Business Districts

BUSINESS DISTRICT REDEVELOPMENT PROGRAM

Another economic development tool that is available to municipalities in Illinois is the Business District Development and Redevelopment Law. A Business District is created to impose an additional sales tax or hotel tax, designed to fund the development or redevelopment of certain designated blighted areas within a municipality. This is generally done to assist in improvements of public infrastructure necessary for commercial development projects.

To get a basic understanding of how this tool works, it is important to understand sales tax. Generally speaking, the base sales tax rate for communities is 6.25%. The State of Illinois captures 5%, the County captures .25% and the community captures 1% of all sales. Under the Business District Law, communities can impose an additional sales tax in .25% increments up to 1% within a defined area. Thus, the community can increase the sales tax up to 7.25%, or 1% more than the normal tax rate. That 1% can be used to rebate a developer for eligible development costs, including infrastructure improvements, or it can be captured by the community and utilized for public works, infrastructure and other costs within the Business District Area.

To establish a Business District, the Area must be blighted and findings must be made similar to a TIF District to support the blight analysis. However, because we are dealing with sales and hotel taxes and not property taxes (as in a TIF) there is rarely an instance where other taxing districts are impacted in any way.

Business Districts generally work well along interstate highways and downtown areas. The focus should be on areas where the main shoppers/tourists come from areas outside of the community or areas where deterioration in a formerly vibrant retail area has kept the area from growing.

In the end, the use of the Business District has given numerous Illinois communities the opportunity to generate additional revenues and to secure new retail development that would not have occurred without the Business District.
Statutory Reference: 65 ILCS 5/Art. 11 Div. 74.3