contiguous (i.e., the properties within the area border each other);
- Includes only parcels of real property that will directly and substantially benefit from the proposed plan; and,
- Is determined to be eligible (defined as “blighted” per the Illinois Municipal Code 65 ILCS 5/11-74.3-5).
The Business District tax can be imposed for no longer than 23 years. The municipality must first approve a Business District plan and designate a boundary area to establish the tax. Next, the municipality must impose the tax by ordinance and then file a certified copy of the ordinance with the Illinois Department of Revenue (IDOR). The business district sales tax may be imposed in 0.25% increments and cannot exceed 1%.
How Does a Business District Differ From a Tax Increment Financing (TIF) District?
In both a Business District and a TIF District, a municipality must find that the Redevelopment Project Area is eligible (per their respective state statutes), and revenues collected by the Redevelopment Project must be utilized for eligible costs within the project area’s boundary. However, the TIF District program is based on property tax collections, whereas the Business District program is strictly sales tax-based. As such, there is no impact from the Business District program on local taxing districts. Thus, the process for implementing a Business District is typically shorter than that of a TIF.
For more information on implementing TIFs or Business Districts or to get started on the process, get in touch with our team of economic development professionals.
What is the Timeline for Implementing the Tax?
There are two significant dates for implementing the Business District program: April 1st and October 1st.
If a Business District is established prior to April 1st:
- The Business District tax will become effective, and collections will begin on July 1st of the same year.
- Collections will be disbursed to the municipality in October of the same year.
If a Business District is established prior to
October 1st:
- The business district tax will become effective, and collections will begin on January 1st of the following year.
- Collections will be disbursed to the municipality in April of the following year.
Why Implement a Business District Redevelopment Project Area?
The revenue collected by the Business District can be used to rebate a developer for eligible development costs (including infrastructure improvements), or it can be retained by the community and utilized for public safety, infrastructure, and other eligible costs within the Business District area.
Understanding the Sales Tax Structure
To understand how the Business District works, it is important to understand sales tax. The base sales tax rate for most communities is 6.25%, which is broken down by the State of Illinois at 5%, the county at 0.25%, and the local unit of government at 1%. With the Business District Law, municipalities can impose an additional sales tax within a defined area, in increments of 0.25%, up to a maximum of 1%. As such, a community with a base sales tax rate of 6.25% would have a total sales tax rate of 7.25% in the designated Business District project area after the implementation of a 1% Business District tax.
What Does the Business District Sales Tax Apply to?
The same items of general merchandise that are subject to state sales tax are also subject to Business District sales tax. Business District sales tax must be collected on general merchandise sold at the addresses reported to IDOR that are located within the Business District area.
Business District sales tax does not apply to:
- Sales of qualifying food, drugs, and medical appliances,
- Items that must be titled or registered by the state of Illinois, or
- Taxpayers that do not have a permanent place of business (physical storefront).
Where Should a Business District be in a Municipality?
Business District revenues are based on sales tax collections, so the Redevelopment Project Area should encompass high-visibility areas in the community where commercial and retail development currently exists or has the potential to be developed as such in the future. Business Districts work well along interstates, highways, and downtown areas of communities.
In addition to existing (and potential future) commercial/retail areas, Business Districts can be utilized in areas of municipalities to facilitate community improvements, including infrastructure and utility upgrades, public improvements, etc.
Administration of Business Districts With Moran Economic Development
After establishing a Business District, we can assist with its administration and utilization. Utilization can include establishing programs and procedures for using Business District resources, creating redevelopment agreements for projects, providing analysis and recommendations for projects based on economic impact, and other associated activities.
Administration services include periodically reviewing the Illinois Department of Revenue’s address database to determine if any revenue collection “leakage” occurs due to inconsistencies between the state’s database and the Business District area’s current address list. Additionally, we can provide assistance with monitoring the municipality’s IDOR-50-L-1M forms to verify that any new or changing sales taxpayer registrations are accurately designated as being within the Business District boundary.
Contact Us
Contact us today to learn more and explore the possibilities of utilizing the Business District Redevelopment program with Moran Economic Development for your municipality.