2007 Summer, Pg. 14. To Tax, or Not to Tax? Elder Trust v. Town of Epsom Answers the Question.

AuthorBy Glen Fries

New Hampshire Bar Journal


2007 Summer, Pg. 14.

To Tax, or Not to Tax? Elder Trust v. Town of Epsom Answers the Question

New Hampshire Bar JournalSummer 2007, Volume 48, No. 2Annual Survey of New Hampshire LawTo Tax, or Not to Tax? Elder Trust v. Town of Epsom Answers the QuestionBy Glen FriesINTRODUCTION

Tax Exempt or Not? City Will See.(fn1) This was the seemingly benign headline of an article in the May 10, 2005 edition of the Concord Monitor. It discussed a multi-year plan by Concord's assessing department to increase scrutiny on tax-exempt organizations in the city.(fn2) Specifically, Concord, home to more than $1.2 billion worth of tax-exempt property, or 26.5 percent of the total value for all land and buildings in the city, planned to review all tax-exempt properties to determine if they were being "used" for a charitable purpose, and whether the owning entities were serving a charitable purpose.(fn3) The increased scrutiny underscored the fact that just because an entity satisfied the Internal Revenue Code's definition of "charitable," and thus was exempt from paying federal income taxes, the entity must still satisfy New Hampshire's definition of "charitable"(fn4) to remain exempt from paying property taxes.

Concord's announcement and its actions would ultimately have a huge impact on the Centennial Senior Center, a non-profit organization serving senior citizens in the Concord area. The reason? Concord determined the Center owed $100,000 in local property taxes.(fn5) What happened to the Centennial Senior Center is not an isolated incident. The MacDowell Colony(fn6) in Peterborough has faced similar tax scrutiny but possesses the financial resources to mount a legal campaign against the town.(fn7) Farmsteads of New England, a nonprofit organization devoted to caring for people with autism and other developmental disabilities(fn8), recently had its property tax exemption affirmed by the New Hampshire Board of Tax and Land Appeals (BTLA) following a challenge by the town of Hillsborough.(fn9) However, there are countless tax-exempt groups which do not have the resources to pay a hefty property tax bill, not to mention the funds for a lengthy court battle against a municipality.

This article will focus on several aspects of New Hampshire's property tax exemption as it pertains to charitable organizations. First, the article will discuss the current federal and state statutory schemes. Second, it will address recent, high-profile cases in addition to established case law that likely helped shape the ElderTrust of Florida, Inc. v. Town of Epsom(fn10) decision. Third, it will analyze recently published opinions already relying on the four-factor test articulated by the ElderTrust Court. Finally, the article will make recommendations for tax-exempt entities which hope to retain that status in the eyes of their host communities.


A federal tax exemption under Internal Revenue Code Section 501(c)(3)(fn11) does not automatically grant a New Hampshire charitable organization a state property tax exemption.(fn12)

State and federal tax exemption classifications operate independently. A charitable organization may legitimately be entitled to federal tax exemption, but based on the use of its land, must pay property taxes to its host community. The Internal Revenue Service does not collect local property taxes; this function is delegated by the state Constitution to the General Court, which further delegates the authority to municipalities to assess and collect taxes.(fn13) The state has the prerogative to tax or not, and municipalities must apply the law as it relates to charitable entities. For example, in assessing property taxes, municipalities must adhere to RSA 72:23 which provides that, "The following real estate and personal property shall, unless otherwise provided by statute, be exempt from taxation. . . "

The buildings, lands and personal property of charitable organizations and societies organized, incorporated, or legally doing business in this state, owned, used and occupied by them directly for the purposes for which they are established, provided that none of the income or profits thereof is used for any other purpose than the purpose for which they are established. (RSA 72:23, V).(fn14)

The potential conflict between state and federal tax-exempt classifications can be frustrating and confusing for charitable organizations that believe they are in compliance with federal and state guidelines, yet face heavy municipal and state scrutiny on issues such as land use, public benefit derived from the organization, and pecuniary profit, if any, derived by board members or officers of the organization.(fn15)


New Hampshire has a specific procedure for an appeal by an organization or individual aggrieved by the assessment of tax on its property. After receiving notice of its tax liability, the aggrieved party may, by March 1 of the current year, apply in writing to the town selectmen or assessors for an abatement of the tax.(fn16) Upon receipt of an application for tax abatement, the selectmen or assessors shall grant or deny the application in writing by July 1.(fn17) The failure of the selectmen or assessors to respond automatically constitutes a denial of the abatement.(fn18)

Should the municipality deny a charitable organization's tax exemption under RSA 72:23, V, the taxpayer may pursue one of two legal avenues. The first is to appeal the municipality's decision to the BTLA(fn19) by September 1.(fn20) An order of exemption, abatement, or tax credit by the BTLA has the full effect of law and may be enforced as any final judgment of the superior court.(fn21) RSA 72:23-m places ". . . the burden of demonstrating the applicability of any exemption. . . upon the claimant."

A charitable organization denied a property tax exemption may also choose to appeal directly to the county's superior court.(fn22) As with an appeal to the BTLA, a superior court appeal must be filed by September 1.(fn23) The differences between an appeal to the BTLA or the superior court rest in the procedure governing the hearing. An appeal to the BTLA is decided by a four-member Board and evidence rules are relaxed, while a hearing in the superior court is a traditional court case before a judge, adhering to formal rules of evidence.(fn24) Although the taxpayer is advised to consult an attorney before appearing before either the BTLA or superior court, going pro se before the BTLA can be a more feasible alternative because of the informal atmosphere. The losing party may appeal an adverse decision by the BTLA or superior court to the New Hampshire Supreme Court.(fn25) Appeals from the BTLA are discretionary and governed by Supreme Court Rule 10, Appeal from Administrative Agency. Appeals from a superior court, however, are mandatory under Supreme Court Rule 7, Appeal from Trial Court Decision on the Merits.


Late 2006 and early 2007 saw several charitable tax-exemption cases move beyond the municipality level to the BTLA and superior court. In addition to MacDowell Colony(fn26), the two cases highlighted below, both heard by the BTLA, emphasized the rising tension between tax assessors and tax-exempt organizations in their communities. After an examination of the facts in each case, the BTLA granted tax-exemptions in both.

Farmsteads of New England, Inc. v. Town of Hillsborough(fn27) involved the status of a farm organized to "care for people with autism and other developmental disabilities in a `holistic lifestyle' environment that is supportive of their vocational, residential, and recreational needs. . . " The town denied the charitable tax exemption of a 36.7-acre lot with buildings because it believed the taxpayer did not meet its burden of proving it was "providing charitable services to the general public or a substantial and indefinite segment of the general public" and that Farmsteads' charter was too vague to fulfill the `obligation' requirement.(fn28) More specifically, the town claimed the services provided by Farmsteads were "too narrowly targeted and specialized" since only a small number of autistic individuals might derive a benefit.(fn29) However, the BTLA reversed and granted a full tax exemption, reasoning that size of a charitable organization's client base and the population it serves should not be the deciding factor in granting a tax-exemption.(fn30) In dicta, the BTLA surmised that it would be unlikely that the government and the public would support such a residential treatment facility for autistic people if it was deemed to be of little or no benefit.(fn31) Finally, the BTLA admonished the town for engaging in "clinical second-guessing" as to whether residential care was necessary for developmentally disabled individuals.(fn32)

In Girl Scouts of Swift Water Council v. Town of Antrim(fn33), the town denied the tax exemption for a parcel of land at "Camp Chenoa" which had been granted a full charitable exemption for the preceding 12 years. The parcel of land in question was primarily undeveloped, but used by the Girl Scouts for a variety of "hiking, camping, and outdoor orienteering activities," thus justifying the land's undeveloped nature.(fn34) Although the town cited cases such as Nature Conservancy(fn35) and First Congregational Church of Laconia(fn36), both standing for the proposition that...

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