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Posted June 27, 2011
Sandra Dawson

“Crash Taxes” and Their Effect on Car Insurance Rates

Car insurance rates in California are already pretty high, and they could be going up even more if local governments have their way. The reason is “crash taxes” and they are an odd way for local government to get more money by essentially doubling up their revenues.

What is a Crash Tax?

Crash taxes are charged to the party at fault for a traffic accident that requires local first responders to be on scene. For example, a city might add a charge for police and EMS units if they have to tend to injured occupants of a vehicle.

The ordinances are becoming more popular at the local level because city and town governments are running into revenue losses because they no longer receive state aid thanks to cash-strapped governments dealing with deficits in their own budgets.

Why Many People Have Complaints With Crash Taxes

Even volunteer fire departments and EMS providers have an annual budget, usually paid for by donations and the governments of areas they serve. In the case of both these and city-affiliated units, residents already pay for services in the way of local taxes and/or donations that are allocated to the budget.

A number of ordinances have been tried in cities in Kansas, California and other states, and have been defeated by residents and legislators who do not believe that a “double dip” should be necessary. In essence, they already pay for first responders, who are responsible for attending crashes. Why should they have to pay again?

Why Crash Taxes Impact Car Insurance Rates

California car insurance rates are likely to go up when municipalities institute these “recovery fees,” and already have in certain areas. It is another cost that insurers have to consider if any of their policy holders get into an accident. Considering that fees can range well in excess of $2,000, policies are likely to get much more expensive.

It's why in Utah, legislators are attempting to set a maximum cap on the amount that cities and first responder units are able to charge, and why politicians in New York City are lambasting fees of up to $500 that could be charged by the FDNY for accident responses.

While it's true that public safety organizations are on tight budgets, don't think of the crash tax as just for people who get into accidents. It will also increase car insurance rates in California and every other state where the laws are passed.