OC Seeks Tax Differential

OCEAN CITY – The tax differential discussion resurfaced at Tuesday’s work session of the Mayor and Council, resulting in the agreement once again that Ocean City be compensated for the duplicated services that it provides.

Tax differential is the money a municipality spends on a service that the county will not then have to provide. In Ocean City, there are numerous services that taxpayers pay the county for, but in reality received the service from the city, not the county. Officials say that the savings for the county is essentially doubled because it receives tax revenue for providing the service but doesn’t have to spend the money on labor and equipment that it would if it had to provide the service itself.

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Tax differential has been an on-going issue for Ocean City, with the Mayor and Council agreeing in May to make a tax differential a legislative priority.

At Tuesday’s work session, Martha Bennett, Finance Administrator, and John R. Hammond, Budget Officer in Anne Arundel County, came before the Mayor and Council to explain tax differential and its potential effects on Ocean City as a municipality.

Bennett explained property tax set-offs, which are meant to compensate for double taxation of municipal taxpayers. According to Bennett, a tax differential results in a lower property tax rate for municipal residents and a tax rebate is a direct payment to the municipality. These are two ways to compensate for double taxation for taxes levied to fund similar services.

Counties in Maryland are divided into two basic categories in terms of tax differential. “May” counties must provide tax relief to a municipality that provides evidence of duplicated services, while “shall” counties do not automatically have to provide tax relief even if there is evidence of duplicated services.

As a “shall” county, Worcester County is not obligated to provide tax differential to its municipalities. While “may” counties receive a tax differential or tax rebate based on cost of services, “shall” counties such as Worcester County do not. Instead, Worcester has adopted a policy to offset the amount of money spent on duplicated services with yearly grants to its four incorporated municipalities and Ocean Pines, some of which is dedicated to specific projects or services and some of which is discretionary.

The municipal grant program has been successful for the most part in placating the towns, but the cost of providing the duplicated services has outgrown the amount of money returned to the towns in the form of grants from the county.

According to Bennett, the duplicated services that result in the double taxation of municipal tax payers are, planning and zoning, Sheriff’s office, Fire Marshall, emergency services 911, roads and highways, recreation and parks, and economic development.

Hammond explained tax differentials and his experience with them in Annapolis. “The concept is really pretty simple,” he said of tax differentials.

Hammond explained the methodology used in creating tax differential in Annapolis, adding that not every county uses the same methodology.

“I think this is something we need to explore,” Mayor Rick Meehan said. “I think it’s extremely important and I think it’s fair.”

The council voted to move on the issue, asking Bennett to prepare a financial analysis of the county budget for them. They also agreed that meeting with other municipal officials in Worcester and Wicomico counties would be the next step.