OCEAN CITY — The Maryland Court of Special Appeals this week ruled in favor of Worcester County in the long-standing dispute with Ocean City over the tax differential issue, effectively ending one of the town’s last legal remedies.
In January 2018, after years of veiled threats, the town of Ocean City and the majority of its elected officials filed a petition for declaratory judgment against Worcester County seeking judicial relief on the long-standing tax differential issue. A tax differential, or a tax setoff, may be granted by a county to a municipality for services and programs duplicated by the two jurisdictions.
A Worcester County Circuit Court judge ruled in favor of the county on the most salient aspect of the suit. 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 the state as “shall” counties, which require those counties to provide tax setoffs for services provided or duplicated by its municipalities.
Other counties, including Worcester, are designated as “may” counties, meaning the granting of tax setoffs is optional. Ocean City argued the distinction between “shall” counties and “may” counties is unconstitutional. The Worcester County Circuit Court disagreed, and the state’s Court of Special Appeals later upheld the lower court’s ruling.
Ocean City then attempted to get the case in front of the higher Court of Appeals to no avail. The suit then went back to the Court of Special Appeals, which this week issued yet another opinion the distinction between “shall” counties and “may” counties is constitutional.
“Ocean City is located in Worcester County, one of the counties in the second category that may, but is not required to, give municipal residents a tax setoff,” the opinion reads. “For at least the last several years, Worcester County has, however, refused to give Ocean City a tax setoff. To avoid this outcome, Ocean City challenges the constitutionality of these tax setoff laws pursuant to Article XI-E of the Maryland Constitution, which broadly compels the General Assembly to treat municipalities uniformly. For the reasons that follow, we hold that because the tax setoff laws do not relate exclusively to local affairs, they do not violate the uniformity requirement of Article XI-E.”
The appeals court opinion lays out the tax setoff, or tax differential, issue in its simplest terms.
“Taxpayers in Ocean City pay property taxes to both Ocean City and Worcester County, but receive governmental services mostly from Ocean City,” the opinion reads. “To compensate its taxpayers for this tax differential, Ocean City sought a tax setoff from Worcester County. Worcester County declined.”
The Court of Special Appeals opinion lays out a significant amount of case law on the home rule issue. Essentially, the appeals court ruled because a tax setoff for Ocean City would have a detrimental effect on taxpayers in Worcester County outside of the municipality, it cannot simply be a local issue, but rather, must be decided by the state.
“If the effect of local rules or municipal control is not great upon people outside the home-rule city, the matter is apt to be deemed local,” the opinion reads. “On the contrary, if the effect of the regulation or the administration of a particular matter is likely to be felt by a considerable number of people outside the city and in a rather strong degree, courts are probably going to conclude that the concern is for the state.”
For various reasons, the Court of Special Appeals deemed the distinction between shall counties and may counties to be constitutional.
“Ocean City’s view is that the tax setoff laws are unconstitutional because they treat different municipalities differently on the basis of the county in which they are located,” the opinion reads.
The appeals court ruled Ocean City’s dispute with Worcester County cannot be simply deemed a local matter.
“As a simple matter of math, that outcome compels the conclusion that this cannot be purely a local matter,” the opinion reads. “If Worcester County is required to grant tax setoffs to Ocean City, either as a rebate to the Ocean City taxpayers or a subsidy to Ocean City’s government, property owners in Worcester County outside of Ocean City would necessarily have to pay more.”
Indeed, one formula included in the appeals court opinion outlines just how much a tax setoff for Ocean City would affect residents in the county at-large. For example, the county tax rate for Ocean City residents would be 64 cents per $100 of assessed value, representing a tax cut of six cents. However, the property tax rate for the rest of Worcester County would have to go to 86 cents per $100 of assessed value in order to offset the discount to Ocean City residents.
“We therefore hold that the question of whether counties must or may offer tax setoffs is not purely a local affair and need not comply with the restrictions on state legislation concerning local affairs found in Article XI-E,” the opinion reads. “We affirm the judgment of the circuit court.”