Tax Increment Financing (TIF) is a helpful tool your business can utilize when developing commercial property. Cities or counties (Tax Authority) designate TIF Areas to encourage economic development in specific geographic areas. Here is how it works: The Tax Authority freezes the tax valuation of the site before development. In exchange for a minimum assessed property value, the Tax Authority may reimburse the developer for costs of construction for development of the property or invest in public improvements to aid in its development. The Tax Authority then uses the incremental taxes to pay the indebtedness it accrued as a result of the development agreement it enters with the developer.

Tax Increment Financing can provide many advantages to a developer. It can induce the city or county into investing in public improvements and infrastructure, thereby benefiting the property. Developers can also lean on TIFs to finance property improvements. A developer considering locating its project in multiple areas can also access competitive proposals from the areas under consideration. Many developers combine TIF with federal, state, and city grants and loan eligibility to find the most advantageous deal.

TIF also carries some cons. Developers are typically required to enter into restrictive development agreements with the relevant Tax Authority, promising to develop the property in certain ways or for specified purposes. The Developer is also generally restricted from appealing property assessments beyond the minimum assessment amount and from seeking tax abatement during the term of the agreement.

Click here for a PDF version of this article, authored by Goosmann Law Firm, PLC Attorneys Jeana Goosmann and Emilee Boyle Gehling.

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