The New Hampshire Supreme Court has upheld a denial of tax abatement for a commercial property in Dover.
I) Background on Tax Abatement in New Hampshire
Municipal ad-valorem property taxes are based on the fair market value of the subject property. If a city values the property for more than it is actually worth, the property owner ends up paying an unfair amount of property taxes. An aggrieved property owner may challenge the government’s property valuation through a tax abatement lawsuit under RSA 76:17.
In a tax abatement challenge, the plaintiff has the burden of proving by a preponderance of the evidence it paid more than its proportional share of taxes for a given tax year. To carry the burden of proving disproportionality, the taxpayer must establish that the taxpayer’s property is assessed at a higher percentage of fair market value than the percentage at which property is generally assessed in the town.
Generally speaking, fair market value refers to “the price which in all probability would have been arrived at by fair negotiations between an owner willing to sell and a purchaser desiring to buy, taking into account all considerations that fairly might be brought forward and reasonably given substantial weight in such bargaining.” Society Hill at Merrimack Condo. Assoc. v. Town of Merrimack, 139 N.H. 253, 255, 651 A.2d 928 (1994); see Appeal of Pennichuck Water Works, 160 N.H. 18, 37, 992 A.2d 740 (2010).
The determination of fair market value is a question of fact. Both the landowner and the government typically use expert witnesses to provide testimony regarding the value of the property.
II) Ventas Realty Ltd. P’ship v. City of Dover Trial
In Ventas Realty Ltd. P’ship v. City of Dover, the N.H. Supreme Court upheld the trial court’s denial of tax abatement for a 5.15-acre site containing a skilled nursing facility serving both short-term and long-term patients, two garages, and a parking lot. 172 N.H. 752, 760, 235 A.3d 100, 107 (2020).
Both parties agreed the property’s highest and best use was as a skilled nursing facility. In addition, they agreed the most reliable method for determining the property’s fair market value is the income capitalization method. The income capitalization method is an established and well-accepted method for determining the value of income-producing property. However, the city’s expert testified the fair market value of the property was $4,700,000. This differed from the landowner’s assertion that the property was only worth $1,700,000.
The two experts differed their approaches to the income capitalization method. The city’s expert used both market projections and the property’s actual income and expenses from 2012, 2013, and 2014 to forecast the property’s future net income. The expert for the landowner only used the property’s actual income and expenses for the 11 months before the April 1, 2014 valuation date, without any market-based adjustments.
III)Ventas Realty Ltd. P’ship v. City of Dover Decision
The courts held the use of only the actual gross operating expenses from the property did not accurately reflect the overall value of the property. This was based on forecasted net income the property would have generated on the open market in 2014. Ultimately, the courts found the plaintiff had not sufficiently proved the property’s fair market value under the income capitalization approach.
This ruling was significant for the outcome of the case, as the plaintiff had the burden to prove the valuation of their property. While the plaintiff focused on the alleged errors in the city’s valuation, the court ruled these errors would not change the outcome. The plaintiff, not the city, had the burden of proof. This means a plaintiff cannot win a tax abatement challenge by solely focusing on the city’s flawed methodology. Instead, the plaintiff still has a threshold burden of proving disproportionality in the tax burden by offering credible evidence of the property’s fair market value.
The trial court seemed suspicious of the landowner’s credibility. When the property was transferred in 2015 due to a corporate split, the landowner had represented the property’s value was $4,308,500 for transfer tax purposes – the same value at which the City had assessed the property. Due to the landowner’s use of the city’s valuation, the court found the landowner’s assertions regarding the inaccuracy of the assessment lacked credibility.
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