Impact Fees: The Hidden Tax on Businesses and Homeownership

Growth should pay its own way say impact fee proponents. But impact fees have more impact than you think. And they can be unevenly applied.

Palm Coast, FL – April 27, 2011 – Impact fees stem from a notion that growth should pay for itself. Without a doubt, new construction brings with it demands for increased public services; roads, schools, and parks as well as fire and police protection. Why should existing taxpayers have to fund the increased costs of adding these services? But impact fees have a greater impact than you think. And they can be unevenly applied.
Impact fees grew out of the reduction in Federal and State grants to local governments and the growth of the tax revolution in the late 1970s. Originated as capital recovery fees to fund water and wastewater facilities, they quickly grew to include several non-utility facilities such as roads, schools, parks, and fire protection. Currently, over half of all states, including Florida, have passed impact fee enabling acts, primarily in the rapidly urbanizing Sunbelt and Rocky Mountain West.
Fees vary from jurisdiction to jurisdiction. In Palm Coast, FL the following impact fees were paid for a single-family residential home recently completed on Port Royal Drive.
Impact Fees: Palm Coast Single-family Homes











Necessary water and sewer connection fees added another $8,326.58, bringing the total to $17,254.65. When applying for the building permit, the builder stated a job value of $109,300, representative of a median priced home in the area (when land costs are included). In other words, the impact fees plus required water and sewer connection charges comprised about 15% of the total. There were additional fees too; for administrative charges, plan review, inspections, etc., but these other fees vary from residence to residence. Impact and water/sewer fees are the same for all single-family residential homes in Palm Coast. Impact fees are regressive. They represent only 1.7% of a million dollar home.
If it walks like a duck
Though called fees, impact and connection fees are a lawful taking of funds by a governmental entity. It is not voluntary. Pay the money or you don’t get a certificate of occupancy. I call that a tax.
Rising tide lifts all boats
Buyers will pay a premium for new construction. Existing homes sell for less than new ones, but only so much less. When impact fees artificially increase the price of a new home, the value of comparable existing homes rises as well, even those homes for which impact fees were lower or non-existent when those homes were built. Impact fees factor permanently into the pricing structure of all properties (commercial properties pay impact fees too).
The tax that keeps on taxing
By raising the cost of all structures, impact fees increase the tax base as well as the amount of financing required by buyers. Residential owners end up paying both mortgage interest and property taxes on an additional $17,254.65 in perpetuity.
The commercial impact fee structure is much more complicated. Commercial impact fees are based upon the size and type of business. Restaurants create more traffic on roads than does an accounting office so the accounting office owner (or landlord) pays a lower impact fee. If the accounting office is replaced by a restaurant, the new business pays the difference between what the accounting office paid and the current restaurant impact fee. The obverse is not true. If the change is from a restaurant to an accounting office, there is no credit issued. Hardly seems fair, does it?
Commercial businesses are not subject to school and parks impact fees, but the amounts they pay are significant. Some examples of commercial impact fees assessed recently for new Palm Coast businesses:
Palm Coast Commercial Impact Fees Paid




Olive Garden/Red Lobster



Dunkin Donut Plaza



Epic Movie Theater



Boulder Rock medical bldg



ABC Liquors Store



To Palm Coast’s credit, they are currently trying to simplify some of the impact fees and remove some inequities. The city of Bunnell has placed a 4-year moratorium on impact fees (school fees remain) to spur development.
A misleading email has been going around about a 3.8% sales tax on home sales. The tax is supposedly buried within the Obama Healthcare Bill. It’s bogus. I wrote a news story about it in September, but the email has legs.  It’s still circulating and I’m still getting emails and calls about it. That bogus story riled a lot of people but ironically, everyone is apparently OK with a 15% Impact Fee. Go figure.

6 replies
  1. Doug Colpoys
    Doug Colpoys says:

    Bloated Goverment

    Taxes,Corporate Taxes, Impact Fees, is all the result of bloated local, State and most definatly the Federal goverment. Every time someone wants to reduce or cut taxes the goverments drainers all say we’ll have to cut essential services, cut programs for kids, or they might even hint that maybe a fire or two just will not be able to be put out. DO THEY EVER CONSIDER they are grossly inefficent,they have millions of have non essential people collecting big salaries and benefits. DO THEY EVER CONSIDER what a drain on productive people they really are. It is time for accountablity at all levels. It is time for every goverment employee at local, state, and federal levels to earn there way, the producers are getting tired of carring the load.

  2. charles piligian
    charles piligian says:

    medicare tax

    Toby, you were slightly mistaken in saying that the 3.8% medicare tax on homes[as well as all unearned income} is bogus. The facts are that if the sale, and certainly properties along our coast, generates a capital gain of more than 250000 for singles and 500000 for couples, then the excess is taxed at 3.8%. In addition, any unearned income that year is also taxed that way.
    All my relatives in new england would definitey be subject to a hefty tax, because values are so much higher.

  3. Karen
    Karen says:

    Bloated government???

    People continue to bad mouth the government and how inefficient it is until some disaster happens. Then every state, individual, business who is affected, flocks to the government to help them out — and to hell with the budget. Where were the budget watchers when we went to war with Iraq? — forgetting that it had to be paid for. Where were the budget planners when all the tax cuts were put into law during Bush 11?

    Let’s see what happens after Alabama is hit by tornados. For a State that dislikes the Federal government, I bet it asks for money without a second thought to bloating the government.

    HOLLIS says:


    No where in your comments did you say anything about how the impact fees are determined. In my experience as a City Manager of a city in Central Florida that grew from 10,000 to 34,000 in 14 years, impact fees were absolutely vital in the City’s ability to prepare for and handle the impact to services that occurred. Would you have the 10,000 who already lived there pay for this impact? The fees we charged were developed from a very detailed and costly evauluation of the impact to a community of adding each home and person to the city’s demand for services.

  5. Jim Sheehan
    Jim Sheehan says:

    Holding back new construction

    The high impact fees are definitely a factor in deciding whether or not to build. Palm Coast school enrollment was down this year, roads are already in and the parks are built. How much of an impact can one more home have on them. I think the fees might be a little short-sighted. According to the National Association of Home Builders, each new home creates an average of three jobs for a year and $90,000 in taxes. At the rate of new construction right now, Palm Coast has nothing to lose by placing a moratorium on impact fees or at the very least reducing them.

  6. Rick
    Rick says:

    Impact fees

    Just read your article on impact fees. I’m looking into opening a restaurant in Orlando and I understand these fees are enormous. How can I get accurate info on what these fees should be versus what the utilities deem them to be based on their calculations of use.

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