Local Governments’ Guide to Tax Allocations

Statutory Reference - 65 ILCS 5/11-74.3-1, et seq.

1. What is the Business District Sales Tax?
2. Is voter approval required?
3. At what rate and for how long can the tax be imposed?
4. What must a municipality do to establish this tax?
5. What is the deadline for filing the ordinance?
6. What information is required?
7. What review process does IDOR follow for the information submitted?
8. Can the business district boundaries be changed?
9. Can a business district address be added, changed, or deleted?
10. What is required to change or discontinue the tax rate of an existing business district?
11. To what sales does the tax apply?
12. What types of sales are not subject to this tax and will not generate more revenue?
13. How are retailers notified about this tax?
14. Can we get a listing of the retailers located within the business district?
15. Will a separate check be issued for the distributions from this tax?
16. When will the municipality receive its first tax collection?
17. What financial information is available to the local government?
18. Is there other general information I should know?

The Business District Development and Redevelopment Law authorizes a municipality to impose a tax designed 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 blighted, as defined in the Illinois Municipal Code (see 65 ILCS 5/11-74.3-5).

The business district sales tax is imposed by the municipality in the form of the Business District Retailers’ Occupation Tax and Business District Service Occupation Tax.

No. Voter approval is not required.

Business district sales tax may be imposed in 0.25% increments and cannot exceed 1%. The tax can be imposed for no longer than 23 years.

Please note that the municipality must file a certified ordinance with LTAD by the ordinance filing deadline to rescind the business district sales tax.

The corporate authorities of the municipality must first approve a business district plan and designate a business district as outlined in 65 ILCS 5/11-74.3-2. Next, the municipality must impose the tax by ordinance as outlined in 65 ILCS 5/11-74.3-3 and 5/11-74.3-6. The municipality must then file a certified copy of the ordinance with the Illinois Department of Revenue (IDOR).

If IDOR receives a certified copy of a proper ordinance and all additional required information on or before

• April 1, the tax will become effective July 1 of the same year, or
• October 1, the tax will become effective January 1 of the following year.

The ordinance and all additional required information must be sent to the address below.

LOCAL TAX ALLOCATION DIVISION
ILLINOIS DEPARTMENT OF REVENUE MC 3-500
101 WEST JEFFERSON STREET
SPRINGFIELD IL 62702

The ordinance and required information should be sent to IDOR as soon as possible after passage by the municipality. This will allow time for IDOR and the municipality to complete the approval process and correct any problems that may arise before the April 1 or October 1 filing deadline.

If the approval process is not completed in time, the tax increase or the inclusion of certain addresses requested by your municipality may be delayed until the next implementation date.

Any municipality that has met the requirements to establish a business district and adopted an ordinance imposing both a Business District Retailers’ Occupation Tax and a Business District Service Occupation Tax must provide IDOR with

• a certified copy of the ordinance imposing both the retailers’ and service occupation taxes for the business district;
• a detailed map of the business district boundaries;
• a copy of the development or redevelopment plan for the business district; and
• a detailed list of each address located within the district’s boundaries. Each address must be registered with the United States Postal Service (USPS). The list must contain the street name, street number, city, state, and ZIP Code for each piece of property located within the district. This information is used to identify retailers that are within the business district, as well as all other addresses in the district. IDOR will notify retailers making sales in the business district to collect the additional tax.

Each ordinance will be reviewed for approval by two offices in IDOR. When needed, each office will work with you to bring the requirements into compliance. You will receive a separate notification of approval from each of these offices. The process we follow is explained below:

• The Legal Services Office determines if the ordinance language is legally sufficient to impose the tax. During this process, it is possible IDOR may find that an amendment to the ordinance language is required. You will be notified in writing of the Legal Service Office’s determination.
• LTAD will compare the address list provided to the most current address information from the USPS.
  • IDOR will send a Business District Address Verification comparison list to the municipality. The municipality must approve which address should be used.
  • From the approved comparison list, IDOR will provide a Business District Taxpayer Listing of any registered retailer doing business at the approved addresses. The municipality will be required to confirm whether the list of retailers is correct and report taxpayers that should be included or should not be included on the taxpayer list to LTAD.

Once your municipality has received approval from both of our offices (Legal Services and LTAD), IDOR will notify all affected retailers of the rate change.

Time is critical to ensure that the approval process can be completed and that a business district sales tax rate and the inclusion of addresses within the business district take effect on the intended date. Addresses cannot be added, changed, or deleted after the filing deadline.

Yes. The municipality can change the boundaries of a designated business district as provided in the Business District Development and Redevelopment Law.

If the municipality changes the boundaries of its business district, it must provide IDOR with

• a certified copy of the ordinance (if the business district tax rate was increased or decreased)
• an updated, detailed map of the business district boundaries;
• an updated copy of the development or redevelopment plan for the business district (This is only required if there are additional costs. If there are no additional costs, a statement must be provided to IDOR.); and
• a detailed list of each new address located within the district’s boundaries. The addresses must be registered with the USPS. The list of new addresses must contain the street name, street number, city, state, and ZIP Code for each piece of property located within the district.

The ordinance and all additional required information listed above must be sent to the Local Tax Allocation Division (LTAD) by the ordinance filing deadline discussed above.

Yes. Adding, changing, or deleting addresses within an existing business district with no business district boundary or rate changes simply requires a message sent electronically through your MyLocalTax account or a letter to be sent to LTAD. Required information includes:

• the name of the business district and the addresses that will be added, changed, or deleted (Addresses that will be added or changed must be registered with the USPS.) and
• the street name, street number, city, state, and ZIP Code for each new address to be included in the district.

The addresses must be sent to LTAD by the ordinance filing deadline discussed above.

A certified ordinance is required to change or discontinue this tax. The ordinance must be sent to LTAD by the ordinance filing deadline discussed above.

The same items of general merchandise reported on Line 4a of Form ST‑1 and Form ST‑2 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 regardless of whether the merchandise is sold at retail or transferred as a part of a sale of service.

Business district sales tax does not apply to

• sales of qualifying food, drugs, and medical appliances^_*(reported on Line 5a of Form ST‑ 1 and Form ST-2), or
• items that must be titled or registered by an agency of Illinois state government (reported on Form ST‑556, Sales Tax Transaction Return or Form ST-556-LSE, Transaction Return for Leases).

* 86 Ill. Admin. Code 130.310

Business districts that add, change, or delete an address but have no rate change will not be included on the informational bulletin. IDOR will send a letter to the businesses informing them of the tax rate and the date the rate takes effect.

Yes. Municipalities can request a list of retailers located within their business district either electronically through your MyLocalTax account or by contacting our office using the information below.

LOCAL TAX ALLOCATION DIVISION (3-500)
ILLINOIS DEPARTMENT OF REVENUE
101 WEST JEFFERSON
SPRINGFIELD IL 62702

Phone: 217 785-6518
Fax: 217 785-6527

rev.localtax@illinois.gov

Yes. The check or direct deposit you receive from the State Comptroller for business district sales taxes will be separate from other allocations. This information is also displayed on our website, tax.illinois.gov, under Local Governments, select Local Tax Allocation, and then select Monthly Detailed Disbursement Amounts. The municipality must deposit this money into a special “Business District Tax Allocation Fund” to be used for paying eligible costs associated with the business district project.

For taxes imposed effective January 1, the first disbursement will be made to local governments during the following April.

For taxes imposed effective July 1, the first disbursement will be made to the local governments during the following October.

Local governments that impose business district sales tax may enter into a Reciprocal Agreement on Exchange of Information with IDOR. This agreement allows designated individuals within the municipality to receive specific financial information. Additional information regarding the Reciprocal Agreement on Exchange of Information can be found here.

Taxpayers are allowed to take a discount for timely filing and payment of these taxes. Any allowable discount that is taken is reflected in the local government distributions.

An administrative fee is retained by IDOR.

PTAX-1002-20 (R-09/24)