It is property assessment season in New Hampshire. In overly simple terms, formal assessments of property are performed every five years in New Hampshire to provide the information for calculating NH taxes on that property. Almost all state, local, and school revenue depends on property taxes so this is of great importance to get right.
It is also disproportionately impactful on people living on fixed or limited income and people on the lower end of the income scale. The impact this year is particularly bad because the assessed value of manufactured homes in my town went up 140%. The next highest category, residential land, went up “only” 70%.
This is a serious problem because property taxes are one of several regressive taxes. It puts a much higher overall tax burden as percentage of income on lower income families and households on fixed incomes, even if they are renting.
I had to construct an example to truly understand the importance of this issue.
An Example of a Lower-Income Household
Meet Alex:
- Living Situation: Alex lives in a manufactured home.
- Property Value: Their home is valued at $50,000.
- Fixed Income: Alex has a fixed annual income of $20,000, which they receive from Social Security and a small pension.
- Property Tax Rate: The property tax rate in their area is 3.5%.
Calculating Alex’s Property Tax
Property Tax Amount: The annual property tax on their home would be:
Property Tax = Property Value × Tax Rate
Property Tax = $50,000 × 0.035 = $1,750
Percentage of Income Paid in Property Taxes:
Comparison with a Higher-Income Household
Meet Jordan:
- Living Situation: Jordan lives in a house valued at $750,000.
- Income: Jordan has an annual income of $200,000.
- Property Tax Rate: The same property tax rate of 3.5%.
- Property Tax Amount: The annual property tax on Jordan’s home would be:
- Property Tax = $750,000 × 0.035 = $26,250
- Percentage of Income Paid in Property Taxes:
Analysis
Alex and Jordan both pay the same percentage of their property’s value in taxes (3.5%). However there is a disproportionate (i.e. unfair) impact on their incomes:
- Alex’s income is just enough to cover their basic living expenses. Paying $1,750 in property taxes significantly impacts their ability to afford necessities like food, healthcare, and utilities. For Alex, this $1,750 tax is 8.75% of their total income.
- For Jordan, the $26,250 property tax bill is also substantial, but their higher income allows for more financial flexibility. Even though Jordan pays 13.13% of their income in property taxes, they still have $173,750 left after taxes, which is more than enough to cover their expenses and maintain a comfortable lifestyle.
But It Gets Worse
The situation is even worse when the percentage increase in the assessed value of the higher value home goes up less than the percentage increase of the lower value home. (Note, this was originally created with the old 6% tax rate. It now uses 3.5%.)
| Name | Original Property Value ($) | Property Value Increase (%) | New Property Value ($) | New Property Tax Amount ($) | Old Percentage of Income Paid in Property Taxes (%) | New Percentage of Income Paid in Property Taxes (%) |
| Alex | $50,000 | 140% | $120,000 | $4,200 | 8.75% | 21% |
| Jordan | $750,000 | 70% | $1,275,000 | $44,625 | 13.13% | 22.3% |
The disproportionate increase in the assessed value not only has a greater impact on Alex’s percentage of income it also will likely force Alex to make very difficult financial decisions where Jordan probably is better able to absorb the financial impact.
Conclusion
This example illustrates that while the property tax rate is the same, the impact on Alex is very severe due to their lower fixed income. Although Jordan pays a higher percentage of their income in property taxes (22.3% compared to Alex’s 21%), they have a much higher income to begin with, which cushions the financial blow.