Tax Abatement programs reduce or eliminate the amount of property tax owners pay on new construction, rehabilitation and/or major improvements. They won’t completely eliminate your property tax bill – you’ll still have to pay taxes on the value of the property before it was improved. But the savings can be substantial.
THE NEW HAMPSHIRE TAX ABATEMENT PROCESS
Like most states in the United States, New Hampshire’s tax abatement process puts the burden of proof upon the applicant. In most cases this requires an appraisal report which then becomes the basis for the tax abatement appeal. The tax abatement process can be cumbersome and confusing. As a result, many property owners are reluctant to file a tax abatement application.
Is there a tax abatement case?
There are several easy steps the property owner can take to determine whether or not the property is overassessed. First, the municipality maintains a tax assessment card. A copy of the tax assessment card can be obtained from the assessor’s office and in some cases, are available online via the municipality’s website. (Note: The information contained online is sometimes not as detailed as the actual property record card available at the assessor’s office.) This card contains both land and building data for the property. Review the card carefully and make sure that the facts stated on the card regarding the land and building sizes are correct as well as other building features that are listed on the card.
Since most municipalities in New Hampshire do not reassess property each year, the New Hampshire Department of Revenue Administration establishes an equalization ratio for every municipality. In order to calculate what the municipality states the property is worth in a given tax year, divide the total assessed value by the equalization ratio.
For example, if the tax assessment card indicates an assessed value of $500,000 and the current equalization ratio is 92% then the equalized assessed value of the property calculates to $543,478 ($500,000 ÷ 0.92). The $543,478 amount is what should be used as a basis for determining whether or not the property is overassessed.
In New Hampshire, there are three reasons to file a tax abatement. They are:
1. Physical data on the tax assessment card is incorrect.
This is the easiest and least controversial of the three reasons for a tax abatement. Information on the card that is factually incorrect can usually only be corrected by filing a timely tax abatement application.
2. Market data for the property shows that the property is overassessed based on the equalized assessed value of the property as of April 1.
This is the most common reason for filing a tax abatement application. Generally, market data (properties that have sold) are compared to the subject property to determine whether the property is overassessed. This is most commonly done in an appraisal report prepared for tax abatement purposes. It is important to note that the appraisal must be prepared as of April 1st of the tax year appealed and prepared for tax abatement purposes. Appraisal reports prepared for other purposes (i.e. estate planning, lending, etc.) with other dates of valuation may not be given the same weight in negotiation with the town and/or court. In some cases, these reports may be summarily rejected.
3. Disproportionately assessed when compared to other properties within the municipality.
Proving disproportionality is the most difficult of the three reasons for a tax abatement. Disproportionality is typically argued in conjunction with the market data for the property.
Assessment v. Appraisal: What’s the Difference?
Municipalities throughout the United States use mass appraisal techniques. Generally speaking, cost and sale data are collected and analyzed. In most cases, market data is collected within the municipality only. Rates are then established for various property types and adjustments are made for specific property characteristics. Mass appraisal techniques are utilized to assess thousands of parcels in a municipality. In most cases, the end result of the assessment using mass appraisal techniques should be similar to the result of an appraisal. However, in the case of unique properties, dynamic real estate markets, and other unique conditions, mass appraisal techniques may fall short.
The appraisal process differs significantly from the assessment process. Rather than collect data and apply it to a large sample of properties in a municipality, the appraisal focuses on one specific property. Cost, sale, and income (if applicable) data are utilized in developing the three approaches to value: cost, sales comparison, and income capitalization. In an appraisal, market data may also be analyzed outside the municipality. The three approaches are developed and then reconciled into a final value conclusion for the subject property.
Most assessments rely heavily upon the cost approach to value the improvements and market data to establish the underlying land value. In some cases, this works. However, in commercial and special use property applications, this methodology sometimes is inadequate.
In many ways, the appraisal report is no different than one that may be used for bank financing. However, there are several significant differences required for an appraisal report prepared for tax abatement proceedings. First and foremost, the date of valuation is as of April 1st of the tax year being appealed. For example, if the tax abatement application is being filed this year before the deadline of March 1, 2013, the date of valuation for the appraisal report is April 1, 2012. This date represents the date of valuation for all property in the state to be assessed.
There is a case. Now what?
Determining whether or not there is a tax abatement case is sometimes difficult. In those instances, most property owners rely on the assistance of a real estate professional to assist them in determining the market value of the property. In the case of most residential properties, the cost and sales comparison approaches to value are the most applicable. However, in the case of commercial and industrial properties, the income capitalization approach may also be applicable. Regardless of the property type, an appraisal prepared for tax abatement purposes will be the basis for the tax abatement appeal. Remember that the burden of proof is upon the property owner. Simply stating in the abatement application that the property is overassessed is not sufficient.
Once the tax abatement application and appraisal report has been filed with the municipality, the process becomes more or less a waiting game. As stated previously, the filing deadline for the tax abatement application is March 1st. The municipality then has until July 1st to respond to the tax abatement application.
The municipality can respond in one of four ways:
1. no response at all;
2. an offer of something less than has been requested;
3. a formal rejection of the appeal; or
4. acceptance of the appeal.
If the applicant is denied or the offer is unacceptable, the applicant then has until September 1st to file an appeal one of two places:
1. New Hampshire Board of Tax and Land Appeals (BTLA); or
2. Superior Court.
The less expensive and more informal route is by filing with the BTLA. Many residential property owners choose this option due to the lower costs and the ease of self representation. This option does not necessarily require an attorney. By filing with the Superior Court, legal counsel is usually present for both the applicant and the municipality in this more formal setting.
There are pros and cons to each option. From experience, particularly when there is a substantial potential tax savings the firm recommends filing at the Superior Court. It costs the town more money to have legal counsel present and it may also require them to pay an appraiser to estimate the market value of the property. The court route also demonstrates to the municipality that the applicant is committed to having this issue resolved. If the BTLA route is chosen, the municipality may utilize their assessor to represent them rather than their legal counsel.
If applicants can recover their costs in two years or less, the decision to proceed should be easy. When the payback period extends beyond two years, the risk of the case should be carefully analyzed before proceeding.
Things to Remember
Filing a tax abatement application does not exempt the taxpayer from paying the real estate tax bill. Any excess paid will be refunded plus 6% interest. Tax abatements are not retroactive; however, they do go forward in time. If a tax abatement application is filed by March 1, 2013 and is successful, the taxpayer will receive an abatement for the 2012-2013 tax year. The revised assessment will carry forward in time until changes are made to the property and/or the municipality conducts a revaluation.
Both the New Hampshire Superior Court and the New Hampshire Board of Tax & Land Appeals have adopted rules that requires parties to mediate prior to going to a trial or a hearing respectively. It is recommended that you pursue this option early in your tax abatement case. B.C. Underwood LLC provides mediation services and has been successful in resolving many tax abatement cases outside of the court house and hearing room.