News & Thought Leadership from Sulloway & Hollis
Developments in the Law: 2021 Real Property Tax Abatement Legislation and Decisions
The New Hampshire Legislature, Supreme Court and Board of Tax and Land Appeals (the “BTLA”) had a busy 2021, passing legislation and issuing a number of decisions, respectively, impacting real property tax abatements. As abatement applications start to be filed on the local level for tax year 2021, it is important for taxpayers and local officials to be aware of recent developments in the law to ensure that abatement requests are resolved fairly and consistently and in light of the controlling standards.
The following provides an overview of the more significant and noteworthy developments from this past year.
Legislation
Property Tax Relief Program Adopted for Certain Residential Properties; Municipalities Permitted to Adopt Property Tax Exemption for Renewable Energy
Senate Bill 102, approved by the Legislature and signed into law by the Governor, amended a number of statutes related to real property taxation in New Hampshire. Among other points, the act amended RSA 79-E, concerning the community revitalization tax relief incentive program, by expanding qualifying structures to include one and two family homes (and attached multi-family home with no more than four units) located in a residential zone designed under RSA 79-E:4-B, which is at least 40 years old. Moreover, Senate Bill 102 created the new RSA 72:87, which allows cities and towns to adopt an exemption from the assessed value, for property tax purposes, of certain renewable generation facilities and electric energy storage systems. Under the statute, the facilities and storage systems must be located behind the retail meter of a customer-generator, or be must a limited producer.
Commission Established to Study the Equalization Rate Used for Calculating Property Taxes
House Bill 411, codified at RSA 76:20-a, formed a commission to study the equalization ratios calculated by the Department of Revenue Administration (“DRA”) for each municipality each year based on the property sales within the municipality; those ratios are then used in abatement cases to determine the proportionality of that year’s assessment.
The commission has the express purpose to consider “any inequity in the current system of equalization and establish a method to eliminate the use of two separate equalization rates, reported by the department of revenue administration, in two separate years, one of which is used for tax assessment purposes and one of which is used for tax appeal purposes, so that the same equalization rate is used by the [BTLA], the superior court, and all cities, towns, and counties.” The commission is made up one member of the assessing standards board, one assessing official, a commissioner of the DRA, two Representatives, one Senator, three public members (one municipal attorney, one municipal official, and an individual “engaged in property valuation for municipalities”), one representative of an electric utility company, and two members of the business community. The commission is charged to report its findings and any recommendations by November 1, 2022.[1]
Supreme Court Decisions
Supreme Court Will Give Deference to Factual Findings of the BTLA
In late 2019, the BTLA heard consolidated cases brought by Eversource challenging the proportionality of its property located in various municipalities for tax years 2014-2017. The Towns of Chester and Hudson appealed the BTLA’s decision to the Supreme Court, arguing that the BTLA erred by equalizing the aggregate fair market value of Eversource’s taxable property without first excluding the value of Eversource’s land interests, arguing that Eversource did not challenge the assessments of its land interests.
In the Appeal of Town of Chester & Town of Hudson, Docket No. 2020-0475, 2021 N.H. LEXIS 140 (Sept. 16, 2021), the Supreme Court affirmed the BTLA’s decision, finding no error in its equalization analysis. The Court noted that the record established that Eversource challenged the proportionality of the Towns’ assessments of all of its land interests, and, thus, the BTLA did not exceed its jurisdiction by granting abatements as to Eversource’s fee simple land interests. The Court then turned to the Towns’ argument that the BTLA adopted values of Eversource’s land values that were already proportionate. Again, the Court pointed to the record, which established that both parties’ appraisal experts identified the fair market value of the company’s land interests, not the equalized values, such that it was necessary for the BTLA to equalize the land values.
The Court’s holding reinforces the importance of establishing a concrete record at the trial level, as the Court will not overturn factual findings supported by the record that are not erroneous as a matter of law.
Supreme Court Explains Bases for Changing Real Property Assessments After Revaluation Date
In Merrimack Premium Outlets, et al. v. Town of Merrimack, Docket No. 2020-035, 2021 N.H. LEXIS 147 (Oct. 1, 2021), the Town of Merrimack had a revaluation performed on all real estate in 2016. An outlet shopping mall, Merrimack Premium Outlets, was assessed at approximately $86.5 million. Shortly thereafter, Merrimack learned that the same property had been appraised at $220 million in 2013 as collateral for a loan. The Town then reassessed the property for the 2017 tax year at approximately $151.1 million, claiming that it was correcting the earlier undervaluation of the property.
Merrimack Premium Outlets filed suit, arguing among other points that there were no changes in the property or the market that justified the 2017 reassessment, that the reassessment was not done to correct an error, and the increase was not the result of town-wide changes in assessment methodology. The trial court held that the Town had the legal authority to adjust the appraised value of the property despite for the 2017 tax year.
On appeal, the Supreme Court reversed the trial court’s decision, finding that the Town lacked statutory authority to make the 2017 reassessment when there had been no physical, zoning, or ownership changes to the property. Under RSA 75:8, assessors and selectmen are required to annually adjust assessments “to reflect changes” to ensure all assessments are reasonably proportional within each municipality. The Court found that that RSA 75:8, I explicitly requires some “change” to have occurred as a prerequisite to a municipality’s legal authority to adjust a property’s assessment after a revaluation. Further, the Court rejected the Town’s suggestion that the “discovery” of the financing valuation/alleged underassessment satisfied the “change” requirement in the statute, noting an “[a]quisition of information bearing on a property’s value is not a change in value itself; it is merely a change in what the acquirer knows about the property’s value.”
The Court’s holding establishes that corrections of even known errors in valuation cannot be made prior to the next municipality-wide revaluation absent some “change” to the property, highlighting the importance for municipal assessing officials and taxpayers to ensure the accuracy of assessments in the first instance.
Signature Requirements for Property Tax Abatement Application Further Clarified
In the Appeal of Keith R. Mader 2000 Revocable Trust, et al., Docket No. 2020-053, 2021 N.H. LEXIS 153 (Oct. 8, 2021), the Supreme Court further clarified the signature requirement for property tax abatement applications.
In February 2018, a group of eighteen taxpayers engaged counsel to represent them in filing abatement applications with the Town of Bartlett. The Town denied their requests and the taxpayers then appealed to the BTLA. The BTLA dismissed their appeals, noting that the taxpayers had not signed their applications when filed with the Town, as required by the BTLA’s rules, and their attorney had done so on their behalf.
The taxpayers appealed the BTLA’s dismissal to the New Hampshire Supreme Court. On appeal, the taxpayers argued that their failure to personally sign the abatement requests were “due to reasonable cause and not willful neglect,” an exception to the BTLA’s signature requirement. In Appeal of Keith R. Mader 2000 Revocable Trust, et al., 173 N.H. 362 (2020), the Court held that the exception permitted appeals to be filed with the BTLA despite the lack of a taxpayer’s signature and certification, if the taxpayer can show that it was not reasonably possible to submit the application with the taxpayer’s signature despite “exercising ordinary business care and prudence” and that the taxpayer “was not recklessly indifferent to the signature and certification requirement in preparing the application.” The Supreme Court vacated the BTLA’s dismissal of the Taxpayers’ appeals and remanded for further proceedings consistent with their construction of the BTLA’s rules.
On remand, the BTLA found that the taxpayers did not exercise “ordinary business care and prudence” in filing their applications. Noting that the taxpayers delayed in challenging the assessments until shortly before the March 1 filing deadline and that their attorney signed and certified the abatement applications without consulting “anyone, including the taxpayers,” the BTLA found that neither the taxpayers nor their attorney “made any attempt to comply with the taxpayer signature and certification requirements.”
The taxpayers again appealed to the Supreme Court. In affirming the BTLA’s decision, the Court noted that the taxpayers did not challenge the BTLA’s finding that they could have signed the abatement applications by fax or email, nor did they challenge the BTLA’s determination that neither the taxpayers nor their counsel attempted to comply with the BTLA’s signature requirements. Furthermore, the Court noted that both taxpayers and their counsel are presumed to know the law and their lack of actual knowledge did not excuse their failure to comply with the relevant rule.
The decisions in both of the Appeal of Keith R. Mader 2000 Revocable Trust, et al. cases illustrate that while a taxpayer can seek to show reasonable cause to excuse the failure to sign a local abatement application, the bar will be set high to do so. Likewise, the decisions highlight the importance of adhering to the procedural requirements of New Hampshire’s tax abatement scheme to allow appeals to be fully adjudicated on the merits.
Tenants May Have Standing to Pursue Tax Abatement
The Supreme Court further clarified who has standing to pursue a tax abatement as a “person aggrieved” in Shaw’s Supermarkets v. Town of Windham, Docket No. 2020-0275, 2021 N.H. LEXIS 158 Supreme Court (Oct. 20, 2021).
By way of background, the owner of a pad site in Windham entered into a ground lease with Shaw’s Supermarket starting in 2004. Under the terms of the lease, Shaw’s was to pay the owner its pro rata share of the assessed property taxes; the owner was then obligated to pay the taxes. The lease also provided that at Shaw’s request, the owner would commence proceedings for an abatement or would permit Shaw’s to do so provided that Shaw’s paid all taxes as required. In 2017, Shaw’s was the only tenant on the property, such that its pro rata share of the taxes was 100%. That year, it was directed by the pad site owner to pay the property taxes directly to Windham, which it did. Shaw’s filed a local tax abatement application, which was denied. Shaw’s then appealed in the superior court; the Town moved to dismiss, arguing that Shaw’s lacked standing to request a tax abatement on property it did not own. The trial court denied the Town’s motion; following a two-day bench trial, the trial court granted Shaw’s requested abatement.
On appeal, Windham argued that Shaw’s lacked standing to seek a tax abatement because it did not have a taxable interest in the property. The Supreme Court rejected Windham’s argument, finding that Shaw’s was “aggrieved” as it paid the disproportionate tax and under the terms of the lease, it would have been required to reimburse the owner for 100% of the tax paid if the owner had made the payment and would have been entitled to receive 100% of any tax abatement the owner received. “Thus, as a practical matter, a disproportionate tax assessment is an injury to Shaw’s because Shaw’s is responsible for paying the amount assessed, and Shaw’s will receive the benefit of any abatement.”
The Town also argued on appeal that Shaw’s failed to carry its burden of proof, suggesting that its appraiser’s report contained errors that made it not sufficiently reliable. Specifically, the Town argued that the errors ran afoul of the Uniform Standards of Professional Appraisal Practice (USPAP). The Court rejected that argument, noting that questions of credibility fall to the trial court as the trier of fact. Further, the Court noted that the premise that the appraisal could not deviate from USPAP was unsupported, and based on the record, the Court declined to adopt such a rule.
BTLA Opinions
While Municipal Officials May Apply for an Abatement, Ethical Considerations are Paramount
The BTLA found that the City of Berlin’s Board of Assessors acted improperly in granting themselves abatements, and in the process provided an important reminder to municipal officials involved in the tax abatement process. In Re: City of Berlin, No. 29285-19OS (March 17, 2021).
In 2018, Berlin undertook a statistical update of property values. Based on that update, the Board of Assessors received 136 abatement applications for 164 parcels (less than 5% of the total properties). The Assessors granted approximately one-third of the applications, including three for themselves and for the son of a member. Those abatements ranged from 17% to 42% of the assessments for the given properties.
Thereafter, a resident of Berlin, whose application was denied, wrote to the Department of Revenue (“DRA”) expressing concern that the Board had granted themselves abatements while denying two-thirds of the other applications. Proceedings were then initiated before the BTLA, with the DRA arguing that the based on their review of the applications, there was little to no evidence that the Assessors relied on credible market data before granting themselves abatements. The Assessors argued that no remedy was warranted and that the BTLA should “decline jurisdiction” given that a full revaluation occurred in 2020, subsequent to the 2018 update.
Rejecting this suggestion, the BTLA found that the Assessors’ actions needed to be addressed. Noting that while Board members had the right to file for abatements – much as any other taxpayer – the BTLA concluded “the process they followed and the resulting outcomes fell short of the standards required by New Hampshire law.” Among other points, the BTLA noted in its opinion that the Assessors voted to change the condition of the properties, made power line adjustments, modified site indexes, and made as a number of other changes that could not be justified. The Assessors’ decision to merely recuse themselves when their applications (or their family members’ applications) were before the Board was insufficient. Among other requirements, the BTLA ordered the four individuals to pay the City the reduction in property taxes they received plus interest. Moreover, the BTLA ordered that 35 other properties which the Assessors either made adjustment or granted abatements be reviewed by Berlin’s current contract assessing firm.
This decision highlights the obligations local officials have in ensuring that the abatement process proceeds fairly and equitably. Moreover, the decision serves as a reminder to taxpayers and officials alike that the BTLA has the authority to review abatements improperly granted and has the obligation to take remedial action when necessary.
Board Provides Timely Reminders for Residential Appeals
In the case of Laurie A. Ortolano Trust v. City of Nashua, Docket Nos. 29472-18PT & 29699PT, 2021 N.H. Tax LEXIS 20 (June 11, 2020), the BTLA provided a number of salient reminders regarding residential assessing procedures.
In 2014, the taxpayer purchased a home for $725,000 in the City of Nashua. She filed a local abatement application for tax years 2018 and 2019 on an assessment of $651,900, which were denied. On appeal, the taxpayer argued that the City’s assessment overstated the market value of the property for a number of reasons. The City pointed to the 2014 sale price as evidence of value; among other points, the taxpayer testified it was a “cash” purchase, with no supporting appraisal for financing or other purposes, and that she “overpaid.” The Board noted that while sale price can be a good indication of market value in some circumstances, that the 2014 sale price was not a reliable indicator of the property’s market value in tax years 2018 and 2019 given that the purchase was a cash transaction (“not supported by an appraisal or other independent indicator of value”) together with the fact that more recent market value evidence existed. Moreover, the City’s appraiser used the 2014 sale as a comparable in his comparable sales approach of the property, citing that he was required to do so under USPAP. The BTLA rejected this notion, noting that USPAP does not require that an appraiser “must, or even should, utilize a prior sale as a comparable sale,” particularly given the passage of time from the date of the sale to the date of the appeal.
The BTLA made a number of other points that practitioners should remember, including the fact that private sales (those that are not listed on a multiple-listing service) can represent market value; that regardless of whether or not a taxpayer does or does not file an appeal for one year has no bearing on an appeal for another year (“a taxpayer’s decision not to challenge an assessment through the abatement and appeal process is not probative of the proportionality of the assessment or a taxpayer’s agreement with it”); and that regardless of whether the municipality acts in arbitrary manner or in bad faith, that the taxpayer will still have the burden of proving the property was disproportionally assessed.
The BTLA ultimately found deficiencies in both parties’ appraisals and made its own market value findings, ultimately granting the taxpayer an abatement.
Questions Concerning a Taxpayer’s Charitable Purpose Must be Answered in the Taxpayer’s Favor
In Mascoma Valley Preservation v. Town of Grafton, Docket No.: 29769-20EX, 2021 N.H. Tax LEXIS 26 (June 4, 2021), the BTLA found that the taxpayer was entitled to a charitable exemption from real property taxes.
The taxpayer owned two lots in the Town of Grafton, which included a historically relevant house and land which was open for fishing and recreational purposes. In light of the significant evidence presented, the BTLA found that the taxpayer met its burden of proof, including the fact that the taxpayer had received state and federal grants to help restore and maintain the property for a charitable purpose. Significantly, the BTLA noted that to the extent the town questioned the taxpayer’s charitable purpose, “such questions must be answered in the Taxpayer’s favor in light of how this exemption statute has been interpreted and applied by our supreme court.” Thus, even if a taxpayer’s charitable purpose may be less common than more familiar charitable organizations, provided the taxpayer meets the elements outlined in RSA 72:23, V, a charitable exemption is warranted.
Sales Approach Guides Valuation of Owner Occupied, Single-User Retail Building
In Top Furniture, Inc. v. Town of Gorham, the taxpayer – the owner of a furniture store with a showroom and adjacent warehouse space – appealed the Town of Gorham’s denial of its abatement application. Docket Nos. 28982-17PT/29553-18PT/29721-19PT, 2021 N.H. Tax LEXIS 16 (June 18, 2021).
In its decision, the Board went through a lengthy analysis of the rationales and justifications by each party for their sharply differing views of market value. While both parties’ appraisers completed income and sales comparison approaches to value, the Board found that the sales approach resulted in the most reasonable estimate of market value and placed no weight on the income approach. The Board noted that because the property was constructed and continued to be an owner occupied, single-user retail building, together with the evidence presented that if vacant, the property “would have to be demised into several smaller units, considerable uncertainties would remain regarding the demand for these types of spaces,” the sales approach was more appropriate. While this finding could differ based on the type of property and evidence presented, it is a timely reminder to have a thorough sales analysis prepared in such cases.
In Order to Claim Poverty as a Basis to Abate, Taxpayers Must Establish That Other Relief is Unavailable
In Michael Garrity v. Town of Hooksett, No. 29961-19PV, 2021 N.H. Tax LEXIS 24 (June 25, 2021), the taxpayer argued that he was entitled to a property tax abatement on the grounds of poverty and inability to pay. Hooksett had previously granted full abatements for tax years 2013 – 2018, but denied his tax year 2019 abatement application without a specific reason. The taxpayer pointed to the fact he had been permanently disabled since birth and received several forms of public assistance in support of his position.
In denying the taxpayer’s appeal, the BTLA held that a taxpayer who claims they are entitled to an abatement because of poverty and inability to pay, “and who have some equity in their homes, must show that it is not reasonable for them to relocate, refinance or otherwise obtain additional public assistance.” Without such a showing, the BTLA found that the equities do not balance in the taxpayer’s favor. Moreover, the BTLA noted that even if a taxpayer can establish that all of their income is spent on “the essentials of existence is not, standing alone, enough to sustain a finding that she is entitled to a tax abatement because of poverty and inability to pay.”
Fraternity Houses More Closely Resemble Rooming House Versus Modern Student Housing
In three cases consolidated for hearing, the BTLA considered the assessments on three fraternity houses associated with the University of New Hampshire. See, N.H. Beta Housing, LLC v. Town of Durham, Docket No.: 29511-18PT, 2021 N.H. Tax LEXIS 27 (June 25, 2021); Gamma Mu Alumni Assoc. v. Town of Durham, Docket No.: 29509-18PT, 2021 N.H. Tax LEXIS 21 (June 25, 2021); Alpha Gamma Rho v. Town of Durham, Docket No. 29508-18PT (June 25, 2021).
Following a two day hearing, the BTLA granted the taxpayers appeals. Both the taxpayers’ appraiser and the Town’s appraiser utilized the sales comparison and income approaches to value. The taxpayers’ appraiser placed primary emphasis on the income approach given the investment nature of student housing, and a “lack of sales data for fraternity/sorority houses.” The Town’s appraiser, however, placed more weight on the comparable sales approach concluding “the economic motivations for a fraternity house are typically secondary and perhaps even tertiary to the profit and loss statement associated with the income approach.”
In accepting the taxpayers’ appraisals in full, the BTLA noted the importance of considering not only the physical characteristics and conditions of the properties, but also the number of beds and bathrooms, finding the properties “more closely resembles a rooming house rather than more modern student housing.” The BTLA’s rulings in these cases provide further clarity as to how to value this somewhat unique property type.
Charitable Tax Exemption Not Limited to “Non-Profits”
In Rochester Agricultural & Mechanical Association v. City of Rochester, No. 29967-20EX, 2021 N.H. Tax LEXIS 33 (July 2, 2021), the BTLA provided important insights into the charitable exemption for real property taxes.
The taxpayer, which operates the Rochester Fair, was denied a charitable exemption (RSA 72:23, V) for Tax Year 2020. The City argued this was proper on the basis that the taxpayer was organized as a “for-profit corporation” and did not establish any enforceable obligation to perform a charitable purpose; that only a fraction of the Rochester Fair’s programs were “agricultural” (with the remainder are “more accurately described as ‘carnival’ in nature”); and that the property was used for other non-charitable purposes. The BTLA rejected the City’s arguments and ordered a charitable exemption was proper.
Turning to the City’s first argument, the BTLA noted that nothing in the controlling statutes or New Hampshire decisional law restricts the grant of a charitable exemption only to organizations organized as “non-profits.” Looking at the facts of this case in particular, the Board noted that the taxpayer was formed in 1879 as a “voluntary corporation” in July 1879 under Chapter 152 of the General Statutes; at that time, Chapter 152 governed corporations formed for “agricultural, educational, or charitable purposes.” Its incorporating document stated the “object” of the formation was to “stimulate agricultural and mechanical skill,” an object which was reiterated when the taxpayer filed a Restated Certificate of Incorporation and Restated Articles of Incorporation in April, 1984 (under RSA 293-A).
The BTLA then ran through the four factors in ElderTrust of Florida, Inc. v. Town of Epsom, 154 N.H. 693 (2007), in determining whether the taxpayer met the requirements for a charitable tax exemption. The BTLA concluded that taxpayer met those requirements: (1) it was established and is administered for a charitable purpose; (2) an obligation exists for it to perform its stated purpose to the public rather than simply to members of the organization; (3) the land is owned, occupied by and used directly for the stated charitable purposes; and (4) any income or profits are used for the purpose for which the organization was established. The Board went through a fact-specific analysis on each of these points. Notably, the Board reiterated established New Hampshire law that charitable exemption is appropriate even if the property is used for other purposes, provided that the incidental use does not interfere with the entity’s major charitable (tax-exempt) purpose.
Taken together, this decision highlights the importance of the four-part ElderTrust test in determining the applicability of a charitable tax exemption, as well as the fact-specific nature of that analysis.
[1] While outside the scope of this update on 2021 developments, in January 2022, the New Hampshire Supreme Court issued its opinion in Appeal of City of Berlin, Docket No. 2020-0474, 2022 N.H. LEXIS 4 (Jan. 12, 2022). In that case, the Court held that the BTLA erred in applying the DRA’s 2017 median equalization ratio rather than the 2016 median ratio which the City had relied on in finalizing its 2017 assessments of certain property where there was no evidence that the City had used the 2017 ratio for other purposes and the taxpayer did not present evidence demonstrating that the 2017 ratio reflected the general level of assessment in 2017.
