Why Should Delaware Care?
The recent property reassessment reset the balance in tax burden between residential and commercial property in New Castle County, where the majority of Delaware’s residents and commercial industry resides. An analysis of reassessment data has found that many of Delaware’s biggest corporate names will see significant tax cuts under the reassessments, putting more of the burden on homeowners.
Most of Wilmington’s downtown office buildings, along with some of northern Delaware’s most-prominent research-and-development campuses, will receive steep cuts to their tax bills under the recently completed property tax reassessment.
An analysis by Spotlight Delaware of more than 50 of New Castle County’s largest commercial properties, worth more than a combined $3.2 billion in assessed value, found that the county and their local school districts will bring in $6 million less than they did last year from their property taxes.
Among the R&D properties receiving the biggest cuts are DuPont’s Experimental Station campus in Alapocas and FMC’s Stine Haskell campus in Newark, which will save $1.9 million and $760,000, respectively, on their tax bills this year. Each property is owned by chemical companies that produce billions of dollars in annual revenue.
In downtown Wilmington, 17 of the largest office buildings together shed a total of nearly $5 million from their tax bills, according to an analysis by Spotlight Delaware. They include buildings that are home to financial giants JPMorganChase, Barclays and M&T Bank.
Only three of the city’s major office buildings will see larger tax bills after the reassessment.
The dramatic cuts to property tax bills for some of the signature homes of corporate Delaware come as many homeowners are dealing with tax bill increases of thousands of dollars as the balance in New Castle County’s tax base has shifted farther toward residential.
That shift matters, because with a revenue-neutral approach for counties, every dollar has to be replaced.
“If one property pays less, then other properties have to pay more,” Christian Willauer, a Wilmington city councilwoman, told the New Castle County Council at a July 22 meeting.
Why are the calculations different?
Properties in Delaware had not been reassessed in decades, and that led to a 2018 lawsuit that argued the failure to update property values has created inequitable educational opportunities for students, because school districts depend on property taxes to fund operations.
The Delaware Court of Chancery oversaw settlements in that case where New Castle, Kent and Sussex County each agreed to complete their first reassessments since at least 1983.
The counties each awarded the contract to carry out the arduous reassessment process to Plano, Texas-based Tyler Technologies.
The assessor was instructed to calculate a “fair market value” for residential homes, essentially seeking what they felt a home could sell for in an ideal current market by using nearby comparable sales.
That meant looking at lot sizes and square footage, the number of bedrooms and bathrooms, the age of a home and its building style, among other factors.
But when Tyler computed the value of commercial properties, it instead used an income-based approach, seeking what kind of revenue the property could derive, including what the price per square foot was for office space.
But lease rates have stagnated for Wilmington office space, because the market for office space had fallen amid a pivot toward remote working after COVID. Those forces resulted in many large office buildings falling under the average commercial assessment increase of 233%, and therefore receiving lower overall tax bills.
Why Tyler Technologies assessed many industrial properties under the average growth rate remains unclear though.
In its final report to the county, it noted that rents for both industrial and distribution logistics properties were “on pace” with the larger Philadelphia metropolitan market and that “rent growth remains well ahead of inflation,” despite macroeconomic concerns.
“Over a longer horizon, industrial rent growth in both the New Castle County submarket and the Philadelphia metro has been nothing short of sensational,” the company wrote, noting that industrial rents in New Castle County have risen by a “remarkable” 5.73% in the past five years.
Despite that glowing review of the outlook on logistics in Delaware, where vacancy rates are very low compared to the surrounding region, Tyler Technologies assessed Amazon’s state-of-the-art Boxwood distribution center near Newport at $108 million.
In 2023, an Australian investment firm purchased the property for about $392 million. Amazon is locked into a long-term lease at the property, virtually ensuring rent payments for at least another decade and possibly several decades.
The lower assessment value means the Boxwood plant may receive the single largest tax break of any property in the state at more than $2.5 million.
Officials debate accuracy
Those questions over how Tyler Technologies determined assessment values are at the heart of criticisms big and small.
“The way Tyler assessed the commercial properties is completely unacceptable,” Rep. Eric Morrison (D-Bear) recently told Spotlight Delaware.
Morrison, who represents an area hard hit by residential assessment increases and has been outspoken on the reassessment issue, particularly pointed to the case of JPMorganChase’s parking garage.
The banking giant acquired the lot neighboring its Wilmington headquarters for $7 million in 2015 and spent an estimated $15 million to build a seven-story parking garage on the land. But Tyler assessed the value of the property at $410,000 – roughly the equivalent of a modest Wilmington-area single-family home — because of what the market rate for parking garage rentals is right now.
“That’s just insane,” Morrison said, noting that he would be calling for more transparency about how the assessments were determined.
That disparity in commercial assessments has also been highlighted by Willauer, a city councilwoman who has spoken out to her elected body, the county council and the public. She noted that smaller businesses were not immune either.
Willauer presented the case of Philly Deli & Meat Market, a small business on Wilmington’s Fourth Street, that was assessed a value of $834,500. She contrasted it with an Exxon gas station on a busy corner of U.S. Route 202 near the Pennsylvania border that was assessed at just $625,000.
“I don’t understand how both of these numbers could be correct. And I think that probably the meat market is over-assessed, and the gas station actually should be assessed at a lot more,” she said.
So far, the New Castle County Council, which accepted the reassessments presented by Tyler Technologies but also recognized the need to split its property tax rate for the first time to lessen the burden on homeowners, have defended the assessor’s work.
“I think we have to face the new market reality of property values after 40 years. We just can’t scapegoat, and say, ‘Well, this one went up and that one went up.’ That’s not going to solve the problem. The numbers are the numbers; I think they’re real,” Councilman David Carter said at the July 22 meeting.
Councilman Kevin Caneco added that there are many commercial properties that have seen their property taxes rise after the reassessment as well. That includes the Hotel du Pont and Christiana Mall, which increased about $1.7 million and $1 million, respectively.
“There’s playing political games and there’s reality,” he said.
Carter emphasized how much of New Castle County’s economy has changed in the last 40 years and how that has impacted the profitability of its commercial space.
“We lost DuPont, we lost Hercules, we lost Merck, we lost GM, we lost Chrysler, we lost MBNA, Whole Delaware industries are gone. If anyone is surprised at the shift in the market, well, you’ve been driving around blind,” he said. “What we’re going to have to do is face this reality.”
Before the reassessment, residential properties made up about 66% of the county’s tax burden. Afterward, they represent 76%.
The county government gave additional relief to homeowners by creating the two-tier tax system, which raised the tax rate on commercial properties. It wasn’t enough to fully offset the change in the new assessments though, as residential properties still make up about 69% of the tax burden under the two-tier rates.
Editor’s Note: This story’s headline originally reported the DuPont Experimental Station and FMC Stine Haskell campus as manufacturing plants, but it is more accurate to call them research-and-development campuses.