Sirrell v. State
| Decision Date | 03 May 2001 |
| Docket Number | No. 2001–063.,2001–063. |
| Citation | 146 N.H. 364,780 A.2d 494 |
| Court | New Hampshire Supreme Court |
| Parties | Evelyn SIRRELL and another v. STATE of New Hampshire and another. |
Flygare, Schwarz & Closson, P.L.L.C., of Exeter (Thomas M. Closson and Daniel P. Schwarz, on the brief and orally), for the plaintiffs.
Philip T. McLaughlin, attorney general (Stephen J. Judge, associate attorney general, on the brief, and Mr. Judge orally), Daschbach, Cooper, Hotchkiss & Csatari, of Lebanon (Deborah J. Cooper, on the brief), and Dewhurst & Greene, P.L.L.C., of Bedford (Arthur G. Greene, on the brief and orally), for the State.
Hale and Dorr L.L.P., of Boston, Massachusetts (Stephen A. Jonas, on the brief), for the Governor, as amicus curiae.
Betsy B. Miller and Richard J. Lehmann, of Concord, for the Speaker of the New Hampshire House of Representatives and the President of the New Hampshire Senate, as amicus curiae.
The State appeals orders of the Superior Court (Galway , J.) granting the plaintiffs' declaratory judgment petition, finding the statewide property tax unconstitutional as applied, and requiring the State to repay the $880 million collected under the tax to date. We reverse.
In December 1999, three property owners from three different communities filed a petition for declaratory judgment and injunctive relief challenging the constitutionality of the property tax as applied statewide. The plaintiffs challenged both the assessment method of the tax and the distribution method after collection. After a six-day bench trial, the trial court concluded that the statewide property tax as applied violates Part II, Articles 5 and 6 of the New Hampshire Constitution but that the distribution method does not violate the plaintiffs' right to equal protection. The trial court ruled that the State had agreed to repay $880 million if the tax was found unconstitutional and ordered that relief.
The issues before us are: (1) whether the trial court erroneously determined that the statewide property tax, as applied, violated Part II, Articles 5 and 6 of the New Hampshire Constitution ; and (2) whether the trial court erroneously ruled that the State had an obligation to repay $880 million if the statewide property tax is found to be unconstitutional. The plaintiffs have not appealed the trial court's ruling rejecting their equal protection claim, and therefore we do not address it.
Following our decision in Claremont School District v. Governor , 142 N.H. 462, 703 A.2d 1353 (1997) (Claremont II ), the legislature passed House Bill 117, establishing a statewide property tax to help fund the State's obligation to provide a constitutionally adequate public education. See Laws 1999, ch. 17. House Bill 117, however, contained a provision that allowed certain communities to phase in the full rate of the tax over five years, which this court found unconstitutional. See Claremont School Dist. v. Governor (Statewide Property Tax Phase–In ), 144 N.H. 210, 212, 744 A.2d 1107 (1999) ( Claremont III ). The legislature subsequently passed House Bill 999, which reenacted the statewide property tax without the phase-in provision and provided that the tax will expire at the beginning of 2003. See Laws 1999, ch. 338.
House Bill 999 imposes a tax at the rate of $6.60 per $1,000 of the value on certain real property across the State. See RSA 76:3 (Supp.2000). The New Hampshire Department of Revenue Administration (DRA) calculates the total amount of the statewide property tax to be raised by each municipality based upon the equalized value of the property within its borders. See RSA 76:8 (Supp.2000). The New Hampshire Department of Education calculates the total amount of adequate education funds that each municipality needs to educate its students, based upon the number of students within its borders. See RSA 198:40 (1999). Under the statute's distribution formula, communities that raise more funds through the tax beyond that necessary to fund an adequate education for their students are required to pay the excess funds to the education trust fund for distribution to communities unable to raise sufficient funds to meet their cost of adequacy. See RSA 198:39, :41,: 42,:46 (1999 & Supp.2000). This has resulted in the characterization of some municipalities as "donor" communities and others as "receiver" communities, although House Bill 999 contains no such designations. The plaintiffs in this case are from "donor" communities.
For the 2000 tax year, $825 million was the amount required to fund an adequate education for each school child in the State. Of this amount, $442 million was raised through the statewide property tax. Of the $442 million, $418 million was distributed directly to the school districts of the municipalities where the money was collected. The remaining $24 million was placed in the education trust fund with $383 million from the other revenue sources and distributed to municipalities with insufficient property values to raise an amount necessary to fund an adequate education in their school districts.
Statewide property tax bills reflect the equalized value of property as of April 1 of each year. See RSA 76:2 (1991); RSA 76:8, I (Supp.2000); RSA 21–J:3, XIII (2000). The selectmen or the assessors in each municipality annually determine the local assessed value of the property within each municipality as of April 1. See RSA 74:1 (1991); RSA 75:8 (1991). Each municipality completes a form that lists the total value of its properties, the changes to its properties, and any exemptions and credits claimed. This information is supplied to the DRA.
RSA 21–J:3, XIII requires the DRA to "[e]qualize annually ... the valuation of the property as assessed in the [municipalities] in the state ... by adding to or deducting from the aggregate valuation of the property ... such sums as will bring such valuations to true and market value of the property." The first step in the equalization process involves a ratio study which compares, within each municipality, the assessed property values submitted by the municipality to the sales prices of all properties sold in the municipality in the prior year. See RSA 21–J:9–a (2000). Sales information is provided to the DRA by a private company with which the State contracts to collect information from the registry of deeds in each county. The DRA then performs a sales screening process so as to include only "arms-length" transfers of property. See id. Assessing officials within each municipality are required to certify the information necessary for the DRA to conduct the annual sales-assessment ratio study. See id.
Once sales are screened, the DRA establishes an individual sales/assessment ratio based upon the sales and assessment information from each municipality for each property used in the study. The DRA then calculates three ratios based upon the assessment and sales information for each municipality. First, the median ratio is calculated by arraying the individual ratios from the highest to the lowest. The median ratio is the middle. Second, the mean ratio is calculated by averaging the individual ratios. Third, the weighted mean or aggregate ratio is calculated by dividing the sum of the assessed values for all properties in a community for which there have been sales by the sum of their sale prices. The DRA then determines which ratio best equalizes all of the property in each municipality. Most often, the DRA chooses the median ratio.
The DRA next uses the selected ratio to adjust the municipality's assessed values, either upward or downward, in order to approximate full value. As the DRA explains in its brochure:
Adjustments are not made to any individual properties. Rather, the total value of all property in town is adjusted based upon the comparison of recent property sales with local property assessments. For example, if the comparison of recent sales indicates that on the average, the town is assessing property at 90% of market value, then the total local assessed value of the town would be increased by 10% in order to approximate the town's full value. If the comparison indicates that, on the average, the town is assessing at 105% of market value, then the total local assessed value would be decreased by 5%.
Once the equalized property valuations are determined, each municipality's equalized valuation is multiplied by $6.60 per $1,000 to determine the portion of the statewide property tax each municipality must raise. See RSA 76:8. To determine the rate paid by individual taxpayers, each municipality divides the uniform rate by the percentage that the DRA used to equalize its property.
The final step in the DRA's annual ratio study is to calculate the coefficient of dispersion (COD) for each municipality. The COD measures the percentage that individual municipality ratios, on average, deviate from the median ratio. A COD of ten, for example, indicates that the sales/assessment ratios in a municipality, on average, deviate from the median sales/assessment ratio by ten percent.
Establishing "the rules by which each individual's just and equal proportion of a tax shall be determined is a task of much difficulty, and a very considerable latitude must be left to the legislature on the subject." Opinion of the Justices , 77 N.H. 611, 615, 93 A. 311 (1915) (quotation omitted). In reviewing the statewide property tax, we determine only whether there is a "clear conflict with the Constitution" in the tax as applied, and do not concern ourselves with whether the tax is "wise, reasonable, or expedient." Petition of Boston & Maine Corp. , 109 N.H. 324, 325–26, 251 A.2d 332 (1969) (quotation omitted). As we have often stated, our task is neither to establish educational policy nor to determine the appropriate mechanism for its funding. See Claremont II , 142 N.H. at 475, 703 A.2d 1353. The statewide property tax law, like any...
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