Cook On Concord: Irony of N.H.’s tax system is often lost on the payers

A number of matters recently reported in the press point out the unique and somewhat ironic nature of New Hampshire’s tax system. Before readers jump on me for advocating a change in the system, that is not the purpose of this column, which merely points out the nature and peculiar characteristics of the New Hampshire tax system.

The “view tax,” that supposed new tax that imposes an increased real estate tax on those whose property enjoys a view from on high of mountains, streams, lakes or other wonders received a lot of criticism when public hearings were held on it throughout the state. In a state that relies overwhelmingly on the real estate tax, especially for local revenues, such criticism seems misplaced.

If people want to buy property with views and are willing to pay a premium for it, that increases the “fair market value” of the property. Since the “fair market value” of the property is the test for assessing it, and therefore taxing it, property that is worth more is charged more.

Owners who complain about the “view tax” undoubtedly would not complain about the increased price they could get for the property any more than those with property on the ocean, New Hampshire’s prime lakes, ski slope-side condominiums or other premium properties would complain about the value. It is the amount of tax, not the value of the property, they are complaining about, and that, in turn, is due to the fact that we rely so heavily on the property tax.

In Manchester, the press recounted scores of instances of people claiming surprise, outrage, inability to pay and shock when their second installment property tax bills came from the city early in November.

Manchester conducted a reassessment this year, and some people had tax bills that nearly doubled. They expressed the natural shock. Again, they are not complaining about the value of their property, what they could get for it if they sold it or its increase in value over when they bought it. Rather, they are complaining about the relative pain of paying substantially more taxes for the same property to support government when their incomes have not gone up and their circumstances have not changed otherwise. They know only that they are living in the same house that was taxed so much lower previously.

Again, anyone can sympathize with the widow on a fixed income, the retired person, and the person with a two- or three-family apartment building and no ability to raise rents in the present economy. However, when the fair market value of property goes up and the government relies on real property for taxation, the taxes go up.

Next, was the concern of communities about the upcoming session of the Legislature, when attention will again turn to the statewide property tax as a method to raise money to fund education. Previously, the property tax had been a local tax for as long as anyone could remember. Handing some of it over to the state with the resulting reallocation of revenue among communities – from “donor towns” to “receiver towns” — was deemed to be unfair.

If you think about it, any other kind of tax has “donor towns” and “receiver towns,” business taxes coming primarily from places where businesses are located while the benefits go wherever the needs are. However, this fact was lost on those who screamed loudest about the statewide property tax.

Again, New Hampshire’s dependence on the property tax and the increased reliance and cost added by the statewide tax were the issue.

Finally, the state’s business community, through various voices — including the Business and Industry Association – has pointed out correctly that New Hampshire businesses are not taxed lightly, and the combination of the business profits tax, the business enterprise tax, the telecommunications tax and other taxes paid by businesses, including property taxes on their facilities, make New Hampshire a rather highly taxed place at the business level, and therefore at a disadvantage competitively as a place for a business to locate.

The resulting cry: “Don’t put the cost of education funding or other state needs in the upcoming legislative session on businesses that cannot afford it and are paying more than their fair share already.”

That is fine, logical and appropriate. However, it leaves very few places to look for more money. The property tax is one of those places.

All of these matters point out the dilemma resulting from the dependence New Hampshire has on the property tax. The tax ignores the ability of people to pay it, notwithstanding the value of the real estate they own and the inherent unfairness that can attach to individual circumstances. Historians remember that New Hampshire had a property-based tax on businesses until the early 1970s when the BPT (a business income tax) replaced the “stock in trade” tax, which was a tax on machinery and inventory — the property of business.

The Legislature thought that the ability of a business to pay and not just the value of its hard assets might be a fairer way to tax. What a concept!

In the upcoming session of the Legislature, there will be calls for tax reform, property tax relief and increasing the statewide property tax, as well as for the gambling as a revenue source. In considering all of this, New Hampshire’s reliance on the property tax and the unique characteristics of such heavy reliance on that system should be considered.

Brad Cook is a partner in the Manchester law firm of Sheehan Phinney Bass + Green and heads its government relations and estate planning groups.