County Seeks Tax Differential Lawsuit Dismissal

County Seeks Tax Differential Lawsuit Dismissal

SNOW HILL – Citing the millions in grants provided to the resort each year, attorneys for the Worcester County Commissioners late last week filed a motion to dismiss the civil suit filed earlier this year by the Town of Ocean City over the long-standing tax differential issue.

In January, after years of veiled threats, Ocean City filed a petition for declaratory judgment against Worcester County seeking judicial relief on the tax differential stalemate. In simplest terms, tax differential, or a tax setoff, may be granted by a county to a municipality for services and programs duplicated by the two jurisdictions.

Last Friday, attorneys for the Worcester County Commissioners filed a motion to dismiss the case or, in the alternative, enter summary judgment in favor of the county. While Ocean City is asserting the town is owed tax differential, or a tax setoff, because of the services and programs the municipality provides to its residents and visitors, services the county would otherwise have to provide, Worcester County contends the unrestricted grants it provides to the town each year satisfies the cost of duplicated services.

The motion to dismiss the suit filed late last week “hereby requests that this honorable court dismiss this action because this action is not ripe or, in the alternative, enter summary judgment in favor of the defendants as there is no genuine dispute or material fact and defendant is entitled to judgment as a matter of law.”

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 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 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.

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 counties 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 in January by Ocean City seeks a judicial opinion on the constitutional validity of the existing state law regarding tax differential.

However, in the motion to dismiss filed last week, the county contends the unrestricted grants provided to Ocean City each year during the budget process more than offset the tax differential request by the town.

“This court should dismiss this action because it is not ripe as Worcester County does in fact issue substantial monetary grants to Ocean City to aid the municipality in funding its programs and services,” the memorandum in support of the motion to dismiss reads. “In the alternative, this court should grant summary judgment to the defendants and declare Worcester County is not required to provide any tax differential to Ocean City or tax rebate to its taxpayers.”

The county’s motion to dismiss then goes on to enumerate the grant amounts provided to Ocean City in recent years.

“The plaintiffs contend that Worcester County should be required to grant Ocean City a tax setoff,” the memorandum reads. “They concede, however, that Worcester County actually gives grants to the town of Ocean City in the annual amount of approximately $2 million. In fact, Worcester County has consistently issued Ocean City large annual grants in amounts far greater than $2 million. In fiscal years 2017 and 2016, Ocean City received over $5 million in grants and Ocean City has consistently received well over $4 million since fiscal year 2009.”

However, Ocean City continues to contend the annual grants from the county do not come close to the actual cost of duplicated services the resort provides to its residents and visitors, services the county would otherwise have to provide. In 2013, an independent study commissioned by the town of Ocean City determined the estimated cost of duplicated services for Ocean City residents totaled around $17 million.

In the meantime, an independent study on the issue commissioned by Worcester County did not reveal a gap in the cost of duplicated services at that $17 million level, but perhaps for the first time acknowledged what resort officials have been seeking for decades. The county’s independent study suggested a tax set-off for Ocean City taxpayers. The county’s property tax rate is 77 cents per $100 of assessed value. Worcester’s own independent study suggests based on the level of duplicated services, the county property tax rate for Ocean City residents should be more like 74 cents per $100 of assessed value, while the rate for property owners in the county at-large should be more like 82 cents.

Nonetheless, with the tax differential issue now in Worcester County Circuit Court after decades of debate, the county is seeking to dismiss the suit and stay with the unrestricted grant policy it has applied for years.

“A tax setoff is defined by the Tax Property Article as either a reduced property tax rate or a payment to a municipal corporation to aid the municipal corporation in funding services or programs that are similar to county services or programs,” the memorandum reads. “That is precisely what Worcester County provides to Ocean City. Accordingly, Worcester County has satisfied the article even if it is not subject to its provisions and, therefore, there is no actual justiciable controversy for this court to resolve and this action for declaratory relief should be dismissed.”

About The Author: Shawn Soper

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Shawn Soper has been with The Dispatch since 2000. He began as a staff writer covering various local government beats and general stories. His current positions include managing editor and sports editor. Growing up in Baltimore before moving to Ocean City full time three decades ago, Soper graduated from Loch Raven High School in 1981 and from Towson University in 1985 with degrees in mass communications with a journalism concentration and history.