Municipal taxing powers argued in court

Dewey Beach claims to have right; Highway One says no
September 13, 2013

The strength of Dewey Beach’s All Powers Clause is at issue as Delaware Chancery Court decides whether the town has the power to impose taxes even though its charter does not expressly give town leaders that power.

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

In the complaint, attorney Stephen Spence said the town treats business license fees as revenue, so the fees should be deemed a tax.  The town charter does not give its council the power to impose a tax on businesses, Spence wrote.

Business license fees are responsible for about 13 percent of the town's annual revenue, according to Town Manager Marc Appelbaum.

In a June 28 response, Dewey Beach’s attorney, William Manning, argued the business license fee is not a tax, but if it were a tax, the town charter gives officials the right to impose it under the All Powers Clause.

Both parties in the lawsuit presented their case Sept. 11 to Vice Chancellor Sam Glasscock in Georgetown's Chancery Court.  Glasscock engaged attorneys in an active discussion of the town's All Powers Clause.

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.”

Manning argued that the All Powers Clause gives Dewey Beach the right to raise taxes even though Dewey's charter does not expressly give town officials the power to do so.

“I truly believe that all powers means all powers,” Manning said. “What's ambiguous about that?”

Past Dewey Beach council action shows otherwise, said Highway One attorney Stephen Spence.

He referred to a proposed accommodations tax in 2009 that Dewey Beach council would not enact without a town referendum; proof that Dewey officials have no power to levy taxes solely through the All Powers Clause, he said.

If the All Powers Clause applied for taxing purposes, Spence said it “should be true in any context when you want to tax the people of Dewey Beach.”

Yet, taxing authority in Dewey Beach is inconsistent. Glasscock noted Dewey Beach created a realty transfer tax based on the All Powers Clause, even though the town charter does not expressly allow it.

Glasscock thanked both men for their opinions on the matter and said he would provide a written decision “as promptly as possible.”

A ruling in favor of the town, however, may not mean the end of the issue. Spence said that if Glasscock sides with Dewey Beach, he would request amending the complaint to address the discriminating nature of the current business license fee.

Leaving the courtroom, both Manning and Spence seemed pleased with the proceeding.

“He has a difficult choice to make,” Spence said, referring to Glasscock's decision.

“This case will offer guidance to all municipalities with an All Powers Clause,” Manning said.

Kara Nuzback contributed to this article.

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