Beginning July 1, new development in Philadelphia may be subject to the so-called Construction Impact Tax (the Tax), as outlined in Bill No. 180351 (the Bill). The Bill was formally introduced at the Philadelphia City Council meeting held on April 12, but has yet to be voted on.
If the Bill is ultimately enacted, a large portion of new construction in Philadelphia will be impacted. New construction subject to the Tax would entail ground-up development, as well as improvements to existing structures, including any “repairs, constructions, or reconstruction, including additions and alterations.” Only structures meant for “human occupancy” will be taxed, including residential, commercial and industrial structures, so some structures (e.g., signs, fences) will escape the Tax.
The amount of the Tax is equal to 1 percent of actual construction or improvement costs, payable by the property owner upon issuance of a building permit. No building permit will be issued until the Tax is paid. If the taxpayer does not know the actual construction costs when applying for the building permit, then a certified best estimate must be submitted. If construction costs deviate from the estimate provided, the taxpayer will pay additional taxes at a later date or receive a refund.
The proceeds generated from the Tax will be deposited into the Philadelphia Housing Trust Fund (the Fund) and used to assist low-income Philadelphians in purchasing affordable housing and constructing new affordable housing units.
How the Bill will compliment, or perhaps replace, another affordable housing bill pending before City Council is yet to be seen. Bill No. 170678 is currently causing a great deal of controversy because, if enacted, it would require developers of residential projects containing more than 10 units to either pay into the Fund or designate 10 percent of their units as affordable units. Whether the Tax will replace the framework proposed under Bill No. 170678, or be an addition to that framework, will hopefully become clearer in the coming weeks. In the meantime, lively debate on the merits of the Tax, and its effect on future development throughout Philadelphia, will surely abound.