NH Supreme Court rules wealthy municipalities can keep excess education property tax by NH Business Review for Michael Kitch

In a decision dissenting Senior Associate Justice James Bassett called “an unfortunate triumph of form over substance,” the NH Supreme Court has ruled that some 30 municipalities with abundant property wealth are entitled to retain proceeds from the Statewide Education Property Tax (SWEPT) that exceed their costs of an adequate education.
Chief Justice Gordon MacDonald wrote the opinion, and Associate Justices Patrick Donovan and Melissa Countway concurred to form the majority while Bassett dissented in part and concurred in part. Justice Anna Barbara Hantz Marconi remained on administrative leave.
The SWEPT is levied on taxable property throughout the state at a uniform rate set to raise $363 million a year. The tax is collected by municipalities, and the proceeds are appropriated to school districts to defray the cost of an adequate education. The state calculates each district’s cost by multiplying its enrollment by the cost per pupil. Initially municipalities where the tax raised more than required to meet the cost were required to remit any excess to the state.
However, in 2011 the Legislature, with the support of Democratic Gov. John Lynch, repealed the requirement to remit excess SWEPT receipts to the state and entitled municipalities to retain any excess. In 2024, more than two dozen cities and towns retained $26.3 million.
Meanwhile, the NH Department of Revenue Administration (DRA) has set negative local school tax rates in 21 incorporated places — most without schoolchildren and many without inhabitants — offsetting the SWEPT. In FY 2024 taxable property valued at $171.3 million was spared from taxation altogether.
Steven Rand and other property owners, represented by attorneys Andru Volinsky, John Tobin and Natalie Laflamme, brought suit, charging that retaining the excess SWEPT and setting negative tax rates, reduced the effective rate of the tax, contrary to the constitutional requirement that state taxes be uniform in rate throughout the state.
In November 2023, Superior Court Judge David Ruoff ruled for the plaintiffs, holding that retaining the excess funds lowered the effective rate of the tax, which serves to measure the legitimacy of a tax. Both the state and Coalition Communities, a confederation of affluent municipalities, appealed Ruoff’s order.
The court held with the state and Coalition Communities that the retention of excess SWEPT represents “a paradigmatic legislative spending directive that, standing alone, does not implicate Part II, Article 5,” the tax provision of the state Constitution. Applying SWEPT funds beyond what is required to meet the cost of an adequate education, they wrote, “has no effect on the uniform SWEPT rate assessed to each taxpayer across the state.” Likewise, “there is no evidence in the record that these effective rates are actually paid by taxpayers.”
In his dissenting opinion Bassett had none of it. Flatly rejecting the notion that the SWEPT scheme is a spending decision, he noted that municipalities raise and collect the tax and wrote “Simply put the state cannot spend funds that the state never collects.”
The impact of the excess SWEPT funds is “anything but theoretical and indirect” as the majority contends. Instead, he wrote that “the effective rate reductions these taxpayers enjoy is real and direct.” Bassett recalled that court rejected several similar efforts to spare affluent municipalities the full weight of the SWEPT in the wake of the Claremont decisions
“The majority,” Bassett wrote, “looks past the fundamental economic reality that money is fungible, and that when communities retain excess SWEPT revenue the local education tax rate is reduced and the overall property tax burden for the taxpayers in those communities is likewise reduced.”
For example, he notes that on an affidavit the town administrator of Moultonborough explained that without the excess SWEPT municipal projects would be stalled, public services limited and property taxes increased.
The plaintiffs prevailed only on the question of negative tax rates in the unincorporated places. The justices agreed the practice of setting negative tax rates to offset SWEPT in incorporated places violated the constitution, but refrained from ordering a remedy for what it called a “constitutional infirmity.”
Instead the court placed the responsibility on the other branches of government. Although governors and legislatures have failed to honor the Claremont orders for three decades, the justices declared “When the law is settled it will be obeyed.”
Meanwhile, the NH Department of Revenue Administration (DRA) has set negative local school tax rates in 21 incorporated places — most without schoolchildren and many without inhabitants — offsetting the SWEPT altogether. In FY 2024 taxable property valued at $171.3 million was spared from taxation.