Cape Gazette

Dewey bars challenge Chancery Court ruling

Attorney: Town will take advantage of taxing power
By Kara Nuzback | Dec 31, 2013
Photo by: Kara Nuzback Highway One businesses, including the Rusty Rudder, are challenging a Chancery Court decision that allows Dewey Beach to tax its businesses.

Dewey Beach — Highway One businesses are challenging a court ruling that allows Dewey Beach to tax its businesses.

Earlier this month, a Chancery Court judge ruled Dewey Beach Town Council has the power to impose any tax that is not specifically prohibited in the charter.  Highway One Partnership is asking the judge to reconsider, arguing the broad taxing power implied by the ruling would allow town council to charge fees that far exceed the cost of regulation.

Last year, several bars and restaurants belonging to the Highway One Partnership, including Rusty Rudder, Bottle and Cork and Jimmy’s Grille, filed a class-action complaint in Delaware Chancery Court against Dewey Beach and its commissioners, saying business license fees should be considered a tax, and the town charter does not authorize a tax on businesses.

In a June 28 response, the town argued the “all-powers clause” in the town charter gives town council the power to tax. In a June 28 response, Wilmington attorney William Manning, representing the town, asked the court to dismiss Highway One’s complaint for failing to state a claim.

In a Dec. 17 decision, Vice Chancellor Sam Glasscock, siding with the town, dismissed the complaint, and said the charter clearly grants the town broad taxing authority.

Highway One attorney Stephen Spence filed a motion to amend the complaint Dec. 23, saying the court’s decision means business license fees cannot be contested in court.

Spence said business license fees are unreasonable because they exceed the cost of regulating businesses.  If the court denies the motion to amend the complaint, Spence wrote, the town could charge whatever it wanted for all regulatory fees, including business licenses, dog licenses and building permits, by renaming the fee a tax.

“Under this rule, the town can utilize a bait-and-switch maneuver…when the town is questioned about the level of its fees, the town discards the fees’ regulatory guise, allowing the fees to shape-shift into a tax and avoid any challenge,” Spence wrote.

If the motion to amend were denied, Spence argued, Glasscock’s opinion would be the only law on the town’s taxing power and would lead to absurd results.  “What if the permit percent was changed from 3 percent to 30 percent of the total construction cost, and the minimum fee went from $50 to $5,000?” Spence asked.

In his ruling, Glasscock also said a change to Dewey Beach’s charter would have to come through legislation, not a court ruling.

In his motion to amend the complaint, Spence argued Dewey Beach businesses have no vote in town elections, but because the town has no property tax, it relies on visitors and businesses to fund its operating budget.  “Consequently, nonvoting Dewey stakeholders have only the courts to look to when aggrieved by the town’s actions,” he wrote.

The initial lawsuit was filed while town council was considering a proposal to tax gross receipts on businesses in town.

Town council tabled the proposal in July, opting instead to allow businesses to work with the town manager to come up with a new revenue source to help fund town operations.

Dewey Business Partnership, which includes Highway One businesses, is scheduled to discuss how each entity in town can share the revenue burden fairly at a Dewey Beach Town Council meeting Saturday, Jan. 11, at Dewey Beach Life Saving Station on Dagsworthy Avenue.

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