Delaware’s Court of Chancery heard arguments in a trial challenging tax bill changes made to address property reassessment concerns in New Castle County.
A coalition of landlords and property associations sued the state, school boards, and New Castle County arguing the new tax bills be thrown out, and the original post reassessment tax bills from July be reinstated.
The new tax bills were created after state lawmakers passed House Bill 242 during an August special session, allowing the creation of split tax rates for residential and non-residential properties. Those new split rates sought to remedy residents shouldering a higher tax burden post-reassessment.
But plaintiff lead counsel Paul Hughes says that approach violated his clients’ rights.
“It’s unlawful because it violates HB242’s revenue neutrality requirement, it’s unlawful because it violates fundamental principles of due process, it’s unlawful because no referendum occurred, and it’s unlawful because it violates the Delaware constitution’s guarantee of uniformity in the collection of taxes." he told DPM, "and, it is deeply inequitable because who it is going to impose the highest cost on are those individuals who rent apartments, who are those that are least able to afford the massive increase in tax.”
Attorney Michael Hoffman, representing the state, says that among all the tax changes, $39 million is changing from being paid by commercial to being paid by homeowners. He argues that this means commercial businesses aren't the only ones being affected by changes.
Hughes says that changes in tax collection that will be collected by school districts must pass a referendum to do so outside of what is specifically allowed in state statute and says that none of the school districts did so under the new HB 242 provisions.
But the defense counsel argues that there was no time -just ten days from the date that HB242 passed to the date that changes needed to be submitted by districts. Mike Stafford, representing the school districts, also argues that language in the bill, specifically Section 1 which states "Notwithstanding any provision of law to the contrary", is meant to temporarily alleviate school districts of that responsibility.
Hughes rebuts that the bill being mostly silent on the matter does not mean it, in turn, allows for it.
Hughes also argues that Delaware's tax law promises uniformity in tax collection across all properties and cites Delaware's tax rules historically borrowed from that of Pennsylvania's -a state that is particularly strict about its tax uniformity clause.
Hoffman argues that Pennsylvania's strictness did not carry over to Delaware and cited a handful of Delaware Superior Court cases which aired on the side of leniency in with tax uniformity. He says that language from decisions made by those courts clearly suggest that different properties may be taxed differently: noting a particular case were courts ruled that there's a taxable difference between suburban and "built-up", or metropolitan, buildings.
Hoffman also named a specific case, Green v Sussex County from 1995, where the state superior court ruled: "The law in Delaware has been clearly established and it is that governments may classify persons and property differently for taxation so long as the classification is reasonable."
Hughes rebuts that the next line of that ruling states " The classification must not be arbitrary and capricious; it must rest on a reasonable basis; it cannot bear unequally on persons or property of the same class;" and argues that the reassessment has done just that: created differences based on arbitrary classifications and bears unequally on property of the same class.
Hughes also argues that there's a due process concern with the way HB242 has been implemented. He says that there isn't a clear and impactful way for someone who disagrees with their new assessment to go about appealing that.
The defense argued that New Castle County has implemented a way, on their website, to appeal the assessment process, and that webpage is in the same place that taxpayers would visit in order to find assessment information.
Hughes rebuts that this change was only made a result of the litigation. He also argues that, as is, New Castle County's process is not able to guarantee an impactful change.
Monday’s one-day trial lasted around 6 hours before Vice Chancellor Lori Will, who promises a decision by the end of the month. New Castle County tax bills are due Nov. 30th.
