The best way to explain this complex issue is with an example. Let’s suppose we create a Tax Incremental District (TID) of one property. This one property is currently assessed at $100,000. A developer proposes to develop this one property and build a new store. After they complete the project the new value on the property adds an additional $900,000 to the assessed value. This makes the assessed value on the newly developed property now worth $1,000,000. Who gets the taxes from the newly developed property? All the taxing entities (village, school, county, state, MMSD, etc.) would continue to receive taxes as if the property were assessed at $100,000. This is called the "tax base".
The new taxes that created an additional $900,000 in assessed value would stay within the TID. This is called the "increment". What does the municipality do with this new "increment" tax? The municipality can use the money to make additional improvements within the TID or it can help the developer. If the developer requests funding to help them complete the project, then state law allows a municipality to help developers using this new "increment" tax. The developer must sufficiently prove they would not be able to complete the project without TIF help because of higher than normal project costs. The state calls this the "but-for test". This new development would not occur ’but-for’ the use of TIF. The municipality then uses the new "increment" tax to help the developer over the course of the life of the TID. The maximum statutory life of a TID is 27 years. The "tax base" taxes would continue to go to all the taxing entities.