The information contained in this article is not intended as legal advice and may no longer be accurate due to changes in the law. Consult NHMA's legal services or your municipal attorney.
Why do tax abatements exist? What rules, if any, limit when they can be granted? When someone’s taxes are abated, what impact does it have on everyone else’s taxes? If you’ve ever wondered about any of these questions, read on to learn more!
Property taxes and tax abatements in New Hampshire are governed by state law. Municipal officials and employees often begin by assuming that a town or city can take any action it would like unless there is a statute (or constitution) which says otherwise. In New Hampshire, however, this is not true. While we have a long tradition of rugged individualism, the reality is that our state Constitution does not grant any authority directly to towns and cities. As a result, towns and cities may only take actions that are directly authorized or required by a statute, or which are “necessarily implied” in a statute. Girard v. Allenstown, 121 N.H. 268 (1981). Furthermore, if a statute does grant authority, municipalities must abide by all of the limitations in the statute regarding the way in which that power can be used and they cannot add extra powers or expand the scope beyond what the statute provides.
The New Hampshire Supreme Court has been very clear in its opinions that towns and cities must be authorized by the legislature to tax real estate and may only do it in the way that the legislature provides. DirecTV v. Town of Hampton, 170 N.H. 33 (2017); Canaan v. Enfield Fire Dist., 74 N.H. 517 (1908). Similarly, towns and cities must be authorized by the legislature to relieve taxes, and may only do so in the way that the legislature allows (using exemptions, credits, deferrals, and abatements). Opinion of the Justices, 115 N.H. 228 (1975).
Abatements are authorized in RSA 76:16, which says that the “selectmen or assessors, for good cause shown, may abate any tax, including prior years’ taxes, assessed by them or their predecessors, including any portion of interest accrued on such tax….” Although this statute doesn’t say much more about the purpose of abatements or the standards that apply, these issues have been litigated for hundreds of years.
What is the purpose of a tax abatement?
Abatements are a time-honored way to eliminate an “irregularity or illegality” in the assessment of property taxes. See Briggs’ Petition, RSA 29 N.H. 547 (1854). The critical issue is whether the taxpayer is unlawfully or unjustly taxed as between them and other taxpayers. Bretton Woods Co. v. Carroll, 84 N.H. 428 (1930); Appeal of City of Berlin, 174 N.H. 733 (2022). This is in direct contrast to many of the other tax-relief programs authorized or mandated by law, such as exemptions and credits designed to encourage certain types of land use or to encourage open space, environmental, or historic preservation. It is, instead, about correcting mistakes and avoiding unjust situations.
When is an abatement appropriate?
The only hint in the law about when an abatement should be granted is the mention in RSA 76:16 of “good cause.” It has never been defined by statute. Over the past two hundred years or so, courts have upheld abatements only for two types of situations: disproportionate assessment and poverty/inability to pay. Even when noting that “good cause” is not necessarily limited solely to these two things, the NH Supreme Court has focused in its opinions on the “remedial justice” that abatements are supposed to accomplish. In other words, the point of a tax abatement is to correct an unfair situation. See Carr v. Town of New London, 170 N.H. 10 (2017).
Disproportionate assessment
Our state Constitution requires property taxes to be assessed proportionately and equally across the taxing district. N.H. Const., Pt I, Art 12; Pt II, Art 5. If one taxpayer pays less than their fair share, it leaves that share to be paid by others. This violates the constitutional mandate that each citizen is bound to contribute his or her fair share of the tax burden. Extracting part or all of one taxpayer’s burden from another taxpayer generally would not be constitutional. See Morrison v. Manchester, 58 N.H. 538 (1879).
To accomplish this goal, taxpayers are entitled to have their property taxes assessed based on the same standard of values as is applied to all other property in the municipality. They are also entitled to pay their proportional share of the overall municipal tax burden. This is the purpose of RSA 75:1, which requires municipalities to appraise all property at market value, which is defined as its “full and true value.” (All property except, of course, those classes of property for which another statute dictates a different measure of value, such as land in current use under RSA chapter 79-A, qualifying historic buildings under RSA chapter 79-G, telecom poles and conduits under RSA 72:8-c, etc.) To arrive at this value, multiple acceptable valuation methods can be used depending on the situation. Three commonly-accepted methods are “replacement cost less depreciation,” “comparable sales/market data,” and “capitalization of income.” The choice of method depends on many factors, including whether the property is income-producing, or if comparable sales data is available, or if the property has unique characteristics. No single method is correct in all cases, and sometimes a combination of methods is most appropriate. However, in every case, the goal is to determine the correct value using the proper standard so that this value is in proportion to the value assigned to other properties in the municipality.
If the appraised value of a property is not correctly determined using whichever valuation method applies, then the taxes assessed on that property using that value are also incorrect. The result is that the taxpayer is being charged more (or sometimes less) than their fair and proportionate share of public expenses. This is what is meant by “disproportionate assessment.” The burden of proving disproportionate assessment is always on the taxpayer. See Dartmouth Corp. of Alpha Delta v. Town of Hanover, 115 N.H. 26 (1975). Proportionality is really the key. The issue is not, technically, whether the property is appraised in excess of its fair market value; the taxpayer must demonstrate instead that the property is assessed at a higher percentage of fair market value than other property in the municipality. See, e.g., Shaw’s Supermarkets v. Town of Windham, 174 N.H. 569 (2021).
Also falling under the umbrella of disproportionate assessment are those situations involving mistakes and other unjust circumstances surrounding the assessment of taxes that result in a taxpayer being assessed more than their fair share of the tax burden:
- If all or a part of a lot was taxed to a taxpayer who did not own it, or if the taxpayer can demonstrate a mathematical error in the assessment, an abatement would be proper. See Winnipiseogee Lake Cotton & Woolen Mfg. Co. v. Laconia, 74 N.H. 82 (1906).
- If a property has been granted an exemption under one of the statutory categories (such as charitable, religious, or governmental use, or something like the exemption for the blind under RSA 72:37) but was then taxed anyway, it would be a proper subject for an abatement request to correct the mistake. Appeal of Taylor Home (BTLA), 149 N.H. 95 (2003).
- If property is damaged or destroyed after April 1, the owner may apply for a prorated assessment under RSA 76:21 or an ordinary abatement under RSA 76:16 so that they are taxed less (or not at all) for the portion of the year when the property was no longer able to be used for its intended use. See also Carr v. New London, 170 N.H. 10 (2017).
- Note, however, that municipalities are not permitted to create their own programs for abatements to address situations that are not authorized by statute. See Barksdale v. Town of Epsom, 136 N.H. 511 (1992) (towns may not create an abatement program to grant $1,000 abatement for all taxpayers who send a child to public school in a different school district; people are not entitled to a tax abatement if they do not personally add to the expenses being funded by those taxes because paying for public programs is part of living in society).
Poverty/Inability to Pay
Inability to pay has long been a basis for tax abatements. “The poor man who has lost his health from accident or disease, who has lost his property by fire or other misfortune…, and to save them from the cold charity of the workhouse,” has good cause for an abatement of taxes. Briggs’ Petition, 29 N.H. 547 (1854). Today, of course, there is no threat of jail or the poor house for failure to pay local property taxes, but inability to pay continues to be a valid reason for an abatement. Although it is quite a different set of circumstances than disproportionate assessment, the common thread is that an abatement is intended to restore fairness to the distribution of the tax burden.
This relief has its limits, however. A taxpayer must demonstrate that they are making reasonable efforts to pay. If a taxpayer has equity in the property, they must show that it is not reasonable to sell/relocate, to refinance, or otherwise to obtain additional public assistance; if not, it would not be equitable to abate the taxes. The mere fact that they spend all of their income on essentials is not sufficient to establish “good cause” for an abatement based on poverty. See Ansara v. Nashua, 118 N.H. 879 (1978). In addition, the Board of Tax and Land Appeals routinely concludes that a taxpayer who has actually paid the taxes in full cannot establish poverty or inability to pay (having, in fact, paid). See, e.g., The Child Advocacy Center of Carroll County v. Town of Wolfeboro, 2025 NH Tax Lexis 8, 2/11/2025, Docket No. 30972-23PV (it made no difference that the taxpayer used funds to pay the taxes which had been earmarked for activities related to the organization’s purpose).
What effect does an abatement have on municipal finances?
A tax abatement does not affect only the finances of the individual taxpayer to whom it is granted. Not to overstate the obvious, but every tax abatement reduces the amount of tax revenue a municipality receives (or retains, if the taxpayer is getting a refund). In addition, when an abatement requires a refund to the taxpayer of taxes previously paid, the municipality must also pay the taxpayer 4% interest on that amount from the date of their payment through the date of the refund. RSA 76:17-a. It can also have effects going forward. If an abatement is granted on the basis that the assessment of the property was too high, the assessment must be kept at that reduced level in future years until either (a) the property is reappraised in good faith under RSA 75:8 after changes are made to it, such as renovation or addition, or (b) a municipal-wide revaluation is performed. RSA 76:17-c.
What is happening here, of course, is that the taxpayers who receive abatements are paying a lower share of the overall tax burden than they were initially charged. So who makes up the shortfall? Everyone else. The reduction of taxes for one taxpayer causes the tax effort to increase for all other taxpayers. (This is the point at which it is important to bear in mind that abatements exist to restore fairness, so they are really reallocating the tax burden among other taxpayers to the level it should have been to begin with.) It does require some adjustments to be made, however. To account for this, the law permits the municipal governing body (select board, town council, city council or mayor/board of aldermen) to choose each year to base that year’s tax rate on a slightly higher total amount to be raised by taxes. This is called the “overlay.” It can be up to 5% of the overall amount that needs to be raised by taxes that year. RSA 76:6. The purpose is to make up the shortfall that the town or city will experience that year when it grants abatements. In a good year, the actual amount of taxes abated will be less than the overlay amount, and the excess will go into the municipality’s fund balance (the total amount of operating surpluses and deficits since the beginning of that municipality’s existence). The fund balance can then be used in subsequent years as a source of revenue for appropriations, to pay for emergencies, or to reduce the tax rate.
Abatements are an inescapable part of property taxation because constitutional mandates for equity and fairness require them when mistakes have been made or when certain inequitable situations arise. While the process can create confusion and headaches, it is something all municipalities must manage and all municipal officials should understand.