| December 17, 1997 NH Supreme Court Claremont II Decision | Page 65 |
As the trial court noted in its order, the total value of the property subject to taxation for local school revenue varies among the cities and towns of New Hampshire.
To some extent, the amount of revenue that a school district raises is dependent upon the value of the property in that district. This point can be illustrated by a comparison of petitioner district Franklin and its comparison district Gilford. In 1994, Franklin's "equalized property value" (property assessed at 100% of fair market value) per student was $183,626, while Gilford's equalized property value per student was $536,761. As a result, "property rich" Gilford had a significantly greater assessed value upon which taxes could be imposed for the support of its schools than did Franklin. Gilford raised more money per student than Franklin, even while taxing its residents at lower rates.The plaintiffs argue that the school tax is a unique form of the property tax mandated by the State to pay for its duty to provide an adequate education and that the State controls the process and mechanism of taxation. Because of the purpose of the tax and the control exerted by the State, the plaintiffs contend that the school tax is a State tax that should be imposed at a uniform rate throughout the State. The State argues that "[b]ecause the school tax is a local tax determined by budgeting decisions made by the district's legislative body and spent only in the district, it meets the constitutional requirement of proportionality." According to the State, "property taxation is a stable and expan[dable] source of revenue which allows the citizens of New Hampshire to decide how to organize and operate their schools in a manner which best meets the needs of their children." The question of whether property taxes for schools are local or State taxes is an issue of first impression.
Part II, article 5 of the State Constitution provides that the legislature may "impose and levy proportional and reasonable assessments, rates, and taxes, upon all the inhabitants of, and residents within, the said state." This article requires that "all taxes be proportionate and reasonable - that is, equal in valuation and uniform in rate." Opinion of the Justices, 117 N.H. 749, 755, 379 A.2d 782, 786 (1977) (citation omitted); see Johnson & Porter Realty Co. v. Comm'r of Rev. Admin., 122 N.H. 696, 698, 448 A.2d 435, 436 (1982) (tax must be in proportion to actual value of property and must operate in reasonable manner). "[T]he test to determine whether a tax is equal and proportional is to inquire whether the taxpayers' property was valued at the same per cent of its true value as all the taxable property in the taxing district." Bow v. Farrand, 77 N.H. 451, 451-52, 92 A. 926, 926 (1915). "[T]he property shall be valued within a reasonable time before the tax is assessed." Id. at 452, 92 A. at 926.
In defining the taxing district, the trial court reasoned that whether a tax is a State tax or a local tax depends on "the entity that controls the mechanics of assessment and collection" and "the disposition of the tax revenues after their collection." The court found that each municipality controls the mechanics of assessment and collection of local property taxes, including the budgeting function and the determination of the local assessed value of property within each municipality. In addition, the court found that the property tax, once collected, is managed and expended by each municipality in accordance with its budget and thus does not become a part of the State treasury. The court concluded, therefore, that the school tax is a local tax and not a State tax. Because the trial court found there was no evidence that the school tax operated disproportionately within any local taxing district, it concluded that there was no violation of part II, article 5.
Determining the character of a tax as local or State requires an initial inquiry into its purpose.In order . . . that the tax should be proportional . . . it is required that the rate shall be the same throughout the taxing district; -- that is, if the tax is for the general purposes of the state, the rate should be the same throughout the state; if for the county, it should be uniform throughout the county; -- and the requisite of proportion, or equality and justice, can be answered in no other way.
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