Tax overhaul leads to scrambling, confusion on benefits of paying property taxes early

Monitor staff
Thursday, December 28, 2017

The tax collector’s office in Meredith faced an unusual situation this week: People scrambling to pay large amounts of money long before it was required.

“We probably have received close to $250,000 in prepayments – from at least 25 people,” said Phillip Warren, who is both town manager and tax collector for the town. “It’s a very popular issue, both in the office and on the phone.”

The situation has been the same in communities throughout New Hampshire since the recent federal tax overhaul was passed containing a provision saying that annual property tax payments over $10,000 would no longer be deductible from federal income taxes as of next year.

That new law makes it seem that paying next year’s taxes early might save on federal taxes later – although “might” is the operative word.

“I will gladly take their money, but I tell them to call their accountant. I can’t give tax advice,” said Sue McKinnon, tax collector in Newfields. She said more than a dozen people in the town of 1,700 came in Wednesday and Thursday eager to pay next year’s taxes in advance, forking over $98,000 in the first day alone, although as of Thursday two of the town’s better-known residents – U.S. Sen. Maggie Hassan and Gov. Chris Sununu – were not among those paying early.

Concord has seen 10 to 15 people coming into the tax office and prepaying, said Brian LeBrun, deputy city manager for finance. In nearby Hopkinton, with a fraction of Concord’s population but significantly higher median household income, more than two dozen residents had paid their taxes since Christmas. Had it been a different time of the year, the numbers could have been higher. Trump signed the tax bill Dec. 22, the Friday before Christmas, leaving little time and many unanswered questions about when and whether paying property taxes in advance will actually save federal income taxes.

“Between Christmas and New Year’s, trying to get ahold of your accountant, figure out what to do – that’s a lot to do when most people are off, on vacation,” LeBrun said.

The confusion is building because Friday, Dec. 29, is the last day to prepay taxes in 2017, and some tax offices, particularly in smaller towns, close early or don’t open at all on Fridays.

“The big thing is people all of a sudden waking up to this because of what’s happening with the IRS, which still isn’t 100 percent clear,” Melinda Kennett, president of the New Hampshire Tax Collectors Association, said Thursday.

Kennett, who is tax collector in the North Country town of Northumberland, said a Google Group of tax collectors throughout New Hampshire has been buzzing with questions about the topic, partly because of a quirk in New Hampshire law and partly because of an IRS ruling that further muddied the waters.

“Just keep doing what you are doing,” Kennett wrote it in a statement to the group. “Don’t get stressed out or concerned with the ‘hooplah’ of the media and such.”

The IRS issued a statement Wednesday saying that not all prepayments of property taxes can be written off next year’s income taxes. The issue is whether a town has assessed 2018 property taxes this year or will do the assessment after Monday. If a 2018 assessment doesn’t happen until after the first of the year – under state law, assessments can happen as late as April 1 – then anticipated taxes paid this year will not be deductible from next year’s income taxes.

This twist has roiled New Hampshire tax collectors who fear that residents who prepaid property taxes won’t get the income tax break they expected and will want their prepayment refunded.

Don’t do it, said Bernard Campbell, state counsel for the New Hampshire Tax Collectors Association, in a letter he wrote to the group responding to questions.

“The municipality is not a ‘bank’ or an investment company where someone can simply ‘park’ money,” he wrote on Dec. 27. “It is my feeling that if a prepayment is accepted, it cannot be returned (i.e., the owner changes their mind) except as provided by the statute.”

State law allows property tax refunds for specific situations, such as a change in assessed value due to abatements, but does not mention federal tax law as a cause.

There’s a New Hampshire-specific quirk hidden in that law, as well. The law (RSA 80:52-a) says that towns and cities can’t accept prepayments unless the select board or city council have agreed to allow them to be accepted.

“Some towns say, ‘No, we’re not accepting prepayments, we like the books clean at the end of the year,’ ” Kennett said. “The new tax collectors – those are the ones I’m hearing from. They say ‘I’m not sure if it ever got voted on’ ... so they don’t know if they can accept it.”

That creates uncertainty unless “you can look back on your minutes (of select board meetings) for 20 years.”

Kennett said her town’s selectmen sign a statement every year confirming that prepayments are accepted, just in case questions arise.

Several communities have had to scramble to meet the sudden curiosity about tax prepayments. The Henniker Board of Selectmen, for example, held an emergency meeting Thursday afternoon to authorize tax prepayments.

And while that uncertainty is related to New Hampshire laws, it seems likely that the federal tax overhaul, generally considered the most sweeping set of changes to the nation’s tax laws in three decades, will lead to plenty more questions.

“There’s a continuing education company called Taxspeaker, they are holding special continuing education classes in January for the new tax bill,” said Amber Dubois, owner of Pleasant Lake Accounting in Warner.

Normally, she said, such updates are done in December, before CPAs and accountants get swamped as people prepare to file their taxes. But this isn’t a normal year.

“It’s an insane amount of new tax laws that we’re going to have to go over,” she said.