Should our government rely on property taxes?
By: Daphne Kenyon
This issue has been updated by LFDA editors.
This issue concerns the real property tax, which falls on land and buildings, and not personal property taxes or real estate transfer taxes.
New Hampshire is one of the few states in which both the state and local governments levy property taxes.
Property tax rates are applied to the assessed value of a property. In practice assessed values can be above or below market value even though the standard of assessment in New Hampshire is 100 percent of market value.
Tax rates in New Hampshire vary by town and have four components: town tax rate, local education tax rate, state education tax rate, and county tax rate.
New Hampshire tax rates are expressed as tax liability per $1,000 of equalized assessed local valuation (“value”). Municipal property tax rates for 2008 ranged from $4.68 for the Town of New Castle to $32.59 for the Town of Claremont. The median total tax rate was $18; at this rate, taxes due on real estate assessed at $200,000 would be $3,600.
Because not all towns assess properties at 100 percent of market value, it is important to distinguish between nominal and effective or full value rates. Full value rates adjust property tax rates to take differing assessment/market sales ratios into account. In 2007, the latest year available, full value tax rates ranged from $3.49 for Hale’s Location to $31.93 for Berlin.
In 2006, total assessed value in the state was $15 billion. Residential property accounted for the largest portion of assessed value (79 percent) followed by commercial and industrial property (16 percent).
All different kinds of property in New Hampshire are taxed uniformly, that is, at the same rate per $1,000 of value. For example, a single-family home is taxed at the same rate as an apartment building, a commercial building or industrial property.
Property taxes are used predominantly by local governments to finance schools, police and fire protection, trash collection, street maintenance, and public recreation, among other local services. The state property tax is used to fund K-12 education. New Hampshire derives 61 percent of its total state-and local taxes from property taxation, compared to 31 percent for the average state.
The burden of real estate taxes on New Hampshire citizens, when compared to other states, is a matter of considerable debate, because this burden can be measured in various ways. When effective property tax rates are considered, Manchester New Hampshire ranks between 13th and 45th among the each of the 50 states’ largest cities, depending upon the type of property considered. When compared to personal income, in 2005 New Hampshire had the third largest property tax burden per capita at $2,034 per capita and the highest property tax burden as a share of personal income in the nation at $54.11 per $1,000 personal income.
A community’s property tax rate is not a good measure of the property tax burden faced by the residents. A new entrant into a community typically pays less for a home with a high tax rate. This phenomenon is known as “tax capitalization.” Thus two homeowners in different communities can face very different tax rates, but the same cost of housing. One homeowner can have high mortgage payments but a low property tax bill, while the other homeowner has low mortgage payments and a high property tax bill.
Some communities may have high property tax rates because they zone out commercial and industrial property and other communities have high property tax rates because they vote for more expansive government services.
Although widely assumed to be regressive, researchers agree that the property tax is not generally so, and, to the extent that it is a tax on capital, it can be progressive. Furthermore, the property tax is more progressive than the sales tax.
Average property tax burdens in New Hampshire today are similar to those of 40 years ago, constituting 5.4 percent of personal income in 2005, only slightly higher than 5.3 percent in 1962. Property tax burdens were highest in 1972 and 1992, when property taxes as a percent of personal income exceeded 6 percent.
2015 Data Update
Municipal property tax rates for 2014 ranged from $3.53 for Hart's Location to $41.33 for the Town of Claremont. The median total tax rate was $23; at this rate, taxes due on real estate assessed at $200,000 would be $4,600.
In 2014, full value tax rates ranged from $3.67 for Hart's Location to $47.26 for Berlin.
In 2014, total assessed value in the state was $156 billion. Residential property accounted for the largest portion of assessed value (77 percent) followed by commercial and industrial property (18 percent).
New Hampshire derives 63 percent of its total state-and local taxes from property taxation, compared to 33 percent for the average state.
Rep. Gilman Shattuck was the primary sponsor of HB 673, a 2015 bill that establishes a 2.25% retail sales tax. The bill also imposes a 2.25% use tax on the use or storage of property in New Hampshire when no sales tax has been paid. Use tax is imposed, for example, when a New Hampshire business buys property out of state tax-free and uses it in New Hampshire. It also applies when a business makes personal use of property that it has purchased for resale or has manufactured for sale. Sales for resale, casual sales, and sales of specific items such as gasoline, heating oil, medical supplies, and items of clothing under $175 are all exempt from taxation. The House killed HB 673 in March.
Several other legislators sponsored 2015 bills that would make small changes to property taxes. All of the following bills are still being studied in House committees:
Rep. Brian Chirichiello is the primary sponsor of HB 229, which increases the maximum amount of the optional veterans' property tax credit.
Rep. Frank McCarthy is the primary sponsor of HB 359, which extends the property tax program in Coos County to municipalities in Carroll County, which allows them to offer property tax exemptions to foster commercial and industrial construction.
Rep. Frederick Rice is the primary sponsor of HB 430, which extends the veterans' property tax credit to all honorably discharged veterans.
Rep. Catherine Cheney is the primary sponsor of HB 501, which allows municipalities to extend the veterans property tax credit to residents who served for a period determined by the city or town of at least one year active duty in the armed forces, and to their surviving spouses. The bill also allows for a different tax credit amount to be applied for such veterans.
Rep. Richard Ames is the primary sponsor of HB 634, which increases the eligibility levels for the low and moderate income homeowners property tax relief. The bill also applies the interest and dividends tax to trusts, increases exemptions for the tax, and extends the interest and dividends tax to capital gains.
Sen. Andy Sanborn (R-Bedford) sponsored SB 300, a 2014 bill that "establishes requirements and procedures for a municipality to calculate and set the applicable tax rates for property taxes." Gov. Maggie Hassan (D) signed that bill into law May 27, 2014.