In the state of New Hampshire, you are never required to share your financial statements with your municipality. At least not in the context of real estate tax assessments.
However, we have seen some municipalities in the state request both income and expense information from at least a few commercial landlords. Those owners did not question whether or not they were legally bound to share the information and simply gave the tax assessors the information that was requested.
Ironically enough, commercial property owners and tax assessors have been battling this topic in the courts for many years. The commercial property owners keep winning, but that doesn’t stop the tax assessors from trying to get financial information from those owners who are not aware of the current laws.
How is Real Estate Value Determined?
When an appraiser or assessor determines the value of the real estate, they use three methods. Those methods include:
- Comparable Sales
- Income
- Cost
Most municipalities choose the cost method because it is simple to determine how much a person paid for the property. It is also fairly easy to find out how much money an owner spent to make improvements to the same property. After all, the improvement costs are normally disclosed when a building permit is obtained.
The income method is much trickier when determining the value of a property. This method requires the assessor or appraiser to know the property owner’s gross income, expenses, and the capitalization rate, also known as “cap rate”. The cap rates are always readily available, but income and expenses are not.
One of the many reasons why income and expenses are not available is because so many commercial property owners do not like to disclose what they are charging for rent. This is especially true in competitive markets.
The income method also creates issues when it comes to confidentiality. There are no guidelines in place to ensure all of the income and expense information is kept confidential and that includes storage of the information. Currently, the New Hampshire RIght-to-Know Law states that any and all information used for tax assessments must be public. So, that really creates issues with keeping this type of information confidential.
Municipalities will continue to try to get commercial property owners to reveal their financial information, despite it being illegal. I believe it will continue to be illegal for many years though since past attempts of passing new laws have failed continuously.
Has an appraiser or assessor asked for your financial information? Or do you know someone this has happened to? Please contact me today, so we can discuss your situation and the options you have.