When Rusty Keith looked at the numbers it seemed wrong.
Keith, who then served as a selectman in Lyme, was stunned to see the poorest residents subsidizing the taxes of the richest landowners in the rural west New Hampshire town. It was perfectly legal because of a tax policy called electricity use.
“They’re getting all of these benefits for their current use, and they’re the richest people in town,” said Keith.
Current use is a policy that allows agricultural land to be valued at a lower value – land value is based on its use and not on its value in the market where it could be sold for development, for example. This is known as the use value assessment. The current use of land means a much lower tax burden for the landowner who, in return, promises not to develop the land.
It’s actually a very popular tax policy in New Hampshire, where over 50 percent of the land is currently in use in a state that prides itself on open, vacant land. In 2019, New Hampshire had over 3 million acres out of the 5.74 million acres in total. This land is shared among 42,096 individual landowners, or 3 percent of the state’s 1.38 million residents.
Keith argues that the current use is unfair to low and middle income taxpayers and rural cities who bear the disproportionate burden of politics. Only parcels of 10 hectares or more can currently be used, so that they remain inaccessible for many. And in rural cities like Lyme, where 26,203 of the city’s 34,460 acres are currently in use, this puts the community in dire financial straits. Most critics of the current use are not against this goal, but they do wonder if it is the right policy tool to achieve it. For the past seven years, Keith has worked to change the state’s current usage policy.
While information on the formulation of the current excise tax rate has not been publicly disclosed, this will change in part because of Keith’s endorsement. A recently signed law – Senate Law 48 – requires more transparency about how current excise tax rates are set.
“This gives us the data to tell if there is something wrong in the data source giving these extremely low rates,” said Keith, who estimates that Lyme Land, which is currently in use, charges about 2 percent of normal tax will evaluation. For example, a property purchased for over a million dollars was taxed at a value of $ 11,000.
The increase in current usage
Tax policy was introduced in 1973, after a decade of growth in the 1960s when property values rose rapidly and property taxes came with them. Urban sprawl and rapid development emerged through the state, and the legislature endeavored to maintain small family businesses, an undertaking that seemed increasingly precarious.
Some landowners in the state firmly believe that it made the law a resounding success. David Babson is one of them, and his support for its current use stems from some of the same concerns that date back to the 1960s.
“The purpose of the law is so that we don’t get overrun by people from other states,” said Babson, who is on the board of directors of the current New Hampshire Beneficiary Coalition known as SPACE.
“I love the law,” he said. “I firmly believe in it, and I think we shouldn’t touch it or tinker with it.”
Without them, Babson said, he would have to sell the 300 acres he owns in Ossipee because taxes would be too expensive. For Babson and other advocates of current usage, the lower tax rate is a fair equation, as agricultural land is less costly for public services. If no country is developed, there are no costs for the children to attend school, for example. Babson supported the new transparency measure. Overall, he regards politics as the achievement of its primary goal.
“It keeps land open,” said Babson. “It does what it should.”
But economists looking for evidence to support this claim disagree.
“We don’t find much evidence that the value-in-use assessment actually keeps the family business in the long run or stops development,” said John Anderson, professor of economics at the University of Nebraska-Lincoln.
And Darshana Udayanganie, an economist who wrote a dissertation on current usage in New Hampshire, agreed that current usage tends to successfully delay development, not stop it entirely.
The pressure to develop is usually so strong that the potential to make money from developing the land is greater than the property tax savings from current use. This is partly because a landowner’s promise not to develop their land can be broken. The owner who sells the property has to pay a fee: 10 percent of the market value. However, a UNH study showed that in each case examined, the fee was lower than the profit made on the sale of the property for the development.
“It really doesn’t have much success as a policy tool in terms of maintaining family farms or maintaining prime agricultural land,” said Anderson. And that’s not a controversial claim – there is a relative consensus among economists about that.
Economists say the fairness issue Keith raises is legitimate.
“If you do the current use, you put more stress on other people,” said John Halstead, UNH economist.
This shift in property tax charges could result in low- and middle-income households paying hundreds of dollars more each year, according to a 2013 report.
“It creates all sorts of problems with justice,” said Anderson.
The best quality farmland is often flat and has good drainage properties that also make it most desirable for development.
Economists have found that today’s use on the edge, for example on the outskirts, can work well. But in the middle of arable land, the land use value often equals the market value. In other words, the land is valuable for agricultural purposes and is not sought for, for example, housing.
Current usage criticism
Its current usage has also drawn criticism as a policy that invites so-called fake farmers who use the policy to cut their tax bills. Companies have also used politics to their advantage. BMW, for example, cut its tax bill on a 20-acre New Jersey campus to $ 373.52 thanks to an apple and peach orchard on the property. A homeowner nearby paid nearly ten times the tax on a four-acre property, according to reports from the New York Times.
In New Hampshire, the Free State Project promotes current usage policies on its website to attract potential libertarian newcomers to the state.
“For many free staters, acreage is one of the most important features of finding a home in New Hampshire,” said a 2018 blog post. “But the downside of all the peace and quiet can be a pesky property tax bill.”
“In New Hampshire, there is one way to save taxes when you own more than 10 acres: current use,” it says.
Without a broad-based income or sales tax, New Hampshire is heavily dependent on property taxes. Joan Youngman, an attorney at Lincoln Institute for Land Policy, noted in her 2016 property tax book that current usage “has contributed to the effective rates for fully taxable property, which are among the highest in the country.”
In the book A Good Tax, Youngman argues that current use “should be viewed as a tax expense and assessed in light of lost revenue and the increased burden it imposes on remaining taxpayers.”
“Valuation of use value can result in huge losses in property tax revenues without achieving long-term conservation of arable land,” writes Youngman.
Youngman and Anderson have indicated interests that may be at play in sustaining tax policies that they believe cannot be implemented. They refer to an “alliance between agricultural and environmental interests”.
“The cynical view would be that it is simply a transfer to agricultural landowners, who are often politically active and organized,” said Anderson.
In her book, Youngman compares it to Bruce Yandle’s paradox “Bootleggers and Baptists”.
“In Yandle’s example, Baptists provide the moral case for banning the sale of ‘demon rum’ on the Sabbath, while smugglers advocate the same goal because it protects them from competition,” she writes.
Today she compares environmentalists with Baptists and advocates keeping land open while the agricultural lobby “works behind the scenes to influence the political process”.
And Keith agrees. He points to New Hampshire forestry and the policies that subsidize it.
But outside of the State House, Keith sees that the policy is being misused in other ways. One property in town that Keith knows is currently in use recently built an $ 8 million home.
“There is no forestry, there is no agricultural activity. They mow the grass like an estate, ”he said.
Keith has already sent a request to the state for the current usage formula. He’s still waiting to hear something.