OCEAN CITY – Over the past few months, tax differential has become an issue on the forefront for the Mayor and Council, resulting in numerous discussions over the issue and a contract with a financial services group in an effort to assess the real numbers involved with tax differential.
The following is a look at what a tax differential is, how it is applied throughout the State of Maryland, and the impact that a tax differential could have on Ocean City and Worcester County. The following information comes from a report from Municipal and Financial Services Group (MFSG).
Background: Property tax set-offs (tax differentials or tax rebates) are used as an effort to compensate for double taxation of municipal taxpayers that results when both the municipality and the county are providing for similar services.
For years, Ocean City has met with Worcester County in an effort to gain a tax differential of county real property taxes. While the county has been reluctant to grant a tax differential, they have instead provided a variety of grants in lieu of a tax differential. Despite this, the Town of Ocean City has maintained that a tax differential would likely outweigh the money being received in the form of grants.
In October 2007, the Town of Ocean City entered into a contract with MFSG in an effort to garner further and more in-depth data regarding tax differential.
What is it?:
A tax differential is a lower county property tax rate within the boundaries of the municipality, i.e. Ocean City. Simply stated, a tax differential results in lower property tax rates for taxpayers within certain municipalities.
A tax rebate is often used in lieu of a tax differential and is a direct payment to a municipality for providing the duplicated services or programs. A tax rebate results in direct payment to the municipality government body rather than a decreased tax rate.
“May” and “Shall” Counties”:
Allegany, Anne Arundel, Baltimore, Garrett, Harford, Howard, Montgomery and Prince George’s counties meet annually to discuss the property tax rate. If it is agreed that there is a duplication of services, then the governing body of the county “shall” impose a tax differential.
The remaining counties, including Worcester County, “may” impose a tax differential if the municipality performs services in lieu of similar county services.
All counties are also given the option to use tax rebate in lieu of a tax differential.
Duplicated services in Ocean City:
The duplicated services for Ocean City include services and programs offered by the Worcester County Tourism Department, Department of Public Works, Department of Recreation and Parks, Department of Emergency Services, Fire Marshal’s Office, Department of Comprehensive Planning, approximately 90 percent of the Department of Development Review and Permitting, approximately 80 percent of the Sheriff’s Office, 50 percent of the Department of Environmental Programs and 5 percent of Debt Service.
What the other counties are doing:
In the fiscal year 2006, 17 of the 23 counties in Maryland had property tax set-offs within their respected jurisdictions. Of the six remaining counties, (Baltimore, Harford, Queen Anne’s, Wicomico and Worcester) neither Baltimore nor Harford have municipalities. Queen Anne’s, Wicomico and Worcester County are the only counties in Maryland that provide no property tax set-offs for their municipalities.
Seven counties; Allegany, Anne Arundel, Calvert, Caroline, Charles, Garrett and Talbot counties, provided $22 million in tax differential for their municipalities in FY06.
Eight counties; Carroll, Cecil, Dorchester, Frederick, Kent, Montgomery, St. Mary’s and Washington, provided $16.9 million in tax rebates to their municipalities in FY06.
Two counties, Prince George’s and Harford, provided tax differential and tax rebate, totaling $14.3 million and $5.6 million respectively.
Ocean City and Worcester County:
According to the report by MFSG, “the level of property tax revenue that Ocean City contributes to Worcester County as a result of the City’s very large assessable base is unique in Maryland.”
In the Fiscal Year ‘07, Ocean City contributed $71,103,966 in local property tax to the county, which accounted for 60 percent of the total local county property tax collected, and 40 percent of the total county revenue to be collected.
The Worcester County assessable base totaled $16,418,513,719, which is larger than several other Maryland Counties that maintain far larger populations. Worcester County’s assessable base is larger than the combined assessable base of Dorchester, Wicomico, Kent, Somerset, and Caroline counties. Ocean City’s assessable base totaled $10,157,513,719, which by itself is comparable in size to Carroll County and Charles County.
According to the report, “Worcester Counties relatively large assessable base has had a tremendous impact on the counties willingness to tax itself for the services it provides for its citizens and its reluctance to consider a tax differential for the Town of Ocean City.”
The real property assessments of Ocean City account for 61.9 percent of the county’s total assessments.