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Judge rules outdated Delaware tax assessments unconstitutional

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A Delaware Court of Chancery judge ruled Friday that the state’s tax assessment system was unconstitutional. PHOTO COURTESY OF AMERICAN ADVISORS GROUP/CC

WILMINGTON – A Delaware Court of Chancery judge ruled Friday that the state’s use of long-outdated metrics in determining property tax assessments was unconstitutional and directed the parties to begin deliberations on how to rectify the system.

Delaware is one of just a handful of states that does not require periodic reassessments of properties and therefore enjoys some of the nation’s lowest property tax rates.

New Castle County has not adjusted its property tax valuations since 1983, while Kent and Sussex counties have not adjusted theirs since 1987 and 1974, respectively. Each of the counties calculates its “base year” from those dates on which to base its assessments.

That valuation doesn’t account for the widely varied changes in condition and development over the three or four decades, however, leaving wide disparities in how much individual property owners pay each year. Making matters more confusing, Kent and Sussex counties don’t even use full base-year valuations in their assessments, calculating 60% and 50%, respectively.

The case was brought by the NAACP Delaware State Conference of Branches and Delawareans for Educational Opportunity, who argued that the antiquated system deprived state public schools of needed funding. Roughly a third of school funding comes from residents’ property tax assessments, with the state and federal government funding the other two-thirds.

The city of Wilmington later joined the case as a plaintiff, contending that the system deprived the city of needed funds by using outdated assessments.

In a statement Friday, Wilmington Mayor Mike Purzycki said he “could not be any more pleased” with the court’s decision.

“I have argued unsuccessfully for years that New Castle County government should meet its obligation to conduct timely reassessments of real property. Sadly, it became clear that there was no political will to make the hard decision even after 37 years,” he said. “As mayor I found unacceptable disparities in the way our tax burden was being distributed throughout the city, with some residents paying two and three times their fair tax amount. We joined the lawsuit to secure fundamental tax fairness for our citizens with the confidence that our courts would right this wrong.”

A spokesman for New Castle County Matt Meyer, who defended the county’s system and has pointed to an example in Pennsylvania where reassessment didn’t result in higher school revenue, declined to answer whether the county may appeal the Court of Chancery decision to the Delaware Supreme Court.

“The decision is 150 pages long and came out less than two hours ago. Right now, County Executive Meyer is laser-focused on getting every county resident tested for COVID-19 and putting our county back to work,” Brian Cunningham said.

Chancellor J. Travis Laster ruled that the counties failed to comply with state law’s True Value Statute, which requires that all property subject to assessment be assessed at its true value in money. The Delaware Supreme Court has ruled that “true value in money” is tantamount to a property’s fair market value.

Secondly, Laster ruled that the system violated the Delaware Constitution’s Uniformity Clause, requiring all taxpayers to be treated the same.

“Owners whose properties have appreciated more pay a lower effective rate than owners whose properties have appreciated less. The counties’ outdated assessments conceal a reality of non-uniformity beneath a cloak of uniformity,” Laster wrote in his decision.

In an earlier decision, the court decided to separate the question of the legality of the tax system versus the remedial phase, or how to fix it if found unconstitutional. Since then the coronavirus has wreaked financial havoc on the state, resulting in record unemployment and hundreds of millions in lost revenue.

“While the effects of the pandemic do not mean that the counties can continue indefinitely to operate a local tax system that violates the Delaware Constitution and the Delaware Code, the effects of the pandemic likely will introduce additional and significant considerations for the remedial calculus, particularly regarding the timing of a remedy,” Laster wrote, noting the parties have 45 days to establish a schedule for those discussions.

Laster’s ruling Friday on the case known as In re Delaware Public Schools Litigation was just the first regarding Delaware’s tax system. A separate trial filed against state officials will be held later.

By Jacob Owens

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