Tax Incremental Financing
What is TIF?
The Tax Incremental Finance Law (TIF) was approved by the Wisconsin Legislature as an economic development financial tool municipalities could use to promote tax base expansion by using property tax revenues to fund site improvements to attract new development, rehabilitation/conservation, industrial, mixed-use, eliminate blight and environmental remediation. Benefits may also come in the form of increased employment, an improved business climate, and elimination of unsafe or unsightly areas.
Before TIF, when a community installed public improvements to promote private development, its property owners bore these costs, but all taxing entities that shared the tax base benefitted. The legislature recognized this was an inequitable situation that sometimes discouraged development and redevelopment efforts. With TIF, all those who benefit directly or indirectly help pay development costs. All taxing entities become partners to promote expansion of their tax base.
What is TID?
A Tax Incremental District (TID) is an actual area (parcels) designated for expansion where improvements are being made.
How Does TIF Work?
When a TID is created, the municipality and other taxing entities agree to support their normal operations from the existing tax base within the district. A finding must be made that no development would happen without this financing tool. If this is true, tax rates will be the same with or without the TID. Property tax rates for the school, county, technical college, and municipality are based on the taxable value of the TID at the time it is created. These rates are then applied to the TID value increment which results in additional revenues collected for the district’s fund. Eligible TID costs are paid from these revenues before the added tax base is shared.
In theory, the tax increment added to each levy does not increase taxes for property owners in the various taxing entities. It comes from taxes paid by owners of property, within the TID, whose property values have increased since the creation of the district. This is possible because levies are apportioned without the TID value increases.
TIF is not a tax freeze nor a tax increase, but a special allocation method for taxes collected on property value increases within the district.
Who are the Other Taxing Entities?
The other taxing entities are school district, county, and technical college. If applicable, other entities could include lake district, sanitary district, and metro sewer district.
Each tax district involved participates in the TIF partnership. Each shares a common hope that TIF expenditures will promote property tax base growth that would not otherwise have occurred. However, each tax district is affected to a different degree, depending on the value of TIDs within its boundaries compared to its total value. Joint Review Board (JRB) members should each analyze how TIF affects each of them. Visit the Department of Revenue for specific JRB membership details.
How are Tax Increments Determined?
When a municipality creates a TID, it applies to the Department of Revenue for determination of property values within the district. This is the district’s Base Value. As long as the TID exists, the Department determines its equalized value as of January 1st each year. This is called the Current Value. The difference between the base value and the current value is the Value Increment. The value increment is used to determine the amount of tax increment revenue that can be collected for that particular year.
Each taxing entity apportions its tax levy to the municipalities within its boundaries based on each one’s share of its total equalized value. Only the base value of TIF districts is included in the apportionment process.
Some observers of the TIF law argue that since the base value of the TID may grow each year due to inflation, taxes on the "ordinary growth" in the base value should accrue to the respective taxing jurisdictions rather than to the TID’s tax increment. However, the TIF law provides that all value increases become part of the increment.
Are There Limits on the Use of TIF?
Limits are applied to the creation of new districts or the addition of property to existing districts. The equalized value of property in the district, plus the value increment of all existing districts cannot exceed 12% of the total equalized value of taxable property within the municipality. This restriction does not apply when subtracting territory from a district.
What is the Life of a TID?
The maximum life of a TID depends on the type of TID and when it was created. See the TIF Criteria Matrix for specific details.
For more information, visit the Wisconsin Department of Revenue.