New Hampshire High Court Upholds Unpopular Tax
By Norma Love, Special to Stateline
A sharply divided New Hampshire Supreme Court Thursday upheld the constitutionality of the state's education property tax, which the state relies on for more than half its aid to public schools.
However, the court warned the state it should correct problems with property assessments that led a lower court to declare the tax unconstitutional. It said the state should be able to fix the tax before it expires in 2003.
The 3-2 decision preserves the linchpin of the system for raising money for a dramatic increase in school aid ordered by the court in 1997. The property tax raised more than half of the $825 million in annual state aid. Next year, state aid will be $881 million.
The Legislature is in the midst of a heated debate over how to supplement or replace the tax, which expires in two years. Options include an income tax, a sales tax, and higher taxes on businesses, all of which failed to clear the House recently.
Most plans rely on a package of taxes including a statewide property tax. New Hampshire is one of only two states with no general income tax or sales tax, and anti-tax sentiment runs high. Gov. Jeanne Shaheen, who pledged to veto an income tax during her first two terms, declined to renew the pledge last year. Instead, this year she backed a sales tax plan.
The state's failure to pass enough taxes to pay for schools two years ago left the state with a projected deficit that could top $200 million over the next two years. As a result, Wall Street rating agencies say the state must act soon to avoid a drop in its bond rating, and a court ruling against the state would have added pressure to an already tense situation.For most communities, the state tax money is used locally, replacing some local property taxes. But in about 50 wealthy communities, a portion of the revenue is used to subsidize schools in poor communities.
The so-called donor communities sued shortly after the state passed the final version of the tax in November 1999. In January, Superior Court Judge Richard Galway ruled that local property appraisals were suspect and state procedures to ensure fairness and accuracywere inadequate. He said the state had not objected to a demand that it refund all $884 million collected during the first two years the tax was in effect and said the state should make the refunds.
The Supreme Court said the system could stand for now, but problems must be fixed."What the plaintiffs proved was that the taxing system is flawed," the majority wrote. "What they did not prove is that the flaws resulted in a systematic pattern of disproportionate taxation."
The court said the towns failed to prove taxpayers were harmed despite problems with the tax. It said tax challengers had to prove a "systematic pattern of taxation that is not proportional and reasonable" and a "widespread scheme of intentional discrimination."
"Isolated or inadvertent lack of uniformity will not suffice," the court said.
In a scathing dissent, Chief Justice David Brock and Justice John Broderick said the majority had made it almost impossible to successfully challenge taxes on constitutional grounds. "The majority today adopts a new standard, not even advocated by thestate in the trial court...," they said. "In doing so, the majority raisesthe bar significantly for taxpayers challenging unequal and unfair taxingschemes."
On another key point, the court said that while the state must take pains to ensure that property assessments are accurate and current, it need not do a physical revaluation every five years. It said a constitutional requirement for revaluations every five years applies to large classes of property. "The record in this case shows that steps are already being taken" toward ensuring accurate assessments, it said.
Brock and Broderick disagreed, arguing that the only way to achieve equity among individual taxpayers is to revalue each property. Justices Joseph Nadeau, Linda Dalianis and James Duggan supported the unsigned majority opinion.
Portsmouth Mayor Evelyn Sirrell, the lead plaintiff in the lawsuit, called the ruling "a bunch of garbage."