Sussex council discusses creating two-tier tax system

Sussex County Council discussed the possibility of creating a two-tiered property tax system during its May 6 budget workshop, one for Delaware residents and another for out-of-state residents.

“Could we establish two different tax rates, for in-state and out-of-state residents?” Councilman Matt Lloyd asked at the meeting.

“We’ve had that discussion before,” said Councilman John Rieley. “I would be in favor of that, personally.” 

“This has been discussed for years,” County Administrator Todd Lawson said. “It never got off the ground.”

A resident had recommended the idea but the countywide reassessment, completed early this year, became a priority, Lawson said.

“We knew all along that we had to get through reassessment before we could tackle this,” he said. “Along the way, the question was asked, do we even have the ability to have a ... homesteader's credit? The answer, legally, we got is we don’t have it today. We would have to go to the General Assembly and get it.”

County Finance Director Gina Jennings said the county would establish a credit that would be applied to the tax bills of properties owned by residents whose primary residence is in Delaware.

She said in Florida, for example, people have to present proof of residency to receive a credit on their property tax bills.

Lloyd said he believes it is fair for people who have permanent residency in other states to contribute more to support public services in Sussex County if they own property in this county. The fastest-growing county in the state by far in recent years, Sussex County is struggling with overwhelmed roads, schools, fire and emergency medical services and the healthcare system.

“We have vacant houses sitting here and we have a housing crisis, yet they come down here at their leisure and use our roads, our fire and EMS, our police, public safety,” Lloyd said. “It has an impact on us. I say make them pay for some of this stuff.”

“It’s a significant number,” Lloyd said of out-of-state property owners, but he did not have an estimate.

Councilman Steve McCarron was concerned about how rebates would apply for commercial property.

County tax represents only about 10% of the tax burden on property owners, with the balance from school taxes. Lawson said council would have to consider the effect of a two-tier tax system on school districts. While schools facing overcrowding need more money, there is a risk that a two-tiered system could provide them with less.

“The biggest hurdle in that whole thing is schools,” Lawson said. “If we do something, we’re going to have to understand the impact on school funding.”

School districts in recent years have been lobbying for creation of school impact fees that assess a fee on new construction that would fund school expansion to ease overcrowding.

County council rejected the idea, but the new council seated this year – which includes three new members – has indicated a willingness to reconsider the tax.

“We’re talking about raising revenue, but we have to make it equitable,” Lloyd said of a two-tier tax system. “Considering our in-state residents make so much less, on average, than people who are moving here en masse, or have homes here [but] live out of state and are significantly more wealthy than our in-state residents, we have two competing markets there.”

He said he intends to pursue the issue further.

“I have a draft of something that I will send out,” Lloyd said.