After trial, Delaware judge set to rule on New Castle property tax controversy

The expected ruling – which could result in another multimillion-dollar shift in New Castle County tax burdens – follows a one-day trial Monday that featured esoteric arguments in support of assertions of what is fair for schools and property owners.   

At issue was a lawsuit brought by a coalition of commercial landlords and hotel owners who claim that a new law allowing northern Delaware school districts to tax business properties more than residential ones “is unlawful many times over.”  

Legislators passed the law, called House Bill 242, in August in response to widespread outrage over a spike in New Castle County homeowners’ tax bills that had followed Delaware’s first property reassessment in more than 40 years.  

At the time of its passage, Democratic and Republican lawmakers alike had noted that their offices had been flooded with comments from furious homeowners.

But in arguing for the plaintiffs at the Monday trial, Paul Hughes said lawmakers erred with House Bill 242, stating it violates the Delaware constitutional requirement that government tax similarly situated people or entities in a manner that is reasonably uniform.

Hughes also claimed that New Castle County — which collects property taxes for itself, schools and municipalities — had arbitrarily deemed certain properties as commercial, and others residential. 

Hughes, a Washington, D.C.-based attorney with McDermott Will & Schulte, called it a “mass reclassification” effort that would direct millions of additional dollars to schools, and amount to another tax increase for property owners, in violation of the House Bill 242.

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In response, attorneys for New Castle County, area school districts and the state government argued to the judge – Vice Chancellor Lori Will – that Hughes’ constitutionality claims were misguided because Delaware courts have upheld a government’s ability to tax different kinds of properties at different tax rates.

During the trial, the defense team also sought to pick apart the plaintiffs examples of improperly classified properties. 

In a barb directed at his courtroom opponents, an attorney for New Castle County characterized the plaintiff’s investigations into property classifications as failed “efforts to play amateur assessor.”

With a Google Maps image projected onto a screen, the attorney, Nicholas Brannick, instead showed how some of the defense’s example properties appeared residential from a street view, but not from an overhead view.

While the defense team did acknowledge that misclassifications had happened, they said New Castle County’s error rate of less than 1% amount was acceptable. 

A 2020 ruling

Looming over the arguments on Monday was a 2020 ruling from Will’s colleague, Vice Chancellor Travis Laster, that Delaware’s property tax system then was unconstitutional.  The ruling forced Delaware’s counties reassess properties for the first time in four decades. 

In his arguments, Brannick noted that Laster cited Delaware constitutional mandate that similar properties be taxed uniformly. Still, he argued, “perfect uniformity is neither possible nor expected.” 

Banking giant JPMorgan Chase will see more than $1 million cut from its property tax bills for its downtown Wilmington office buildings under the new reassessment. | SPTOLIGHT DELAWARE PHOTO BY JACOB OWENS

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Throughout the trial, Will did not indicate whether she favored a particular side, even while probing their arguments.

At one point, she asked the attorney for the state, Michael Hoffman, why it is rational to shift the tax burden from homeowners to commercial properties that include apartment complexes that rent to lower-income people.

The question followed arguments from Hughes, who said Laster’s opinion five years ago focused on the premise that poorer people were paying too much in property taxes. Hughes extended that argument to renters of his apartment-owning clients, whom he said would bear the brunt of a tax increases through higher monthly rents.  

In response to Will’s question, Hoffman said New Castle County’s property reassessment in 2024 so dramatically shifted the tax burden to homeowners that relief for them was immediately necessary. Those new tax bills, which were sent out in July, had homeowners paying $39 million more in taxes than they had the previous year, he said.  

While the arguments Monday leaned heavily on property calculations, an attorney for northern Delaware school districts, Michael Stafford, sought to make an appeal to the judge’s morals with his opening remarks.

Stafford first referenced a comment from Hughes that taxes should target those who benefit from government services. Then he said that schools serve everyone in society. 

“They don’t turn anyone away,” he said. ”All of these kids are our children.” 

Following the arguments, Will said that she will submit a ruling in the coming days. 

She could uphold the county’s property tax system or she could declare it in violation of the state’s constitution.

She also could simply rule that New Castle County improperly increased taxes with its new commercial designations, but did not violate the Delaware Constitution.

County officials have said that a late October ruling would give them just enough time to issue new bills, and receive payments by a late-November deadline for funding schools.