High Court Denies Ocean City’s Tax Differential Appeal

High Court Denies Ocean City’s Tax Differential Appeal
File photo of north Ocean City by Chris Parypa

OCEAN CITY — Maryland’s highest court denied Ocean City’s appeal in its long-standing dispute with Worcester County over the tax differential issue.

In January 2019, after years of veiled threats over the tax differential, or tax setoff, Ocean City filed a petition for declaratory judgment against Worcester County on the long-standing matter. In its simplest terms, tax differential may be granted by a county to a municipality within its borders for services such as police, fire, recreation and tourism, for example, that are duplicated by both governmental entities.

For example, Ocean City residents pay the same property tax rate as property owners in the county at-large, while their municipal property taxes pay for services and programs the county does not have to provide. Worcester County does provide annual discretionary grants to Ocean City to offset the cost of services and programs, along with recent grants specifically earmarked to offset fire and ambulance service to unincorporated West Ocean City.

There has been a détente of sorts in recent years with the county grant funding to the resort increasing. However, in 2019, after Ocean City took the county to court, the Worcester County Circuit Court first granted the county’s motion for summary judgment, denying the town’s request for a mandated tax setoff from the county.

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.

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Other counties are declared “may” counties, in which tax set-offs to the municipalities are optional. The town of Ocean City argued the designation of some jurisdictions as “shall” counties and others as “may” counties was unconstitutional. On that issue, the judge ruled in favor of Worcester County and with the issuance of an order granting the county’s motion for summary judgment effectively closed the case at the circuit court level.

The town then appealed the case to the state’s Court of Special Appeals, which followed suit and upheld the circuit court’s opinion in the case. The town’s tax differential case was then taken up by the Maryland Court of Appeals, the highest court in the state. This week, the Court of Appeals issued an opinion upholding the previous opinions.

“This case involves a long-standing dispute between a municipality seeking tax setoffs and a county that has always refused to grant them, preferring instead to provide discretionary funding to the municipality,” the opinion reads. “Against the backdrop of a constitutional amendment providing for home rule by municipalities passed by the General Assembly in 1954, Ocean City argues that all municipalities must be treated equally under the law of Maryland.”

The Court of Appeals opinion released this week also illustrates the county’s position.

“Worcester County, citing to the tax-property article asserts that while certain counties are required to grant tax setoffs to municipalities within their borders under circumstances defined by the statute, other counties including Worcester County retain the discretionary ability to do so under the same circumstances,” the opinion reads.

The high court’s opinion points out the discretionary grant funding the county provides Ocean City each year.

“All of Ocean City requests have faced the same fate,” the opinion reads. “They have been repeatedly denied by Worcester County. In lieu of granting Ocean City requested tax setoffs, Worcester County has provided discretionary funding to Ocean City in the form of annual grants. Since 2009, there grants have amounted to between $4 million and $5 million per year to assist in funding Ocean City ambulance and fire services, tourism and other city services.”

The opinion points out granting a substantial tax setoff to Ocean City would have the domino effect of raising property taxes in the county at-large.

“It is clear that requiring Worcester County to grant Ocean City or its taxpayers a setoff will significantly impact people outside of Ocean City,” the opinion reads. “Specifically, doing so would result in higher tax rates for property owners who reside in Worcester County, but not Ocean City. Ocean City even conceded as much in its pleadings before the circuit court.”

The opinion discounts the notion that tax differential, or tax setoffs, are purely a municipal issue.

“Although Ocean City argues that an issue need not be of purely municipal concern to fall within the meaning of the tax-property article, such a conclusion is not borne by our case law,” the opinion reads. “Ocean City’s suggested standard for determining whether an issue relates to municipal affairs reaches far too broadly.”

The county issued a statement this week after the ruling.

“In recent years, the Worcester County government and Ocean City officials have been working cooperatively to reach an equitable funding agreement that benefits the town without negatively impacting taxpayers who reside outside of the corporate limits of the town,” the release reads.

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.