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Annexation and Disconnection of Territory into a Municipality

What information does a municipality need to send the Illinois Department of Revenue when it has annexed territory into its taxing jurisdiction?

When a portion of land is annexed into or disconnected from a municipality’s taxing jurisdiction, in addition to filing the annexation or disconnection notice with the county government, the municipality must also notify us that the annexation or disconnection has occurred.

The municipality must send a letter, along with a copy of the annexation ordinance (or, in the case of a disconnection, the ordinance, final judgment, or resolution of disconnection) to:

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

The letter should include

  • a statement verifying that you have also filed a copy of the annexation or disconnection ordinance with your county government,
  • the effective date of the annexation or disconnection,
  • the address of the annexed or disconnected area,
  • the parcel identification number (PIN) of the annexed or disconnected area,
  • the name of any retail business that is located in the annexed or disconnected area,
  • the name of the business owner,
  • the Illinois Account ID number of the retail business, if available, and
  • a statement verifying each retail business located in the annexed or disconnected area has been notified of the date the annexation or disconnection will become effective and has been notified of the sales tax rate they should begin collecting on retail sales made at that address..

We will use this information to identify the affected businesses and to correct our records to reflect the change in taxing jurisdiction.


Why is it important for you to notify us promptly?

Prompt notification of an annexation or disconnection will ensure the timely and proper allocation of your local share of the sales tax paid by the newly annexed or disconnected businesses.

Failing to notify us of an annexation or disconnection may result in the misallocation of sales tax revenue. Currently, the law provides for adjustment of only those amounts erroneously disbursed within the six-month period prior to the discovery of misallocation. Delays in submitting proper notification of an annexation that included a retail business may result in unrecoverable revenue losses. Delays in submitting proper notification of a disconnection that included a retail business may result in thousands of dollars in disbursements that will be taken from you and allocated to the correct taxing jurisdiction.

Examples of the six-month time period when sales tax has been misallocated:

  • In January 2015, you annexed a portion of land that contained a retail business, but you did not notify us that this annexation had occurred until January 2016. We can adjust only the portion of money that had been misallocated between the months of July 2015 and December 2015. Any money that was allocated to the county between January 2015 and June 2015 would not be adjusted.
  • In January 2015, you disconnected a portion of land that contained a retail business, but you did not notify us that this disconnection had occurred until January 2016. We would adjust the portion of money that had been misallocated between the months of July 2015 and December 2015. If you received $6,000 in local sales tax disbursements from the retail business during the six-month period, the adjustments we made would decrease your next month’s sales tax disbursement by $6,000 to recover the misallocated money.

Will the Department of Revenue adjust the municipality’s population count to include the residents located in the annexed area for taxes disbursed by population?

The Department can only make changes to your population count to include residents located within the annexed territory pursuant to Section 2 of the State Revenue Sharing Act, which provides that the clerk of the municipality shall report the annexation to the Department of Revenue and state the number of residents within the territory that was annexed, based on the last census conducted by the federal, state, or municipal government and certified by the Illinois Secretary of State. See 30 ILCS 115/2(b). In addition, the Act provides that the county in which the annexed territory is located shall verify the number of residents reported by the municipality.

The United States Census Bureau reports population by a block or tract of land. Due to confidentiality, they cannot report population on an individual address. Therefore, unless the territory you have annexed is the entire block or tract of land as reported by the Census Bureau, the county will not be able to verify the number of residents within the territory that was annexed, as required by the State Revenue Sharing Act.

If the annexed territory does not meet the above standards, we cannot adjust your population count until the next decennial census or until your municipality has a special census completed by the United States Census Bureau.


How do you contact us?

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

Phone: 217 785-6518
Fax: 217 524-0526
rev.localtax@illinois.gov