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Sunday, July 27, 2014

Process sets a dangerous precedent

Telegraph Editorial

There is a hue and cry being raised over the state of New Hampshire’s real estate transfer tax, a 1.5 percent levy that is paid when most property in the state changes hands.

Specifically, Republicans say Democratic Gov. Maggie Hassan is trying to do an end-run around the Legislature by applying the tax to shorter-term leases on things like cell towers. ...

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There is a hue and cry being raised over the state of New Hampshire’s real estate transfer tax, a 1.5 percent levy that is paid when most property in the state changes hands.

Specifically, Republicans say Democratic Gov. Maggie Hassan is trying to do an end-run around the Legislature by applying the tax to shorter-term leases on things like cell towers.

The issue surfaced after the Department of Revenue Administration, which collects taxes for the state, included the shorter ground leases – those less than 99 years – in a package of department rules that were up for renewal.

If Hassan wants to expand the tax, she should go through normal legislative channels, said state Sens. David Boutin and John Reagan, a pair of Republicans.

“The law clearly states that the real estate transfer tax doesn’t apply to short-term leases, and the governor knows it,’’ Boutin said.

“She has taken a page out of Barack Obama’s book and is trying to use a pen and a phone to do whatever she wants without legislative authority,” said Republican Walt Havenstein, who is seeking Hassan’s job.

It may be helpful to step back from the cauldron of election-year politics and take a more detached look at how the tax has been applied in the past.

Sen. Boutin is wrong, though not entirely. The law is silent on the issue of leases, but gives the Department of Revenue Administration broad authority to write rules governing the tax’s implementation.

The rules the department formulated spell out that ground leases longer than 99 years are subject to the RETT. If the agency was also going to tax shorter-term leases, you’d think the rules would say that, too.

They don’t. Instead, the DRA implemented – quite legally – what critics see as a stealth tax on ground leases longer than 30 years.

We can understand how they see it that way.

DRA Commissioner John Beardmore said his department has applied the real estate transfer tax to property leases of 30 years or longer for several years. Exactly how long – and how much money it takes in – isn’t clear, though an article in the April 2007 issue of the New Hampshire Bar News by Concord attorney R. Carl Anderson observed that “almost all leases are exempt from the transfer tax; only those with a term 99 years or greater are subject to the tax.”

That would suggest that the practice of taxing shorter-
term ground leases isn’t exactly ancient.

All of which raises the question: If neither the law nor the rules that implemented it mention shorter-term leases – but other types of leases are mentioned – does DRA even have the authority to levy a tax on those transactions?

It does. The department relied on the vaguest language in the section of the rule that says “All transfers of real estate or interests in real estate” are subject to the tax. The key there is the “or interests” section, which the department interpreted to allow a tax on the shorter-term leases.

Now, with the rules expiring, DRA officials tried to include specific language to cover those ground leases in the new rules, but backpedaled after Republicans balked.

A spokesman for Hassan said, “The governor wants to ensure that all taxpayers are treated fairly. As laid out by Commissioner Beardmore, the rule was withdrawn by the department on July 8 because the department understands that it was poorly constructed.”

Allowing an agency to levy a tax via rulemaking is bad policy, and Hassan had the bad luck to be governor when the music stopped and the rules had to be renewed, shining a light on a flawed process.

At the same time, those lawmakers who are complaining about the tax should keep this episode in mind as an example of why the state is almost always better off when legislators provide as much guidance as possible to those who are charged with carrying out the law.

If they want something exempt, they should write the law to explicitly say so, regardless of how taxing it might be.