Assessment of Land Use Change Tax Includes Betterments

Woodview Development Corporation v. Town of Pelham
Woodview Development Corporation v. Town of Pelham
No. 2004-607
Monday, April 11, 2005

The following case is a decision of the United States Supreme Court

The property owner received planning board approval for a 27-lot subdivision on two parcels that had been enrolled in current use. When the town valued the lots for the assessment of the land use change tax (LUCT) it included the increased value to the lots of betterments, such as a road and utilities, that served the lots. When the selectmen denied the property owner's request for tax abatement, he appealed the denial to the superior court, which ruled that the town's inclusion of the increased value of the betterments in the LUCT violated RSA 79-A:7. The town appealed that decision to the New Hampshire Supreme Court, which reversed.

The lower court had stated, “The comprehensive scheme of RSA 79-A:7 is that at the time the land use is changed, the land use change tax is due. There is no improvement or betterment on the land at that time. Even if there were, it is the bare land which is subject to assessment, not land with improvements or betterments.” The town argued that the superior court's interpretation of the statute was incorrect and that RSA 79-A:7 permits inclusion of the increased value of the betterments that serve the property. The Supreme Court agreed.

The Court noted, “The purpose of the current use statute is to ‘encourage the preservation of open space,' by reducing property taxes on land that the taxpayer enrolls as open space land in current use.” Current use land is taxed at its current use, not its fair market value. When the land no longer qualifies for current use assessment, the LUCT is assessed. “The LUCT is intended to permit a town to ‘recapture some of the taxes it would have received had the land not been in the lower open space tax category,'” the Court wrote, citing its earlier ruling in Opinion of the Justices, 137 N.H. 270, 275 (1993).

As provided by RSA 79-A:7, I, the LUCT is assessed at “10 percent of the full and true value determined without regard to the current use value of the land which is subject to a nonqualifying use.” The property owner argued that the “full and true value” should be applied to the land itself, not to any betterments serving it, but the Court said it rejected this argument in a case decided in 1985. In Appeal of Town of Hollis , 1216 N.H. 230, the Court held that “the change in use occurred when the taxpayers submitted their application for subdivision approval … and … that while a town ‘may not simply include the full value of improvements that had not yet been granted,' it ‘need not, and should not, ignore the potential for development' when assessing the LUCT.”

The Court noted that RSA 79-A:7 provides that local assessing officials “may base the land use change tax assessed … upon the land's full and true value at that later time,” meaning at the time any required local, state or federal permits or approvals are obtained by the property owner. “Thus, under RSA 79-A:7, V, when a town assesses the LUCT, the property owner not only may have applied for subdivision approval, but may have received it. Improvements to the land not only may have been planned, but also may have been completed.” The Court added, “[T]he town need not be blind to the economic reality of the land's best and highest use when it determines full and true value under RSA 79-A:7, I.”

The property owner had argued that including betterments in the LUCT assessment was unfair because it taxed the owner's own expenditures for the betterments. But the Court stated, “[W]hen assessing the LUCT, the town should consider the potential for development as it would with any piece of comparable land that is not subject to current use.”

The superior court had ruled that New Hampshire Administrative Rule Cub 308.01, which was promulgated by the Current Use Board, was invalid to the extent it permitted the town to increase the value of lots to reflect any betterments because the rule “did not merely implement” RSA 79-A:7, but “modified it and added to it.” But the Supreme Court held that because RSA 79-A:7 “required the town to enhance the property's value with the betterments,” the Current Use Board did not exceed its authority to amend its rules to conform to the statute.

The Local Government Center supported the town's position in this case by submitting an amicus curiae brief to the New Hampshire Supreme Court.

Please be advised that the foregoing case summary is based upon a Supreme Court slip opinion. Slip opinions are subject to change following motions for rehearing and/or motions for reconsideration. The Court may also modify the opinion without motion. The final version of the Court’s opinion is that which appears in the New Hampshire Reports.