Are 'crash taxes' working for the cities that have tried them?

With many cities around New York and across the country feeling a budget crunch, city governments are trying out creative new fees and taxes designed to increase revenue. Imposing a "crash tax" or an "accident response fee" are some of the most controversial methods that have been tried.

A crash tax is a charge that is assessed on people involved in a motor vehicle accident, which is meant to cover the expenses of fire and rescue responses to accidents. Proponents of crash taxes believe it is a good idea to take in money for something that local governments are required to do anyway. They have made the idea of a crash tax more appealing to residents by only charging non-residents with the crash tax.

The costs of the crash tax vary by location and by type of accident. Costs can range from $300 for basic response fees and can escalate to $2,500 in some locations. Additionally, some cities charge an "environmental cleanup charge." New York City and cities in 25 other states have introduced crash taxes over the objections of motorists and insurance groups.

However, the cities that have implemented crash taxes are finding that they are not generating the expected revenue. Typically, a crash tax is administered by a third party contractor. The contractors send a bill to the driver's insurance carrier, but many insurance companies are refusing to pay because crash taxes are not included in most policies. Most car insurance policies only cover personal injuries and property damage; they do not include coverage for crash taxes.

Many first responders dislike the crash taxes as well. These taxes added increased time spent at accidents collecting personal information. This led to times spent at individual accidents lengthening and it hurt overall accident response time. The public outcry coupled with the lack of revenue has caused several cities to repeal their crash taxes. Many other cities are now considering a similar repeal.

Source: NPR, "'Crash Tax' More Bust Than Boom For Many Cities," Ina Jaffe, 3/8/2011

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