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Impact fees, things to know about

Last year we heard the news from Winnipeg where the impact fee the case eventually got its decision and the Queen's Court of Justice overruled it. Local authorities will still impose the impact fee for upgrading police, fire and other municipal services. That said, there's been quite a buzz on the internet regarding what an impact tax is and why it's buzzing. If you haven't participated in a while, here's what you need to know about impact fees.

SummaryThe Impact FeeHow does the Impact Fee work?Impact Fee vs Replacement FeeThe Takeaway

Impact fees

So here is the thing, the local government can charge a certain amount for the ongoing development project in the city by the local developers from the municipalities. North American states such as Manitoba in Canada and states in the Americas such as Minster, Texas and Carolina charged a share of the project cost to the city. The purpose of the impact levy is to reduce the burden of the project cost on local city authorities who will work to improve and develop new essential infrastructure to be developed for a growing population.

How do impact fees work?

Like the property tax, the impact fee is charged only once and is implemented by the local government and the property developer in accordance with the development plan. It has also proven to be an excellent alternative to the tax increase for the development of new infrastructure. If there is a new utility required for the area, there may be an assessment fee, but people living in the area and property owners often find that the fee is paid by the developer instead of seeing their taxes increase. This is the scenario where, instead of taxpayers, developers will be forced to pay the tax and cover the cost of the project, either a mandatory infrastructure project for the existing area of ​​the city or developing new suburbs for the growing population of the city.

However, sometimes developers are not happy with impact fees because they find that the overall cost of the project has increased, especially when the project is significantly large. However, the researcher also found that these fees are more effective for municipal projects rather than raising taxes. They help increase revenue relative to property taxes since property taxes are often insufficient to provide sufficient funding for municipal needs.

Impact-costs-compared-to-replacement costs

There has been confusion regarding impact fees and venue fees. What you don't know is that impact fees have started to practice environmental law as a replacement for location fees.

Under environmental law, replacement costs are paid by developers to construct alternatively required infrastructure, such as stormwater ponds or other items requiring environmental damage. For example, replacement fees will be paid when it is necessary to create new infrastructure on the ground so that new wetlands can be created. The type of royalty was limited to large-scale projects that were going to be launched on the land and the developers should have the possibility to build the required infrastructure on this site.

On the other hand, the impact will have to be paid on any new project, which will be launched in the area, this includes single-family homes, commercial development and apartments, and finance a wider range of infrastructure. This is why urban planners often favor the impact fee.

The take-out

This is a good alternative to increasing the property tax. However, it should be noted that there should be an alternative to complete the project by the city developer without increasing the overall cost rather than implementing the impact fee.