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Municipal Law Q&A Test your knowledge of municipal practices and procedures with the questions and answers below. Click here to submit a question to Ancel Glink.
Municipal Q&A - August 2005
Business Development District Sales Tax:
A New Revenue Source for Municipalities
ANSWER: On January 1, 2005, amendments to the Illinois Business District Development Act, 65 ILCS 5/11-74.3-1, became effective. The amendments create a new source of revenue for all municipalities, in the form of a 1% sales tax and a 1% hotel tax. These taxes are in addition to all existing retail occupation and service taxes and home rule sales taxes.
In order to implement the new taxing power, a municipality must determine that the proposed Business Development District is "blighted." The definition of "blight" is similar to that used in the TIF Act, 65 ILCS 5/11-74.4-1, but is more closely related to the definition used by the Federal government for urban renewal areas. The municipality must also determine that, unless the Business Development District is established, the area will not grow normally. This is the same "but for" test used in the TIF Act. Like a TIF District, the Business Development District may continue in existence for 23 years. The Development District Plan must contain a description of the proposed boundaries, estimated project costs, a description of anticipated obligations to be issued, the rate of tax to be imposed, and other details. A public hearing must be held before the Plan is adopted by ordinance.
Once the ordinance establishing the District is adopted, it must be filed with the Illinois Department of Revenue. The DOR collects the sales tax and remits the proceeds to the municipality. However, the hotel tax must be collected by the municipality directly.
The tax revenue may be used for any project that benefits the Business Development District. There are no "TIF-type" restrictions on the use of these funds.
Experience with similar taxes in Missouri communities around St. Louis shows that the additional sales tax is not a deterrent to shoppers, except as to "big ticket" items such as cars and major appliances. Consumers are willing to pay the additional tax in redeveloped business districts because of the convenience of additional retailers in the area.
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