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Delaware's Real Property Tax System Is Unconstitutional

May 11, 2020

In the highly anticipated decision of In re Delaware Public Schools Litigation, C.A. No. CV 2018-0029-JTL (County Track), 2020 WL 2296888 (Del. Ch. May 8, 2020), the Delaware Court of Chancery found the real property tax assessment method employed by the three Delaware counties to be in violation of Delaware law and unconstitutional. The “indefinite-base-year” assessment method used by Sussex County, Kent County, and New Castle County assesses a real estate property at the value it would have had as of the date of that county’s last general assessment, which, the court found, resulted in an unfair system by which some properties were grossly overvalued and some grossly undervalued.

It is unknown whether the counties will appeal the court’s decision to the Delaware Supreme Court. Even if there is no appeal, the court’s decision does not establish a remedy, but instead requires the parties to agree on a schedule to address how the situation will be remedied. Nor does the decision halt the current method of assessment, recognizing that the county governments and school districts depend on the continuing tax revenue.

Once there is a final, nonappealable decision on how to make Delaware’s real estate property tax system legally and constitutionally compliant, every property in the state will need to be reassessed, presumably by the counties, in what is expected to be a costly and lengthy process by which assessors would have to update values under current real estate market conditions. And, of course, that process will likely result in a large number of assessment appeals.

The Court of Chancery’s decision will eventually impact every property in Delaware subject to real estate property taxes. However, for a number of reasons, it will likely be some time before we know what that impact will be and likely even longer before property owners see changes to their tax bills.

If you have any questions, please contact a Richards, Layton & Finger real estate attorney.

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