Are You Required to Give Financial Statements to Your Municipality?
In the context of real estate tax assessments in New Hampshire, the answer is “No.”
We have seen tax assessors in some municipalities, such as Portsmouth, request income and expense information from at least some commercial landlords. Owners turn the information over, likely under the assumption they are required to do so. In fact, this information has been the subject of an ongoing legislative battle between commercial property owners and tax assessors stretching back may years. Thus far, the commercial owners have won every round, but assessors keep at it, using techniques like these information requests.
Assessors and appraisers value real estate using three primary methods: 1) comparable sales, 2) income, and 3) cost. Municipalities tend to rely on the cost method because they can readily access how much someone paid for a property, and, in theory, they have information on how much someone paid to improve the property. The cost of improvements generally is disclosed as part of the building permit process. Sales of comparable properties are readily available as well. The information required to develop a value using the income method is a different story.
Arriving at a value using the income method requires three pieces of information: gross income, expenses, and a capitalization rate. Although imperfect, cap rates are available through market surveys. Income and expenses, however, are not readily available, for good reason.
First, many commercial property owners consider the amount they charge for rent a trade secret, particularly in a competitive market. The same holds true for tenant concessions and other nuances that go into the actual rent. Ditto expenses. In what industry do competitors know each other’s income and expenses? We can’t think of any.
Another related problem is that no good method exists to keep this information confidential once it has been submitted to the assessor. New Hampshire’s Right-to-Know Law expressly states information concerning tax assessments must remain public. Further, if a municipality were to use the information (otherwise, why ask for it?), any property owner seeking an abatement likely has the right to demand to see it. (Underlying this right is each person’s constitutional right to be taxed proportionally to other citizens.)
Municipalities have tried several times to force commercial property owners to turn over financial information. Attempts to pass laws requiring disclosure of this information have failed to pass the New Hampshire legislature. Allobar’s ownership has actively opposed such attempts in the past, and will continue to do so in the future.
Allobar Strategies provides professional assistance in evaluating the fairness of property tax assessments. If you would like assistance with an evaluation of your property tax, please visit Allobar Strategies or call (603) 333-2211.