Delaware Chancery Court judge tosses challenge to law allowing school districts to split property tax rates

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The Delaware Court of Chancery threw out a lawsuit regarding recent New Castle County property reassessments, clearing the way for updated tax bills to go out in November.

The original post-assessment property tax bills were sent out in July. State lawmakers, reacting to massive backlash from homeowners facing high tax bills, approved a statute in an August special session that allowed county school districts to issue higher rates for commercial properties for the 2025-2026 tax year, similar to what the county and city of Wilmington had already implemented.

New Castle County school districts then promptly issued new tax warrants, with the tax rates for nonresidential properties climbing from 35% to 80%, while lowering rates for residential properties.

Apartment trade organizations and mobile home operators challenged the new law in September, calling it unconstitutional. Chancery Court Vice Chancellor Lori Will heard arguments in the case on Oct. 20.

The plaintiffs had six arguments, including that the statute violated the state constitution’s uniformity clause, that it was “regressive” and that it unlawfully shifted the tax burden from homeowners onto lower-income renters and residents of manufactured homes. They also argued school districts illegally benefited from increased tax revenue without first holding a referendum.

Will rejected those arguments, saying the General Assembly has the authority to create and change classes of property.

Will said lawmakers’ concerns that homeowners would be less likely to be able to afford tax hikes than commercial properties was reasonable.

“Our constitution does not demand perfection from a tax system,” she wrote in her opinion. “To be unconstitutional, the system’s flaws must be pervasive and systemic, meaning that they are widespread and built into the system itself.”

Will also dismissed plaintiffs’ surprise revelation in early October that New Castle County was moving to reclassify more than 1,400 properties, shifting more than $1 billion in assessed value from residential to commercial.

“The isolated examples of misclassification are correctable administrative errors, not evidence of a system deliberately designed to be non-uniform,” she wrote.

New Castle County posted a statement on Facebook expressing its pleasure with the decision.

“Our team is working diligently to determine how quickly new bills can be sent to property owners,” the post said. “A notice will be included providing taxpayers notice of any reclassification and a description of the new policy for disputing reclassifications.”

New Castle County property taxes are due by Nov. 30.

State Democratic leaders in the House and Senate released a statement defending the legislation passed during the one-day special session this past summer and said they would soon announce more hearings examining the statewide property reassessment process. Lawmakers canceled the final two meetings, citing the pending decision by Will.

“Delaware taxpayers deserve fairness, transparency, and reliability and we will deliver on that,” they said.

Before the property reassessments conducted by third-party contractor Tyler Technologies, none of Delaware’s three counties had assessed properties in at least 40 years. Counties agreed to do reassessments as part of a legal settlement. A lawsuit filed in 2018 accused the state of underfunding low-income students, those with disabilities and English language learners.

Two state Republican lawmakers, Reps. Kevin Hensley and Mike Smith, called for New Castle County to take a “mulligan” and repeat the appraisal process in a statement.

“We need to toss the most recent reassessment, continue the investigation, learn from the mistakes that were made, observe the best practices employed by Kent and Sussex counties, and redo this thing,” Smith said. “In the meantime, use the old valuations and tax rates.”

House Dems rejected that idea, saying it could expose them to potential litigation stemming from the settlement in the public schools lawsuit.