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Fact Sheets

Sales Tax Districts

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Sales Tax Districts levy an incremental sales tax on goods sold within a designated area deriving benefits from a transportation improvement. The resulting revenue is used to support the development of the infrastructure improvement. Sales tax districts may be established at the municipal or county level, but they are more commonly implemented in smaller local areas.

Statues establishing sales tax districts normally specify the rate of the incremental sales tax and the types of projects their proceeds may support. Unlike other special assessment districts, there is no formal process for establishing the rate of the incremental sales tax. However, the revenue raised should reflect the value the area derives from the transportation improvements funded by the district.

It is helpful to distinguish sales tax districts from local option sales taxes.  While local option sales taxes are normally collected at the county or municipal level, sales tax districts are more often - but not always - confined to smaller zones that benefit from a specified transportation improvement. Although municipal governments rely on property taxes for a majority of their tax income, local sales tax districts have the potential to generate significant revenues.

Project Examples

Missouri TDD

Missouri transportation bus with the Gateway Arch in the background

In Missouri, Transportation Development Districts may be used to levy sales tax increments between 1/8 % to 1% to provide funding for transportation projects. Originally these taxes were collected at the district or local authority level. However, House Bill 191 of 2009 now requires that sales tax increments are collected at the state level by the Missouri Department of Revenue.

Transportation Development Districts may be formed by a petition of registered voters, property owners or a local or multi-jurisdictional transportation authority. The petitions must be approved by circuit court. Transportation Development Districts may be used for the following purposes:

  • Funding, promoting, planning, designing, constructing, improving, maintaining, and operating transportation projects
  • Creating a board of directors to administer the district's legislative and executive powers
  • Working in collaboration with the Missouri Highways and Transportation Commission and other local transportation authorities to provide revenue for transportation improvement projects

Missouri has 205 Transportation Development Districts that generate over $70 million in annual revenue to support local transportation needs.

Lawrence, Kansas TDD

The Oread hotel in Lawrence, Kansas

Lawrence, Kansas has established three Transportation Development Districts that levy an additional one-cent sales tax to cover transportation-related expenses associated with development projects. Local developers provide upfront funding and are then reimbursed over time as the incremental tax revenue is generated. In April 2008, the city approved a 22-year Transportation Development District for the to pay for up to $11 million in transportation-related public infrastructure expenses associated with the construction of the 11-floor, 99-room Oread Hotel. In October 2008, the city approved another 22-year Transportation Development District to pay for $6.8 million in public infrastructure expenses associated with the Bauer Farms retail development. In 2014, the city approved a third Transportation Development District to provide $3 million to support the development of a new hotel and retail complex at the intersection of 9th and New Hampshire. The first $850,000 in incremental sales tax revenues will be used to cover bond costs for a parking garage and the rest will reimburse developer-paid transportation infrastructure expenses.

Program Areas of the FHWA Center for Innovative Finance Support

The FHWA Center for Innovative Finance Support is a one-stop clearinghouse for expertise, guidance, research, decision tools, and publications on highway program delivery innovations. Our website, workshops, and myriad resources support transportation professionals in the use of innovative approaches for delivery of highway projects.

Public Private Partnerships (P3s)

The FHWA Center for Innovative Finance Support's P3 program focuses on resources and capacity building for consideration and use of design-build-finance-operate-maintain (DBFOM) concessions funded through tolls or availability payments.

Alternative Project Delivery

The FHWA Center for Innovative Finance Support's Alternative Project Delivery program provides information on contractual arrangements that allow for greater private participation in infrastructure development by transferring risk and responsibility from public project sponsors to private sector engineers, contractors and investors.

Project Finance

The FHWA Center for Innovative Finance Support's Project Finance program focuses on alternative financing, including State Infrastructure Banks (SIBs), Grant Anticipation Revenue Vehicles (GARVEEs), and Private Activity Bonds (PABs).

Tolling and Pricing

The FHWA Center for Innovative Finance Support's Federal Tolling and Pricing program focuses on the use of tolling and other road user charges as a revenue source to fund highway improvements, and the use of variably-priced tolls as a tool to manage congestion.

Value Capture

The FHWA Center for Innovative Finance Support's Value Capture program explores strategies for tapping into the added value that transportation improvements bring to nearby properties as a means to provide new funding for surface transportation improvements.

Contact:

Patrick DeCorla-Souza
(202) 366-4076
Patrick.DeCorla-Souza@dot.gov

www.fhwa.dot.gov/ipd/p3/toolkit/

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Quick Facts

Sales Tax Districts are special districts that are levied taxes to help pay for the transportation infrastructure that services the area.

Sales Tax Districts are established by statute and have set sales tax rates on all purchases made within the district with details on where the generated revenue is allocated.

This value capture financing tool is popular in states such as Missouri, Kansas, Illinois, and Georgia.

Contact:

Thay N. Bishop
(404) 562-3695
Thay.Bishop@dot.gov

www.fhwa.dot.gov/ipd/value_capture/

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