Delaware Chancery Court hears lawsuit challenging law aimed at providing tax relief to New Castle County homeowners

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With the window to issue amended tax bills before New Castle County’s Nov. 30 payment deadline closing fast, Delaware’s Chancery Court heard arguments Monday in a lawsuit challenging local school districts’ ability to issue split rates for residential and commercial properties.

Apartment and mobile home associations are suing the state, county and local school districts. They are asking the court to toss a recently created law that allowed schools to split rates for the 2025-2026 tax year, similar to what the county and city of Wilmington implemented.

Post-assessment property tax bills were sent out in July. State lawmakers approved that statute in August, during a one-day special session aimed at providing property tax relief. House Bill 242 was among a limited number of bills lawmakers passed, and Gov. Matt Meyer promptly signed it into law. New Castle County school districts had 10 business days to issue new tax warrants.

Recent once-in-40-year property assessments shifted much of the tax burden to homeowners, especially in New Castle County. New Castle County Executive Marcus Henry told a special legislative committee on the state’s property reassessment process last month that average residential assessments rose 477%, while nonresidential assessments went up an average of 233%.

Backlash from county homeowners spurred lawmakers to act.

Michael Hoffner, one of the state’s attorneys, told Vice Chancellor Lori Will that throwing out the ability for school districts to do different rates for residential and commercial properties would have far-reaching impacts.

“We’re not just talking about HB 242, and the school districts,” he said. “We’re also talking about the county’s split taxes. We’re also talking about municipalities, which were afforded by the General Assembly the ability to set different tax rates among different classes of real property. So the impacts do extend beyond just HB 242.”

Plaintiffs argue uniformity clause violations, due process concerns

The landlord associations said the law — and the way the county is implementing it — is unconstitutional because it violates the uniformity clause of the state constitution.

Paul Hughes, the plaintiffs’ lead attorney, said millions more dollars going to the school districts because of the mass reclassification violates the language of HB 242, which says the total amount of revenue projected to be collected through use of the residential and nonresidential tax rates may not exceed the total amount of revenue the district was projected to collect under its original tax warrant.

Plaintiffs also argue that the county dropped “a bombshell” Oct. 3 when it admitted that thousands of properties were misclassified. The county said it planned to reclassify more than 1,400 properties, shifting more than $1 billion in assessed value from residential to commercial.

County attorneys said officials learned of the errors around Aug. 17, five days after HB 242 was adopted, when residents alerted the county to some of the mistakes.

Hughes said he’s confused as to why the county never told the public and waited weeks to reveal it to them in court filings.

“We have no idea why if this was known to the county at least as of Aug. 17, as defense counsel stated today, why it was not disclosed to anyone,” he asked. “It was only disclosed privately to us litigants on Oct. 3, and why it’s not been made public until much more recently?”

Hughes said the county’s rollout of the law has been so error-ridden that it’s unworkable.

“At this late an hour, we think that the 2025 bills should proceed and then all defendants should work together collectively for a new process to govern in the [2026-2027] tax year,” he said.

New Castle County officials, state and local school districts and their attorneys declined to answer questions from the press after the hearing.

Nicholas Brannick, an attorney for the county, told the court that the number of properties was insignificant. He said the county will notify affected property owners when the tax bill goes out, and has also created a policy where those affected by the reclassifications could challenge the decision.

The parties also debated whether the bill was unconstitutional under the uniformity clause. The county argued that the clause does not require actual revenue neutrality, and state law allows different rates for different properties.

Plaintiffs also took issue with the one-day special session lawmakers held, calling it rushed with no committee hearings or findings issued. Hughes said the court should lessen its deference because of that. Hoffner said he disputed that argument.

“Anybody who’s ever been in Dover in June, the June process often does not include committee hearings,” Hoffner said. “It is a regular practice in the General Assembly, and it does not undermine at the end of the day the intent and the conclusions of the General Assembly.”

The plaintiffs also argued that school districts were required to hold referendums under state law.

The court has promised to issue a decision by the end of October.