Qualifications for Property Tax Exemptions and Credits
By Michael R. Williams
For assessing officials, it is that time of year once again. At a time when most people are gathering documents to prepare their personal income taxes for Uncle Sam, assessors are receiving and reviewing applications and documents for property tax exemptions and credits. This is an ongoing battle between statutory compliance, serving residents and trying to satisfy the State’s bureaucratic oversight.
Property taxes are the life-blood of local governments. They are the primary source of revenue for every municipality of this state and, if recent trends in the legislature continue, the burden on property taxpayers will increase. Despite the heavy reliance on property taxes, there are numerous exemptions or credits available to taxpayers. Each one has its own unique characteristics, qualifications and attributes. Some are mandatory, some are mandatory with options and some are purely local option. This article will provide a general overview and some answers to common questions and issues about qualifications for exemptions and credits.
Why This Is Important
A sobering thought during these economic times is that in 2008, the most recent year for which data are compiled, the towns and cities in New Hampshire granted 77,145 tax exemptions and tax credits resulting in aggregate lost revenue of $53,244,947.00. Each and every one of those dollars is a dollar that other taxpayers have to pay; therefore, it is critical to ensure that only qualified taxpayers receive an exemption or a credit. The duty to be accurate and fair is not owed just to the property owner seeking relief. It extends to every taxpayer in the town or city, because every tax dollar that is lost because of an exemption or credit must be paid by someone else.
What’s an Exemption and What’s a Credit?
What is the difference between an exemption and a credit? An exemption is a reduction of the valuation of the property before the tax is calculated; a credit is a reduction of the tax due after valuation. Explained more simply: an exemption is applied to valuation and a credit is applied to tax.
Categories of Exemptions and Credits
Tax exemptions and credits can be divided into three categories: (1) Personal—those based on the claimant’s qualifications such as veterans, the elderly and the blind. (2) Tax exempt entities—those based on a classification of property belonging to entities such as religious and charitable properties. (3) Property qualification—those based on property attributes that have been legislatively determined to have a public benefit, such as exemptions for wood heating, solar power and wind power. This article is primarily focused on the first category because of the difficulty in ascertaining and judging individual qualifications.
Definition of ‘Resident’
Within the pages of the statutes prescribing exemptions and credits, there are terms that are not uniformly applied. Under RSA 72:29, I, a “resident” is defined as a person who has resided in this state for at least one year prior to April 1 in the year for which the credit is claimed. Significantly, this definition of resident applies only to the Veterans’ Tax Credit. It does not apply to any other credit or exemption. So, where another credit or exemption refers to a “resident,” we have to fall back to the definition under RSA 21:6. The significance lies in that the latter definition does not have any sort of time requirement for residency. So, unless the specific exemption or credit statute provides for a time requirement, none is presumed to exist. Such is the case with the RSA 72:29-a Surviving Spouse Tax Credit. Adding to the confusion are the rules promulgated by the Department of Revenue Administration (DRA). Rev 401.10 defines “resident” within the rules to be the definition of “resident” under RSA 72:29, I, which as previously stated applies only to RSA 72:28. The effect of this circular definition is certainly not clear.
Documentation
In addition to knowing the law, the key to the exemption and credit process is in the documents the assessor receives and reviews. The statute clearly provides that “[t]he burden of demonstrating the applicability of any exemption shall be on the claimant.” RSA 72:23-m. So, if after receiving documents from a claimant there still are doubts about his or her eligibility, then by all means more evidence should be requested. Assessors are entitled to ask for as much documentation as necessary to establish that the claimant is indeed eligible for the benefit. For example, to verify the income of a claimant for the elderly exemption, it is reasonable to ask for three months of bank statements, or anything else that will help make a determination.
The information provided is confidential. Once the assessor is satisfied that the documentation is sufficient to make a decision, those documents and any copies must be returned to the claimant. RSA 72:34, II. It is important to have some sort of internal process to indicate that the decision was made, by whom, and what documents were reviewed.
Veterans’ Credits and Exemptions
There are four separate tax exemptions and credits available to military veterans and spouses:
RSA 72:28 Standard and Optional Veterans’ Tax Credit
The Veterans’ Tax Credit under RSA 72:28 is a standard credit of $50 with a local option to increase the credit to as much as $500. To qualify, the claimant must have been a resident of the town for at least one year prior to April 1 of the year in which the credit is claimed; he or she must have served during a qualifying war for not less than 90 days or have been separated because of a service-connected disability; and he or she must have received an honorable discharge. Interestingly, the statute requires that the claimant must have served in a war or an armed conflict. But the statute only requires documentation of combat service for those who qualify under the catch-all provision of “any other war.” RSA 72:28, V(g). Other than that provision, the veteran need only document the time frame in which he or she served, without requiring proof of actual combat service. The most common document for verification of military service is the DD-214; however, it is not the only document that may be relied on. The State Veterans Council has provided a list of documents deemed acceptable to verify military service. The list may be found on the DRA website.
If a qualified veteran owns a fractional interest in a property, the amount of the credit is prorated in the same proportion as the veteran’s fractional interest. If multiple qualified veterans own the same property, the total of the credit on the single property may not exceed the amount provided under RSA 72:28. Notwithstanding the previous statement, if a property is owned by two qualified veterans who are married, then each is entitled to the full credit on the same property, essentially doubling the credit.
RSA 72:32 extends the Veterans’ Tax Credit to citizens of the United States or residents of New Hampshire who served in foreign militaries that were allied with the United States. How one verifies a claimant’s service in a foreign military is unclear. The DRA may be able to provide guidance.
RSA 72:29-a Surviving Spouse
The Surviving Spouse Tax Credit under RSA 72:29-a is a standard credit of $700 with a local option of increasing the credit up to $2,000. To qualify, the claimant’s spouse must have died while on active duty with the United States military or in military service of a foreign ally of the United States in any of the conflicts listed under RSA 72:28.
RSA 72:35 Tax Credit for Service-Connected Total Disability
The Service-Connected Total Disability Tax Credit is a standard credit of $700 with a local option of increasing the credit up to $2,000. To qualify, the claimant must be honorably discharged from the United States military and be totally and permanently disabled, a double amputee or a paraplegic.
Total and permanent disability is determined only by the Veterans Administration, for which the veteran will receive written certification, so the certification should be obtained before granting an exemption or credit.
RSA 72:36-a Certain Disabled Veterans
The Certain Disabled Veterans Tax Exemption eliminates all tax liability on the qualified veteran’s homestead. While the qualification may be similarly worded to the Service-Connected Total Disability Tax Credit above, there are key differences, so pay close attention to the significant use of “and” and “or.”
To qualify, the veteran must have been discharged under “other than dishonorable” conditions. This is an expanded group of eligible discharges from the honorable discharge that is required under the previous credits. Additionally, the veteran must be permanently and totally disabled; and be a double amputee, or have blindness of both eyes, or be a paraplegic; and own a specially adapted home acquired with assistance from the Veterans Administration (or purchase a new home with proceeds received from the sale of a specially adapted home acquired with assistance from the Veterans Administration).
All of the veteran tax credits and exemptions share some common traits. The definition of Surviving Spouse is shared throughout RSA Chapter 72. Under the definition, a surviving spouse of a veteran who suffered a service connected death is entitled to all of the tax credits discussed above (except for the obvious redundancy with the Surviving Spouse Tax Credit). A surviving spouse loses his or her eligibility for the tax credit upon a subsequent marriage, but may regain eligibility upon divorce. However, if the subsequent marriage ends in death, then the surviving spouse is considered a widow or widower of the most recent marriage and may not regain the tax credit associated with his or her marriage to the veteran.
In cases where a veteran applies for and receives the credit, then subsequently dies, the surviving spouse is entitled to the credit in her or his own right and should reapply as a surviving spouse. Doing so provides adequate documentation in town records to support granting the exemption and makes Property Appraisal Monitors from the DRA very happy.
Additionally, a veteran or a veteran’s spouse may claim and receive as many of the veterans exemptions and credits for which he or she qualifies.
RSA 72:39-a Elderly Exemptions
RSA 72:39-a and RSA 72:39-b is a pseudo-optional exemption enacted in 1996, as a consolidation and replacement of four separate elderly exemption statutes. RSA 72:39-b, I reads that a municipality “…may adopt or modify elderly exemptions by the procedure in RSA 72:27-a.” RSA 72:27-a, I reads that “[a]ny town may adopt the provisions of … RSA 72:39-a….” Then, paragraph III of RSA 72:27-b permits a municipality to rescind the exemptions in paragraph I. However, the session law that enacted the elderly exemption in 1996 has an applicability section that provides, “Any municipality which has not adopted elderly exemptions under RSA 72:39-b on January 1, 1998 shall be deemed to have adopted the minimum exemptions in RSA 72:39-b, I(c).” 1996 N.H. Laws, 140:11.
Beyond the adoption dilemma, the exemption statute itself has certain thresholds for qualification. However, the statute permits modification of these thresholds for income and assets and for multiple age categories over the age of 64, all of which are determined by local adoption or subsequent modification under RSA 72:27-a.
A claimant’s net income may not exceed $13,400 if single and $20,400 if married, unless the municipality opted to raise these thresholds to higher amounts under the provisions of RSA 72:27-a. Net income is determined by adding all money received from any source, and then deducting any life insurance benefit paid, expenses and costs of a business, and the proceeds from the sale of assets.
A claimant’s net assets may not exceed $35,000, unless the municipality opted to raise this amount under the provisions of RSA 72:27-a. Net assets are the value of all assets less “good faith encumbrances” such as mortgages, home equity loans, etc.
The non-varying qualifications for the elderly exemption are being resident in the state for at least three years prior to April 1 of the year the exemption is claimed and being at least 65 years of age. Note that under RSA 72:41-a, if a claimant who is properly qualified leaves the state to establish residency elsewhere because of health reasons, then returns to New Hampshire, that person need not re-establish residency upon his or her return.
Elderly exemption calculation for claimants with a fractional ownership interest in their property is accomplished in the same manner as is prescribed for the veterans’ credit, although the statutory reference is different. RSA 72:41. Also, when analyzing eligibility, pay attention to recent transfers of property to a claimant. In order to prevent sham tax exemptions, a property that has been transferred to the claimant within the previous five years by a relative who is under the age of 65 shall be disallowed. RSA 72:40-a.
RSA 72:37 Exemption for the Blind
An exemption for the blind is an option that must be adopted according to RSA 72-27-a. If the exemption is adopted, a claimant is entitled to no less than a $15,000 exemption of assessed valuation of their residential property. A town or city may optionally increase the amount of the exemption if it is determined that a significant property value increase warrants such an adjustment. The claimant may be a resident for any length of time; no minimum time of residence is required. The claimant must be the owner of the property and be legally blind. Only the Department of Education, Bureau of Vocational Rehabilitation, Blind Services Program can make the determination of who is legally blind. Do not accept any other document; a letter from the claimant’s doctor will not suffice.
RSA 72:37-a Improvements to Assist Persons with Disabilities Exemption
The provisions of RSA 72:37-a are mandatory for all cities and towns. It provides for the exemption of all improvements made to assist a person with disabilities, provided the disabled person resides on the property along with the owner of the property. The disabled person need not be the owner of the property. If the person with the disability no longer resides in the home, then this exemption can no longer be claimed even though the improvements are still present.
Exempt improvements are limited to those necessary to permit use of special aids for the claimant to propel himself or herself. As the Supreme Court stated, the statute “…does not exempt all improvements that may assist, or make more comfortable, persons who have a mobility disability.” Appeal of Kat Paw Acres Trust, 156 N.H. 536, 538 (2007).
An important note here is that if the assessor finds that the improvements do not contribute any value to the home, then there is nothing that would qualify for an exemption, and no exemption should be granted. This may be difficult for the claimant to accept after he or she may have spent a significant sum of money for improvements. It would be wise for the assessor to make specific findings in such a case.
RSA 72:37-b Exemption for the Disabled
Upon adoption of the exemption by a town or city under the procedures in RSA 72:27-a, any person who is eligible for benefits under Title II or Title XVI of the Social Security Act is entitled to an exemption under this section. The claimant must reside in the homestead and have been a resident of the state for at least five years.
A claimant’s net income may not exceed $13,400 if single and $20,400 if married, unless the municipality opted to raise these thresholds to higher amounts under the provisions of RSA 72:27-a. Net income is determined by adding all money received from any source, and then deducting any life insurance benefit paid, expenses and cost of a business, and the proceeds from the sale of assets.
A claimant’s net assets may not exceed $35,000, unless the municipality opted to raise this amount under the provisions of RSA 72:27-a. Net assets are the value of all assets less “good faith encumbrances” such as mortgages, home equity loans, etc.
RSA 72:38-a Tax Deferral for Elderly and Disabled
Tax deferral is available to claimants aged 65 and above and to disabled persons who are eligible for benefits under Title II or Title XVI of the Social Security Act. The claimant must reside in the homestead and have owned the homestead for at least five years. The deferral is granted annually for all or part of the taxes due, provided the assessing official believes that the tax liability creates an undue hardship on, or possible loss of the property by, the claimant. The deferred taxes accrue interest at five percent. The total amount of deferred taxes and accrued interest can not exceed 85 percent of the equity remaining in the property after accounting for any encumbrances. After being submitted by the taxpayer, the original form PA-30 is filed with the registry of deeds and creates a tax lien. Tax deferral liens do not have priority over pre-existing liens.
Upon the death of the owner of the property, the heirs of the deceased have first priority to redeem the estate by paying the outstanding tax plus accrued interest within nine months of the date of death. Absent redemption, the tax collector may collect the outstanding debt in the usual manner under RSA Chapter 80.
RSA 72:38-b Exemption for Deaf or Severely Hearing Impaired Persons
Similar to the exemption for the blind, an exemption for the deaf is an option that must be adopted according to RSA 72-27-a. If the exemption is adopted, a claimant is entitled to no less than a $15,000 exemption of assessed valuation of their residential property. A town or city may optionally increase the amount of the exemption if it is determined that a significant property value increase warrants such an adjustment.
Unlike the exemption for the blind, this exemption requires the claimant to be a resident of the state for at least five years prior to April 1 in the year in which the claim is made. If the property for which the claim is made is owned by the claimant’s spouse, then they shall have been married for a minimum of five years. The claimant must be certified to be deaf or severely hearing impaired by a licensed audiologist or otolaryngologist.
Similar to the exemption for the elderly and the exemption for the disabled, a claimant’s net income may not exceed $13,400 if single and $20,400 if married, unless the municipality opted to raise these thresholds to higher amounts under the provisions of RSA 72:27-a. Net income is determined by adding all money received from any source, and then deducting any life insurance benefit paid, expenses and cost of a business, and the proceeds from the sale of assets.
A claimant’s net assets may not exceed $35,000, unless the municipality opted to raise this amount under the provisions of RSA 72:27-a. Net assets are the value of all assets less “good faith encumbrances” such as mortgages, home equity loans, etc.
Simple, Isn’t It!?!
Okay, maybe not. An article of this length can never fully address a topic as complicated as exemptions and credits, and this is certainly not an exhaustive treatise on the subject. Hopefully, this article serves as a reminder of lingering concerns and triggers some additional questions. For more information on this topic, call the municipality’s assigned Property Appraisal Monitor at the Department of Revenue Administration at 603.271.2687, your municipal attorney or the LGC Legal Services attorneys.
Michael Williams has served as government affairs attorney for the New Hampshire Municipal Association since November 2009. Michael previously served as assistant revenue counsel for the Department of Revenue Administration. For more information on this and other topics of interest to local officials, contact LGC’s legal services attorneys by phone at 800.852.3358, ext. 384, or by e-mail at legalinquiries@nhlgc.org.