Daphne Kenyon: a primer on property taxes in NH

By Daphne Kenyon, with updates from Citizens Count editors

This issue concerns the real property tax, which falls on land and buildings, and not personal property taxes or real estate transfer taxes.

Property tax in NH: both state and local

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).

NH property tax rates 

See a list of property tax rates in New Hampshire by town

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.

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.

• New Hampshire tax rates are expressed as tax liability per $1,000 of equalized assessed local valuation ("value"). 
• Local 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).

Where does the money go?

Local roperty taxes are used predominantly 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.

How do NH property taxes compare to other states?

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.
• 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.

Why do property tax rates vary?

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.

However, 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.

Property tax: a progressive or regressive tax?

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.

Pros:

"NH should continue to use property taxes instead of a sales or income tax."

It is stable and responsive to economic growth:

• It provides stable revenue. The property tax is more stable, for example, than a sales tax or income tax.
• Property tax revenues tend to be responsive to economic growth.  For example, in New Hampshire in the 1970s and 80s, both population and total property values increased rapidly.

It is visible and promotes fiscal responsibility:

• The visibility of the property tax may be beneficial as it allows taxpayers to weigh the benefits of government services against taxes paid thereby making government more efficient and more responsive to citizens. Hence it promotes local fiscal responsibility and civic engagement.
• It is particularly suited to local governments, because they face difficulties when they try to tax a mobile tax base, and the property tax base is generally less mobile than sales or income.

Inequities are easily resolved:

• States can address taxpayer inequities in real estate taxes with state-funded circuit breaker programs. States and communities generally provide for real estate tax relief for seniors and low-income tax-payers.

Taxpayers can adjust their taxes up or down:

• Individuals can control their property taxes by choosing the property they own, and changing this property when appropriate. Other tax regimes do not give citizens that choice.

Cons:

"NH should relieve the property tax burden by instituting a sales or income tax."

Communities with relatively low per capita property wealth are unfairly penalized:

• Disparities in per-pupil property wealth in a community may lead to inequities in funding education for children or taxpayers. The same may be true for other municipal services.

Its relationship to taxpayer ability to pay is inexact: 

• If a family's income is reduced through job loss, illness, or divorce, property tax liability is not reduced. When property taxes are increased, to pay for new schools or for other reasons, seniors or others whose incomes are not growing may find it difficult to afford to stay in their homes.

It unfairly affects economic development:

• Heavy reliance on the property tax can lead to land use choices based mostly on revenue considerations.  For example, towns and cities sometimes zone against small and multi-family housing based on the assumption that affordable housing means more children, and more children means having to provide more schools, thus increasing already burdensome property taxes.

In New Hampshire, the property tax is not in balance:

• Relying too heavily on a single tax accentuates its weaknesses.  Since New Hampshire has no income or sales tax, it relies more heavily on the property tax than any other state.