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Last Updated: 3/6/2012

Contamination Tax and Tax Increment Financing

The contamination tax provisions do not change any of the established tax increment financing (TIF) procedures. The fact that a contaminated property is located in a TIF district does not affect TIF determination procedures and does not affect the contamination tax determinations procedures.

The determination of a contamination market value reduction which reduces a TIF parcel's current year property tax taxable market value will result in a smaller tax increment for a TIF district. The tax increment decrease results from the lowered taxable market value and not from any other factors.

It should be noted that the current TIF law allows TIF authorities to establish hazardous substance sites and hazardous substance subdistricts within TIF districts. The establishment of such sites and subdistricts is for the purpose of generating contamination cleanup funds. The hazardous substance site and subdistrict TIF procedures are not altered by the contamination tax provisions.

TIF property assessment agreements are also unaffected by the contamination tax provisions. A contamination market value reduction for a TIF property subject to an assessment agreement cannot reduce the property tax taxable market value of the property below the assessment agreement minimum market value. Also, the fact that an assessment agreement may limit the actual contamination market value reduction impact on the property tax taxable market value of the property does not affect the contamination market value reduction amount used in determining the contamination tax. The full contamination market value reduction is used in determining the contamination tax. This is illustrated in the following example.

Assessment Agreement Minimum Market Value 

$250,000

Market Value Before Contamination Reduction 

$300,000

Contamination Market Value Reduction

$200,000

Property Tax Taxable Market Value (2 - 3 but not less than 1)

$250,000

Contamination Tax Market Value(3)

$200,000

If a TIF district contains a contamination tax parcel when it is established, the original net tax capacity value for the parcel is its net tax capacity value for property tax purposes. The parcel's net tax capacity for contamination tax purposes is not included in the original net tax capacity. The following example illustrates this distinction.

Property Tax Net Tax Capacity 

$ 5,000

Contamination Tax Net Tax Capacity

$40,000

Total Net Tax Capacity (1 + 2) 

$45,000

TIF Original Net Tax Capacity (1)

$ 5,000

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