Developers seeking to get in on the action of the biggest real estate boom Philadelphia has ever experienced may soon be facing a hurdle in the form of a new one percent tax on construction costs.
Philadelphia residents are facing a crisis regarding rising housing costs, leading the city’s elected officials to search for revenue streams to restore federal housing funds. After a stalled affordable housing bill last year, City Council introduced a Construction Impact Tax on April 12. If the legislation passes as it stands (see it here), the tax will take effect after July 1, 2018.
This new one percent tax will be levied on the estimated cost of any new construction and improvement projects and will be due at the time the building permit is issued. Ordinary upkeep and maintenance projects would not be deemed an improvement and thus not subject to the tax.
No building permit will be issued unless and until this tax is paid. Therefore, taxpayers will need to estimate the cost of the construction project at the time of the permit application. Any changes in the estimates will need to be submitted at a later time with adjusted payment of the tax. If the improvement or construction authorized by the building permit is not actually performed, the tax shall be refunded after cancellation or expiration of the building permit.
This new tax shall be paid by the owner of the real estate upon which the structure is proposed to be erected or which is proposed to be improved. Parties opposed to the pending legislation have expressed concerns that higher construction costs will result in thinning margins in an already competitive market. In turn, this could result in a slowdown of the construction boom in the Philadelphia market.
Now is the time for developers and constructions companies to evaluate the potential impact the Construction Impact Tax could have on any future Philadelphia projects and contact City Council with any concerns.
Also see the ordinance establishing the Philadelphia Housing Trust Fund here.
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