Dewey Beach has the power to levy a tax on businesses, a Chancery Court judge has ruled.
In a Dec. 17 decision, Vice Chancellor Sam Glasscock wrote, “…the town of Dewey Beach has the authority to levy a business license tax, and relief from exercise of that authority must come through the ballot, not this bench.”
Highway One businesses, including Rusty Rudder, Bottle and Cork, and Northbeach, filed a class-action complaint Feb. 26 in Delaware Chancery Court against the town of Dewey Beach, Mayor Diane Hanson, commissioners Courtney Riordan, Anna Legates and Gary Mauler, and former Commissioner Joy Howell.
In the complaint, Highway One attorney Stephen Spence argued business license fees, which are imposed annually, are used to fund town operations and thus should be deemed a tax.
“The town’s charter, as enacted by the General Assembly, does not authorize the imposition and collection of a tax on businesses,” Spence wrote.
He also said the town’s method for calculating business license fees for restaurants - $273 base fee plus $6 per person allowed in the establishment by the Fire Marshal’s Office - qualifies the fee as a property tax, which can only be imposed by referendum.
In a June 28 response, Wilmington attorney William Manning, representing the town, said certain types of taxes, such as a property tax, are specifically prohibited in the charter; a tax on businesses is not specifically prohibited.
Manning said the All Powers Clause in the town charter gives town council the power to tax, and he asked the court to dismiss Highway One’s complaint for failing to state a claim.
According to the charter, “All powers of the town of Dewey Beach, whether expressed or implied, shall be exercised as prescribed by this charter; or if not prescribed herein, by ordinance or resolution of the commissioners.”
Glasscock ruled, “Such powers include the power to tax.”
The judge also said no referendum was necessary to impose the business license fees. He wrote, “…The tax is not rendered on personal or real property, or the value thereof, but on the grant of a right to conduct business or pursue an occupation.”
In his conclusion, Glasscock said the charter clearly grants the town broad taxing authority.
Highway One has 30 days to file an appeal of Glasscock’s decision.
The initial lawsuit was filed amidst discussions of whether town officials should impose a gross receipts tax on businesses in town. The proposal was spearheaded by the town budget and finance committee, which argued town expenses surpassed revenues, and commercial businesses contributed less money than other sectors 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.
So far, no alternative proposals to the gross receipts tax have been presented to the public.
Town Manager Marc Appelbaum said he is pleased with Glasscock’s decision to dismiss the lawsuit, and he plans to discuss its implications with town officials.
Appelbaum said town finances are currently under control. “The town beat its budget by $200,000 last year,” he said. “The town is confident it will hit its budget this year.”
Appelbaum said he would begin drafting the budget for next fiscal year in January, and he would accept input from the community.
Neither Spence nor Highway One partner Alex Pires could be reached at press time.