Ocean City Puts The TAX In Taxicab

Posted on January 31, 2010

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In the middle of the worst economic downturn since the Depression, the Ocean City Town Council plans a new franchise fee for the local taxicab industry.

Taxicab operators will be required to buy “medallions” from the town this spring at $1,500 each, and then pay a $500 fee each year to retain the medallion. One medallion would be needed for every cab. Ocean City Police inspected  160 cabs in 2009. Operators of those cabs will be guaranteed the first opportunity to buy medallions. If all 160 medallions are sold, the town would receive $240,000 in badly needed new revenue this year. Ocean City, like most state and local governments across the country, is under pressure to cut its budget and/or raise taxes because of the recession.

Because cab operators have not had time to plan or obtain financing for the medallions, the Town Council proposes to allow them to pay in five monthly installments of $300, to be paid in full by July 15.

Taxicab operators and town officials could not be farther apart on the new franchise fee, which could also be called a tax. Cab owners and drivers say the fee is too high and will drive them out of business. About two dozen cabbies walked out of the Town Council chamber last week when the $1,500 price was proposed by Councilman Douglas Cymek.

Ocean City officials say the medallion system would raise money for the town, and enable the town to better regulate the safety and comfort of cab service to the public.

The medallion proposal, based on a system in New York City, was approved by the Town Council on a 5-2 vote in a work session last week. It will be introduced for first reading at the council meeting Monday night. If the proposal gets final council approval two weeks later, the medallions would be sold at City Hall on March 1.

Medallion systems are also used in Chicago and San Francisco. Cab operators suggested it might be better to compare the Ocean City taxicab business to a seasonal resort of similar size, such as Virginia Beach or Myrtle Beach.

Councilmen Jim Hall and Lloyd Martin voted against the medallion proposal, believing the cost to cab operators is too high. It is still possible that two other council members could change their “yes” votes and defeat the proposal 4-3.

Mr. Cymek told cab operators that owning a medallion would “secure your future,” because the operator would continue to hold the medallion as long as the $500 annual fee is paid, and the operator remains in business. Operators would be able to resell the medallions at a profit. The town could  revoke a medallion if a cab operator runs afoul of the law.

Mayor Richard Meehan said it is reasonable for Ocean City to require the new fee from cab operators, since the town maintains the roads, keeps the streets clean, and spends heavily to advertise and attract tourists to the resort.

Councilwoman Margaret Pillas questioned the medallion fees, drawing applause when she said that cab operators should be treated the same as other businesses. If more revenue is needed, she suggested, why not increase the business license fee. Ms. Pillas also suggested that the cab industry could be regulated at less expense by the town’s licensing department, rather the Police Department.

Under the proposal, 25 percent of the medallions will be reserved for individual cab owners, and the other 75 percent of medallions would be sold to fleet operators. Several small fleets operated in Ocean City in 2009.

The medallion system would also limit the number of cabs in Ocean City to 160, forever. In theory, the medallions would increase in value and could be resold at a profit by the cab operators. The city would take a 25 percent tax on the future transfer of medallions. City officials believe that the demand for taxicab service will increase when a slots casino opens at Ocean Downs, but the number of cabs will stay the same. Hence, the value of the medallions would go up.

Town officials do not believe that all 160 medallions will be sold immediately. After existing cab operators have had an opportunity to buy medallions, left-over medallions would be sold on a first-come, first-served basis to new cab operators.

The $1,500 medallions would come on top of about $310 in existing state and local inspection fees, plus the $300 Ocean City business license. That brings the total of government fees and taxes required to put a cab on the road to more than $2,000, in addition to the costs of auto insurance and maintenance, and the cost of buying the car itself. A fleet operator with 10 cabs would need to raise $15,000 this spring, just to buy medallions. Some believe they would have to cut corners on maintenance, or by paying drivers less.

Cab operators can not pass the tax increase along to customers, because taxi fares are regulated by law. The Police Department calibrates taxi meters and then seals them to prevent tampering.

In Ocean City, fleet owners and drivers typically split the day’s fares  50-50, with the driver paying for gas. Do you think gas will go to $3 a gallon this summer?

Many cabbies believe they will not be able to come up with the money, and that out-of-town operators will come in to Ocean City, buy most of the medallions, and take over the business.

— John Hayden

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