The Montgomery County Department of Finance published the required biennial update of its development impact taxes for transportation and public school improvements on May 1. These taxes must be paid prior to the issuance of building permit(s) for a project.

Absent County Council action to the contrary, effective July 1, all transportation impact tax rates will increase by 9.47%. This increase represents the change in the Engineering-News Record's Baltimore Construction Cost Index for calendar years 2021 and 2022. Meanwhile, most school impact tax rates will increase between 40% and 70%, but the rate for multifamily high-rise units in Turnover Impact Areas will increase 129% (from $5,061 to $11,601 per unit). These increases are attributable to higher school construction costs and higher student enrollment rates based on the 2022-2023 school year.

In response to the published impact tax rate hikes, the County Council has introduced Expedited Bill No. 25-23. If passed as proposed, effective July 1, the bill would cap all biennial impact tax rate increases at 20%, including those published for this year. A public hearing on the bill is scheduled for June 13 at 1:30 pm, with a Government Operations & Fiscal Policy (GO) Committee work session to follow on June 15.

While how much impact tax rates will increase is in flux, developers and property owners may still take advantage of the current lower impact tax rates, as follows:

• For building permits issued by Montgomery County, the applicable impact tax rate is the rate in effect when the building permit application and plans are submitted. Therefore, building permit application and plans submitted and screened by the county’s Department of Permitting Services (DPS) prior to July 1 will be subject to the current, lower impact tax rates. Applicants wishing to take advantage of these rates should make that known to DPS when they file to avoid processing delays.
• For building permits issued by a municipality (i.e. City of Rockville and City of Gaithersburg), the applicable impact tax rate is the rate in effect before the municipality issues the building permit. This means that impact taxes must be paid prior to July 1 in order to take advantage of the current lower impact tax rates.

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