OCEAN CITY — After years of veiled threats, the Town of Ocean City last week filed suit in Circuit Court against Worcester County seeking a judicial opinion on the long-standing issue of tax differential.
Last Tuesday, the Ocean City Mayor and Council filed a petition for declaratory judgment against Worcester County seeking judicial relief on the long-standing tax differential issue. Also named as plaintiffs in the suit was Mayor Rick Meehan and each of the Ocean City councilmembers and their spouses where applicable. Named as defendants in the suit are each of the Worcester County Commissioners.
The complaint seeks declaratory judgment from the Worcester County Circuit Court on tax differential once and for all after years of political sparring over the issue. Each year, Ocean City seeks tax relief in the form of a set-off for services duplicated by the two jurisdictions and essentially paid for twice by resort taxpayers.
For years, Ocean City has requested tax differential from the county in the form of a tax set-off or a county tax rate for property owners in the resort different from the tax rate paid by residents in the county at-large. The reasoning is the property owners in Ocean City already pay taxes to support certain services and programs such as police and emergency services, recreation and parks and public works, for example, services which the county does not necessarily need to provide in the resort.
For years, the request has consistently been denied. Instead, the county makes unrestricted grants to the resort for a variety of uses in an attempt to offset the cost of tax differential. In recent years, there has appeared to be a détente of sorts on the long-standing and often contentious rift with the county at least acknowledging the issue. However, when budget time rolls around and the issue comes to the fore again, Worcester County has balked and reverted back to the grant program. Unsatisfied with that solution, Ocean City officials in recent years have threatened legal action to resolve the tax differential. With the filing of the petition for declaratory judgment last week in Worcester County Circuit Court, the Mayor and Council have now followed through on it.
“This action seeks to require Worcester County to provide either a reduced tax rate, or tax differential, to the taxpayers of Ocean City or a tax rebate to the Town of Ocean City to account for the fact that both Worcester County and the town of Ocean City impose taxes on property owners and taxpayers of Ocean City for the same services and programs, even though it is only the town, not the county, which provided those services and programs to the town’s taxpayers,” the complaint reads.
At the heart of the issue is a portion of the state law under the Municipal Home Rule Amendment of the Maryland Constitution that designates some county’s in Maryland as “shall” counties, which require those counties to provide tax set-offs for services provided or duplicated by its municipalities. Other counties are declared “may” counties, in which tax set-offs to the municipalities are optional.
Worcester County falls under the latter group. The suit filed last week by the Town of Ocean City seeks a judicial opinion on the constitutional validity of the existing state law regarding tax differential.
“More specifically, this action seeks a declaratory judgment that certain portions of those public laws are unconstitutional under the Municipal Home Rule Amendment to the Constitution and that unconstitutional portions of those statutes should be severed,” the complaint reads. “The surviving portion of those statutes should be enforced to the end that Worcester County be required to provide a tax differential to the town’s taxpayers or a tax rebate to the town.”
In 2013, the Mayor and Council commissioned a study that identified roughly $17 million in duplicated services provided by the resort. In 2016, the County Commissioners funded their own tax differential study that determined resort taxpayers were indeed paying more than their fair share for duplicated services. The county’s study concluded the county property tax rate for Ocean City residents should be around 74 cents per $100 of assessed value, while the rate for property owners in the county at-large should be around 82 cents.
While the difference between the studies are significant, the county’s study at least acknowledges there is some merit to the resort’s annual tax differential request.
“While Worcester County has historically made modest grants to the Town of Ocean City, purportedly for this purpose, those amounts are far less than the amount of any reasonable tax differentials or rebates to which the town of Ocean City and its taxpayers would otherwise be entitled if the town and its taxpayers were to be fairly compensated for the services and programs the town provides to its real property owners which would otherwise be provided by the county, but for which the town’s taxpayers nonetheless pay the county,” the complaint reads.