Blowin’ in the Wind is a new column by Michael Kitch. He has been writing in New Hampshire since 1982, sandwiching stints with either NH Times, NH Business Review and Laconia Daily Sun around spells within corporate communications and on the staff of the state Senate.
By MICHAEL KITCH
No state relies more heavily on property taxes than New Hampshire. The Tax Foundation, drawing on U.S. Census data, calculates that property taxes amount to 64 percent of all state and local tax receipts in New Hampshire. Texas is next at 47 percent.
Only New Jersey, Connecticut, Delaware and Rhode Island cover less land area than New Hampshire. But, New Hampshire, with its 13 cities, 221 towns, ten counties and 88 school districts, is laden with local governments. New Hampshire is one of 39 so-called Dillon’s Rule states. The rule holds that local governments possess only the authority granted to them by the state. In New Hampshire the power of local governments to tax is confined to property taxation.
Altogether municipalities, counties and school districts collect more revenue from property taxes than the state collects from all the taxes it levies and amounts to more than half of all state and local tax revenue. Property taxes, which include municipal, school and county taxes as well as the statewide education property tax (SWEPT) raised more than $4.6 billion in FY 2023.
While state tax revenue per capita is among the very lowest in the country, it is so outweighed by local and state property taxes that state and local taxes per capita, though below the national median, rank near the midpoint among the 50 states. In 2021, all state and local taxes per capita were $5,409 while property taxes per capita were $3,096, well above the national average of $1,898 and the fourth highest of all states. But only in Florida, Texas and Alaska were state taxes per capita less than the $2,316 in New Hampshire.
Although property taxation is a common and efficient means of funding local government, the sheer volume of property taxation in New Hampshire exacerbates the inequitable and regressive features of the tax. Municipalities with low assessed evaluations must levy higher tax rates than those with higher property values to fund public services, particularly public schools.
Property taxes — local and state — represent 70 percent of the cost of funding public schools, which in 2024 topped $4 billion, ranking as one of the largest programmatic expenditures in the state. Virtually everywhere, the local school tax and the SWEPT represent the largest share of total property tax bills.
Equalized property value per pupil (EVPP) measures the fiscal capacity of municipalities to fund public schools. The lower the EVPP the higher the school tax rate. In 2023-2024 EVPPs ranged from a low of $869,584 in Charlestown to a high of $38,574,930 in New Castle. School tax rates ranged between $20.93 in Charlestown and 25 cents in New Castle. In 2023 a property in Newbury, with an EVPP of $10 million, listed for $785,000 carried a school tax bill of $4,993 while in neighboring Sutton, with an EVPP of $2.1 million, a smaller home listed at $467,000 was taxed $6,696.
Apart from being inequitable, property taxes, which bear no relation to ability to pay, are also regressive, meaning that those with lower incomes pay a larger share of their income in tax than those with higher incomes.
The Institute on Taxation and Economic Policy (ITEP) reports that the 20 percent of New Hampshire families earning less than $35,000, whose average income is $19,300, pay 5.9 percent of their income in property taxes. The 15 percent earning between $153,900 and $329.900 pay 4 percent, the four percent earning between $329,900 and $721,000 pay 3.3 percent and the top one percent, earning more than $721,000 pay one percent. ITEP ranks state and local taxation in New Hampshire as the 18th most regressive in the country while noting that income disparities are greater after taxes been collected than before.
The inherent inequity and regressivity of property taxation is exacerbated by state programs and policies, which shrink municipal tax bases and increase municipal expenditures.
While landed property represents the largest tax base in the state, conservation programs and policies raise property taxes by reducing the taxable acreage of cities and towns. More than 3 million acres are enrolled in the Current Use program, which taxes land at its use rather than its market value. Farmland, forest, wetland or unproductive land is taxed at a range of rates per acre set by the Current Use Board. For instance, farmland is taxed at between $57 and $473 per acre and white pine forest from $130 to $196 per acre. In 2018, current use taxes paid some $6 million of the $3.6 billion in total property tax receipts.
Another 1.4 million acres, held in public ownership or protected by conservation easements, is “non-taxable conservation land.” Altogether these lands cover 4.4 million acres amounting to 76.6 percent of the land area of the state, according to the latest Current Use Report from the Department of Revenue Administration.
Slowing the pace of land development, conserving natural resources, preserving aesthetic landscapes, safeguarding fragile wetlands and sustaining commercial agriculture and forestry provide significant public benefits. But they are not without costs.
While the program is touted as a benefit to all residents of the state, the costs weigh disproportionately on those municipalities with an abundance of land taxed at less than its market value. Within municipalities the effect is to increase property taxes and shift a share of the tax burden from one set of property owners to another. Among municipalities the effect is to increase the disproportionality of local property tax rates.
Take the cities of Claremont and Somersworth, Claremont is more than four times the size of Somersworth, encompassing 27,617 to 6,280 acres. Their populations — 12,949 in Claremont and 11,855 in Somersworth — are comparable. So is their school enrollment — 1,582 in Claremont and 1,352 in Somersworth. But, in Claremont 68 percent of the acreage is either enrolled in the current use program or non-taxable conservation land compared to just 12.5 percent in Somersworth. As a result, the EVPP in Somersworth is nearly twice that in Claremont — $1,580,357 to $873,788.
The disparity of taxable property is reflected in property tax rates. The municipal tax rate in Claremont of $10.87 is the seventh highest in the state and while the local school rate of $14.78 is lower than in 29 municipalities the total tax rate of $29.26 is topped by only twelve. By contrast, in Somersworth the municipal rate is $5.47, the school rate is $10.27 and the total rate is $18.70.
A number of states, including Vermont, reimburse municipalities for revenue foregone to current use. In 1992, when 40% of land in New Hampshire was enrolled in current use, a study explored ways of mitigating the fiscal impact of current use on municipalities and taxpayers. While the panel counted 44 municipalities it deemed severely affected and acknowledged some compensation was desirable, there was no consensus about how to fund the estimated $18 million reimbursement.
Meanwhile, property taxpayers are always at risk when the Legislature is in session, particularly when it is building the biennial budget. Strapped by tight budgets, the Legislature is prone to skimp on state aid to municipalities and pass costs to local property taxpayers, effectively treating municipalities as a boundless cache of money from which it can draw at will.
Municipal revenue sharing, introduced in 1969, was suspended in 2010. This year some lawmakers have proposed repealing the authorizing statute and ending the program altogether.
Since 1993 revenue from the Meals and Rentals Tax has been shared with municipalities according to a formula that in time would split the proceeds with 60 percent for the state and 40 percent for the municipalities. In 2010, the municipal share reached 29 percent then the formula was suspended. This year lawmakers are considering replacing the formula with a fixed sum of $137 million, which is projected to fall $11 million shy of what the 30 percent share would provide. The House budget would eliminate motor vehicle inspections and with it the 12 percent of inspection fee revenue distributed to municipalities.
Since 1940, the state has funded a portion of the contribution to NH Retirement System for teachers, police and firefighters, which in 1977 was set at 35 percent. Municipalities, counties and school districts paid 100 percent for all other local employees enrolled in the system. The state trimmed its contribution to 30 percent in 2010, to 25 percent in 2011 and to $3.5 million in 2012, before eliminating it altogether in 2013. The Senate has proposed restoring the state contribution at 7.5 percent.
Between 2016 and 2023 the Republican majority in the Legislature, with the blessing of Governor Chris Sununu, incrementally reduced the rates of both the Business Profits Tax and the Business Enterprise Tax, which together raise about 30 percent of state tax revenue. The rate of the BPT dropped from 8.5 percent to 7.5 percent and the rate of the BET from 0.75 percent to 0.55 percent. Meanwhile, as Mark Fernald wrote in these pages, property taxes jumped by $1.2 billion.
Remarking on his rule, Judge John Forrest Dillon described local governments as “mere tenants-at-will of their respective state legislatures,” which he might well have added can up the rent at will or whim.