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Water and sewer tap fees and system development fees

A tap fee pays the utility's cost to connect a lot to its water or sewer main. A system development fee pays for the system capacity that new development uses. North Carolina law sets how a public utility calculates the second fee and when it collects it.

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Quick summary: This guide explains the difference between a tap fee and a system development fee, what North Carolina’s Public Water and Sewer System Development Fee Act requires, and when each fee is due. It is for infill builders, lot buyers, and owners who plan a new house or a second unit. The key takeaway: the connection charges and the capacity fee are separate lines, and the utility’s adopted schedule is the only source for the amount.

What a tap fee is

A tap fee is the charge a utility makes to connect a lot to its water or sewer main. It pays for the physical work: the tap into the main, the service line, and the meter. Utilities also call it a connection, hookup, or meter installation charge.

The Orange Water and Sewer Authority’s adopted schedule shows how the pieces split. It lists a water service and meter installation charge, a water main tapping fee, and a sewer tap charge as separate items. The sewer tap charge is paid in advance, with 48 hours’ notice. The applicant opens the ditch and makes the trench safe for the utility crew.

What a system development fee is

A system development fee is a one-time charge that pays for the capacity new development uses in the water or sewer system. State law defines it as a charge on new development to fund capital improvements it makes necessary, to recoup the cost of existing facilities that serve it, or both. Plants, storage, and major mains are examples of those facilities.

The same definition excludes three kinds of charges:

  • Tap or hookup charges that reimburse the actual cost of connecting the service unit.
  • Administrative, plan review, and inspection fees for development permits.
  • Availability charges.

The definition also says a fee is a system development fee “regardless of terminology.” A capacity fee, an impact fee, or a capital facility fee falls under the same rules if it works the same way.

The short version: The tap fee pays for the pipe to your lot. The system development fee pays for your share of the plant and the mains. A lot price that counts one and not the other is short.

What the Public Water and Sewer System Development Fee Act requires

The Public Water and Sewer System Development Fee Act, Article 8 of Chapter 162A, governs every system development fee that a local government utility charges. A local government may adopt one only under the Act’s conditions. Fees in effect on October 1, 2017 had to conform by July 1, 2018.

The written analysis

Each fee must rest on a written analysis. The analysis must:

  1. Be prepared by a financial professional or a licensed professional engineer qualified in the methods.
  2. Use generally accepted methods, such as the buy-in, incremental cost or marginal cost, and combined cost methods.
  3. Calculate a fee per service unit, with a conversion table for other categories of demand.
  4. Cover a planning horizon of 5 to 20 years.
  5. Be adopted by resolution or ordinance.

A service unit is typically an equivalent residential unit, as the Act defines it.

Limits on the amount

The fee cannot exceed the amount the analysis calculates. Under the incremental cost or combined cost method, the analysis must credit the projected aggregate cost of capital improvements. That credit can be no less than 25 percent of that cost. The utility must also credit oversized connecting facilities built for others outside the development.

Public review and updates

The utility must post the analysis on its website for at least 45 days and take written comments before it considers adoption. The governing body holds a public hearing. The utility publishes the fee in its annual budget, rate plan, or ordinance, and updates the analysis at least every five years.

Revenue generally goes to a capital reserve fund and pays only for set costs, such as construction, engineering, land, and the debt on them. Courts read the Act’s powers narrowly, so that the fees do not unduly burden new development.

When the fee is due

The Act sets when the utility collects the fee, and the timing differs by the kind of development.

Development The fee is collected at
A subdivision of land The later of the building permit application or the utility’s commitment of service
Other new development The earlier of the connection application or the utility’s commitment of service

If one government issues the building permit and another charges the fee, the permit office requires proof of payment first. A fee paid at plat recordation is not charged again at the building permit, unless the capacity increases. If it increases, the utility charges only the difference.

Take action: Send the lot’s address or parcel number, and get a read on the utility that serves it and the questions to put to that utility. Start with Can the house you want fit on this lot?

How fees change on an infill lot

On an infill lot, the fee depends on what the lot had before and what you add. The Orange Water and Sewer Authority schedule shows three common cases:

  • A larger house. The single-family water fee on the standard meter rises with the house’s square footage. An addition on the existing service pays the difference between the fee before and after.
  • A teardown and rebuild. A redevelopment project that permanently abandons an existing meter can earn a credit, up to the fee the new project owes. The credit does not transfer to another property. See Demolition permit and asbestos survey before a teardown.
  • A smaller meter. If a meter is removed or replaced with a smaller one, the utility gives no refund of fees already paid.

Other utilities set other categories, so read the schedule of the utility that serves the lot. A lot split adds a new connection and a new fee. A second unit can add one too. See Lot split: can you split your lot, Accessory dwelling units in North Carolina, and How many lots is this tract, really?.

How to get the fee schedule for a lot

You get the fee schedule for a lot from the utility that serves it, in four steps.

  1. Confirm the provider. A city, a county, a water and sewer authority, or a private system may serve the lot. The street and the jurisdiction do not always match.
  2. Download the utility’s current schedule of rates, fees, and charges. Under the Act, the system development fee appears in the budget, rate plan, or ordinance.
  3. Ask the utility which meter size and service category apply to the house you plan.
  4. Ask whether the main in front of the lot has capacity, and whether an existing service line can be reused.

A will-serve letter or capacity confirmation answers the last question in writing. See What a will-serve letter is, and what it is worth and A water system nearby is not water for your project.

Where no sewer main reaches the lot, the question changes to septic. See Sewer, septic, or a package plant.

Who answers the fee question

The utility answers the fee question from its adopted schedule. Its development or new service staff confirm the category, the meter size, and any credit for an existing connection.

A licensed plumbing contractor or site contractor prices the private side, such as the trench and the service line on the lot. A professional engineer sizes larger services. The public record shows the provider’s adopted schedule and the posted fee analysis. It does not show the condition of an old service line or the capacity of the main at the lot.

Key recap

  • A tap fee pays for the physical connection. A system development fee pays for system capacity. They are separate charges.
  • The Public Water and Sewer System Development Fee Act, Article 8 of Chapter 162A, governs every system development fee that a local government utility charges, whatever it is called.
  • The fee must rest on a written analysis by a financial professional or professional engineer, posted for 45 days and updated at least every five years.
  • For a subdivision, the fee is due at the later of the building permit application or the utility’s commitment of service.
  • On an infill lot, additions, teardowns, and meter size change the fee. The utility’s adopted schedule is the only source for the amount.

Questions

What is a sewer tap fee?

A sewer tap fee is the utility’s charge to connect a private sewer line to its sewer main. It pays for the connection work. The system development fee for sewer capacity is usually a separate charge.

Is a system development fee the same as an impact fee?

Under North Carolina law, any charge on new development that pays for water or sewer capital capacity is a system development fee, regardless of its name. The Public Water and Sewer System Development Fee Act governs it.

Who pays the tap fee, the builder or the lot buyer?

The contract decides. The fee is due when the Act or the utility’s schedule says it is due, often at the building permit or the connection application. Ask a North Carolina real estate attorney to address it in the purchase agreement.

References

Primary sources cited on this page, in APA style.

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