Illinois Business District Law (BD) Amended:
New Sales and Hotel/ Motel $$’s are available for Redevelopment
Beth Ruyle, Partner Ruyle Hullinger and Associates
The Business District is not a new economic development tool in Illinois, but with legislative amendment in 2004, it is a tool worth exploring. Like Tax Increment Financing (TIF), the BD allows communities to pledge tax revenues toward redevelopment in a blighted area. However, unlike TIF, this tool allows communities to increase sales and/or hotel motel tax within the boundaries of the Business District as that revenue. Previously the Business District was used for the powers it provided a community as opposed to a real revenue source to help with development or redevelopment. Now, the BD can generate its own revenues or be used in conjunction with TIF to generate additional revenues for projects.
The Business District also deals only with municipal revenues so there is no concern on the part of the other taxing bodies. If additional property tax dollars are generated, all districts receive the new share of those property taxes.
The Illinois Business District law now authorizes municipalities to levy an additional sales tax of up to 1.00% in .25 increments on retail goods and hotels in a designated commercial area. (Certain sales are exempt as drugs, medicines, handicap/disability equipment, etc.) If you are an Illinois community of any size or population, and you are seeking additional revenue to help finance economic development and redevelopment in your community, you should consider implementing the Illinois Business District law (P.A. 093-1053)
The law requires that a municipality make a formal finding that the area is blighted. The “blight” definition is similar to that of TIF, but not exact. In cases of a BD that overlays a TIF, eligibility of both could be concurrently established.
Other requirements similar to TIF are the “but for” provisions, the requirement of a Redevelopment Plan, a required budget, required contiguity of parcels in the District, and required agreement between the BD plan and the comprehensive plan. The time period of 23 years is also the same as TIF.
The Illinois Department of Revenue (IDOR) collects the retail tax. The State Treasurer disburses checks for sales taxes to municipalities on or before the 25th day of each calendar month. IDOR retains 2% of the amount for their administrative costs associated with the collection and disbursement of the business district sales tax revenues. You must file your ordinances with IDOR by April and October 1st for July and January 1 collection startups.
The municipality must collect the hotel portion of the tax.
Adoption of the BD is much easier than that of a TIF. The law only requires that the municipality hold a minimum of two public hearings at least one week before designation. However, communities should undertake an information plan for its residents and businesses and seek support of the affected business community prior to the designation of the BD.
Some questions to consider before using this financing tool:
When would a community consider using a Business District?
Two possibilities have already been mentioned—when there is opposition by the taxing districts to a TIF that cannot be surmounted or when additional revenues beyond TIF are needed to make the project work. Other times when a BD might apply are when property tax revenues are already committed and cannot be used, when there is agreement from the retail community that they are willing to participate in the renovations of the area or when a hotel project may be the center piece to the development. These and other reasons are rationale to look at this tool.
Will the imposition of an added sales tax for a retail development located in one part of your community and impact existing retail in other parts of the community? Will this tax drive customers away?
In other states that use this financing tool, like Missouri, the experience shows that the payment of the added sales tax is not an issue with consumers, particularly if the retailers in the Business District are new to the community, and provide a greater variety of goods and services to customers that they cannot get elsewhere.
Should we create the district so that we include retailers of high cost items?
We would advise that you carefully analyze the impacts of imposing the tax on retailers of expensive items and major retail purchases. You may want to begin with a smaller increment of additional sales tax on those types of high - end retail purchases in order to gauge consumer response to the additional tax.
Is there opposition or resistance to these added taxes by existing retailers?
Some retailers (most notably Wal-Mart) have opposed the business district taxes. There is no evidence though to prove that these retailers have lost sales revenue as a result of the additional tax.
If we have an existing TIF, can we still get the Business District and will it require any additional documentation?
You can set up a Business District with an existing TIF. At this point, you must complete additional documentation because the qualifying criteria for blight differ in the separate Acts. However, this documentation will be much less extensive than the TIF and can use portions of TIF documents as part of the designation. Such items as the plan and the “but for” evidence will be there from the TIF. Documentation of the criteria will be different or modified.
If we have a Business District can we just impose this tax?
Only if you have made a formal finding that the area is a blighted area based on the criteria in the Act. You should also assure your plan conforms to the specifications in the Act. Then, you can pass the ordinances imposing the tax (es).
How complicated is it to create a Business District Redevelopment Plan.?
Establishing eligibility still carries with it the need to justify the basis for blight in the BD. Likewise, you must establish that “but for” the Business District development or redevelopment will not occur. The plan must document these items and also provide goals and objectives for the BD, a review of the existing Comprehensive Plan to assure conformity, a budget for the project, and a set of powers and, most importantly, the rate of sales tax or hotel/motel tax that will be imposed.
Beth Ruyle has extensive experience in local government coordination, management, planning and economic development. Prior to founding Ruyle Hullinger and Associates, Beth was an Executive Vice President of Ehlers and Associates, the Executive Director of the South Suburban Mayors and Managers Association (Chicago) for 22 years, and a planner with the Atlanta Regional Planning Commission.
Beth Ruyle and Associates
423 High Street
Peoria, IL 61606
309 966 1616