The New Hampshire Bureau of Tax and Land Appeals has set precedents for using the Income Approach in appraisals for tax abatements
- Use fee simple interest, not leased fee interest. The capacity for earning income, not actual income, reflects the fair cash value of the non-regulated privately owned commercial property for taxation. When the actual income from long-term leases does not reflect the true value of the property because the leases were made in a time of boom or depression or as a result of poor management, the board may reject or give little weight to the capitalization of actual net income method. The board took the position that the market value of the commercial rental property was based upon the capacity income the property could generate and not the actual income derived. Then it stated: “A long-term lease for an unfavorable rent may impair the selling price, but the valuation of the property for local taxation cannot vary with the managerial successes or failures of the owners.
- Cannot tax leasehold interest, only the fee. One can consider vacancies and can assume they will increase due to new competition. In determining the market value of rental property, prospective as well as present and past earnings are an important element, and any immediate prospect of an increase or decrease in earnings should be taken into consideration.
- Federally controlled rents can lower the assessment. The Supreme Court held that factor of federal subsidy or regulation should have been weighed to the extent it was found relevant in tax abatement proceeding involving a federally regulated housing project, which limited income to be received by owner.
- The tax factor is mil-rate x Median Equalization Ratio. Do not use the Weighted Mean Ratio. As stated in the DRA’s “Equalization Manual” (available on its website): “the median is the generally preferred measure of central tendency for assessment equity, monitoring appraisal performance, and determining reappraisal priorities or evaluating the need for a reappraisal” “the weighted mean is the generally preferred measure of central tendency for computing the total aggregate value of a jurisdiction for indirect equalization,” Consistent with these distinctions, the median ratio is typically applied in property tax appeals to determine whether a property is proportionally assessed within a municipality in relation to other properties.
- Cost Approach
