Delaware Court of Chancery Delivers Opinion on Split-Rate Property Taxes

WILMINGTON, Del. — The Delaware Court of Chancery has delivered its opinion regarding the Delaware General Assembly’s controversial move to permit split-rate property taxes, upholding the legislature’s authority to enact the law. The ruling marks a significant moment in Delaware’s ongoing debate over property taxation and its impact on residents and local governments.

In a decision released Thursday, Vice Chancellor Jane Smith wrote that the General Assembly acted within its constitutional powers when passing legislation that allows municipalities to set different tax rates for land and for buildings. The split-rate system, proponents argue, encourages development by lowering taxes on improvements while maintaining or increasing rates on land, thereby discouraging speculation and blight.

“The General Assembly possesses broad discretion in matters of taxation, so long as it does not violate constitutional guarantees of equal protection and fairness,” Smith stated in the court’s opinion. “The split-rate property tax law falls within these bounds, offering municipalities a flexible approach to local fiscal policy.”

Opponents of the law, including a coalition of property owners and advocacy groups, had challenged the measure, claiming it unfairly burdens landholders and could lead to unpredictable changes in tax bills. The court, however, found that the legislature had conducted sufficient study and public hearings before enacting the law, and that the split-rate structure does not constitute unlawful discrimination.

A Lose-Lose Proposition for Residents

The judgment is being viewed by many as a “lose-lose” proposition for county residents. If the court had ruled with the plaintiffs, taxes on homeowners would have increased, as rates reverted back to the original reassessment values prior to the General Assembly’s actions on September 12 and subsequent interventions by the school boards. However, since the judge ruled against the plaintiffs, the revised tax structure will disproportionately affect corporately-owned rental properties, leading to higher rents for many low-income families. As a result, the financial strain on renters could be significant, amplifying concerns about housing affordability in New Castle County.

As a result of the decision, New Castle County is freed to issue revised property tax invoices to all county property owners.  At this time, the bills remain due on November 30, 2025.

Legislators Call on New Castle County to Repeat the Property Reassessment Process

In the wake of today’s Delaware Chancery Court decision upholding a proposed two-tier system of property taxation, two Delaware State Representatives are calling for New Castle County to repeat its property reassessment process, maintaining the previous evaluations and tax rates in the interim.

State Reps. Kevin Hensley (Townsend, Odessa, Port Penn) and Mike Smith (R-Pike Creek Valley) say the best path forward is for New Castle County to take a “mulligan” and repeat the process. Both legislators sit on the House Special Property Reassessment Committee and have been taking part in a joint investigation of the county’s flawed outcome.

“Regardless of whether we have a one-tier or two-tier system of tax rates is kind of beside the point,” Rep. Hensley said. “The property valuations on which those taxes are based are badly flawed. For instance, at the first committee meeting, we learned that there was no differentiation between preserved farmland and farmland not in the preservation program, even though there is a huge difference between the two.”

Rep. Smith agreed that New Castle County residents have no trust in what’s been produced. “Even under the standards used by Tyler Technologies, we know that many commercial properties were severely undervalued. Some properties vanished during the process or had major components that were left unassessed. Even if we have an extended and thorough appeals process, that would only potentially correct overvalued assets. No one who owns undervalued properties will be appealing those decisions. Leaving the owners of commercial properties to pay less than their fair share means homeowners will collectively pay more. No one should find that acceptable.”

State House Minority Whip Jeff Spiegelman (R-Townsend, Smyrna, Clayton), who works in the commercial real estate industry, echoed the thoughts of his caucus members. “Taxation, like any government institution, is based on public faith. I’ve seen some of the commercial property valuations produced by this process and, even having insight into the market that most people lack, I can’t make the numbers work. The fact that the legislature took the extraordinary step of meeting in a special session and is now conducting a joint probe of what went wrong emphasizes what we all already know: The public has no confidence that the reassessment was done well or fairly.”

All three legislators note the county’s 2024 reassessment resulted from the settlement of a 2020 lawsuit filed by a coalition of groups. The plaintiffs successfully claimed that the lack of contemporary valuations had created disparities in public education funding. Prior to the legal action, New Castle County last conducted an assessment in 1983. Delaware’s other two counties, which were also sued and entered into separate settlements, had also not reassessed in decades.

“This reassessment was only done to address the unequal property tax burdens placed on homeowners and business owners,” Rep. Hensley said. “I would argue that the county’s latest efforts have done nothing to correct the situation. It’s just produced a different pattern of inequities.”

Rep. Smith said there is only one acceptable remedy. “We need to toss the most recent reassessment, continue the investigation, learn from the mistakes that were made, observe the best practices employed by Kent and Sussex counties, and redo this thing. In the meantime, use the old valuations and tax rates.”

Both Reps. Hensley and Smith said they would work across the aisle with other members of the House and Senate Special Property Reassessment Committees to make their proposal a reality, including the potential for the state to finance a portion of the work.

Staff Writer

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