Dewey counters Highway One lawsuit

Manning: Town is authorized to impose a tax on businesses
Dewey Beach officials are asking for dismissal of a lawsuit filed by Highway One businesses, including Jimmy's Grill and Bottle and Cork. BY KARA NUZBACK
July 11, 2013

Dewey Beach businesses say the town is charging an illegal tax in the form of a business license fee.  Town officials argue the fee is not a tax, but if it were, the town has the power to impose it.

Highway One attorney Stephen Spence filed a class action complaint, Feb. 26, in Delaware Chancery Court against the town of Dewey Beach, Mayor Diane Hanson and Commissioners Joy Howell, Courtney Riordan, Anna Legates and Gary Mauler.

All six businesses in the class, including Rusty Rudder, Bottle and Cork and Dewey Beach Liquors, are owned or managed by Highway One Partner Alex Pires, who says the partnership would prefer a property tax.

The town charter prohibits a tax on property unless it is established by referendum.

In the complaint, Spence said the town treats business license fees as revenue.  “Under well-established Delaware law, a fee that is used to generate revenue for general operations is deemed a tax,” he wrote.  “The town’s charter, as enacted by the General Assembly, does not authorize the imposition and collection of a tax on businesses.”

But Dewey Beach’s attorney says the charter does not specifically prohibit a tax on businesses.  In a June 28 response, Wilmington attorney William Manning said the complaint should be dismissed because Highway One fails to state a claim.

Manning argues the business license fee is not a tax, but if it were a tax, the town charter gives officials the right to impose it.

According to the town charter, “Dewey Beach shall have and may exercise all powers which, under the constitution of the state of Delaware, would be competent for this charter to specifically enumerate.”

In the motion, Manning said this “All Powers Clause” gives the town the power to impose a tax.  “The broad power to tax which authorizes the business license fee, even if revenues exceed costs, is subject only to any limitation on that power contained in the charter.  There are no such limitations,” Manning wrote.

Manning noted that certain types of taxes – such as a property tax – are specifically prohibited in the charter.  A tax on business licenses is not specifically prohibited.

“Thus, even if plaintiffs are correct, and the license fee about which they complain is really a tax, the town is authorized to impose such a tax, and there are no applicable restriction or limitations on such a tax,” Manning concluded.

In the initial complaint, Spence said all taxes collected from businesses since 2007 should be refunded in full with interest, attorneys’ fees and the costs of the lawsuit.  He said the six Highway One businesses have paid a total of $133,047 in business license fees since 2007; license fees for all businesses in town have totaled $1 million.

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