Knowledgebase-Impact Fees, Development Taxes, and Adequate Facilities Taxes


Information Product

Title:Impact Fees, Development Taxes, and Adequate Facilities Taxes
Summary:MTAS was asked to address a question about impact fees and levying an adequate facilities tax.
Original Author:Huffer, Dennis
Co-Author:
Product Create Date:08/30/2006
Last Reviewed on::08/17/2017
Subject:Revenue sources--Fees and charges; Taxation--Municipal; Taxes
Type:Legal Opinion
Legal Opinion: Impact Fees public.doc

Reference Documents:

Text of Document: Dear Assistant City Administrator:

Your MTAS Consultant has asked me to address your question about impact fees. In my opinion, the Town has authority that pre-dates Public Chapter No. 953 of 2006 to levy impact fees. Tennessee Code Annotated, 6-2-201(15), provides the authority for these fees. Because of Chapter 953, however, your Town and other municipalities may not levy adequate facilities taxes unless those were already authorized by private act.

Impact fees and development taxes are two (2) different methods of raising revenues from new development. There are more restrictions on the use of revenues from impact fees than from development taxes. As a general matter, fees must be tied more closely to costs than taxes are. There is generally more freedom to use tax revenues than there is for fee revenues.

Chapter 953 affects both impact fees and development taxes for counties, but in my opinion does not affect impact fees for municipalities. New T.C.A. 67-4-2913 as added by Section 1 of Chapter 953 provides that:

After the effective date of this act, no county shall be authorized to enact an impact fee on development or a local real estate transfer tax by private or public act. In addition, this part shall be the exclusive authority for local governments to adopt any new or additional adequate facilities taxes on development. However, the provisions of this part shall not be construed to prevent a municipality or county from exercising any authority to levy or collect similar development taxes or impact fees granted by a private act that was in effect prior to the effective date of this act ....

Most statutes in Tennessee are poorly worded, and this one is no exception, but in my opinion, the only restriction on municipal authority is in the second sentence. Up until this point, the act used the word "county," which included counties and metropolitan governments. Here the act switches from "county" to "local governments." Municipalities are local governments and are included in this prohibition. I am told that the use of the words "local governments" was deliberate. I wrote an amendment to change this from "local governments" to "counties" but the amendment never saw the light of day. Therefore, cities and towns without a private act predating Chapter 953 cannot levy development taxes.
I don't think this language restricts municipal impact fees. The first sentence of this section restricts county impact fees. The last sentence quoted above mentions impact fees again, but in my opinion refers only to impact fees of counties that are mentioned in the first sentence since there had been no previous mention of municipal impact fees. The sentence has to mention municipalities to refer to development taxes, which some cities have levied under private act authority. The sentence also mentions only impact fees levied under private act and does not attempt to deal with impact fees levied under general law authority, as your Town's would be.

In my opinion, the Town may levy an impact fee as authorized in its general law charter, but may not levy an adequate facilities tax. But if there is discomfort with this interpretation of the legislative language, the Town might ask a legislator to request an AG opinion.

Dennis Huffer
Legal Consultant

Please remember that these legal opinions were written based on the facts of a given city at a certain time. The laws referenced in any opinion may have changed or may not be applicable to your city or circumstances.

Always consult with your city attorney or an MTAS consultant before taking any action based on information contained in this database.