The appraisal for property tax purposes on multifamily residential rental property which is governed by section 42 of the Internal Revenue Code and which is subject to a recorded housing subsidy covenant that restricts tenant eligibility and rents shall, upon the affirmative request of the taxpayer, be determined under this section. A copy of the recorded land use restriction required by section 42 of the Internal Revenue Code or other low income rental use restriction covenant required by the New Hampshire housing finance authority, is sufficient proof that the property is eligible for assessment under this section.
I. To make an election for an appraisal of property subject to a housing covenant under the low-income housing tax credit program, the taxpayer shall, by October 1 preceding the tax year for which the election is sought, provide written notice to the municipality of the taxpayer’s election to be assessed under this section, using a form prepared by the department of revenue administration. A property that as of April 1 of the tax year is under construction shall not be eligible to apply for assessment under this section.
II. When an election is made, the property shall be assessed under this section for the next 10 tax years, provided the property remains subject to the housing covenant under the low-income housing tax credit program. A property subject to assessment under this section shall not be granted property tax exemption under N.H. Rev. Stat. § 72:23.
III. A taxpayer who makes an election under this section shall, by April 15 of each applicable tax year, provide the assessor with the relevant information described in this section, using a form prepared by the department of revenue administration.
IV. Financial information that is required from the taxpayer under this section shall be the audited financial statements from the prior calendar year as prepared by a third-party certified public accountant. For properties with financial data for part of the prior calendar year, the assessor shall use the partial data and the projected operating budget for the first full year of operations as provided by the New Hampshire housing finance authority to extrapolate a full year’s estimated operation financials.
V. A taxpayer making an election under this section shall be liable for taxes on the property in an amount that is the greater of:
(a) The taxes determined using the income approach under this section; or
(b) The taxes in an amount equal to 10 percent of the actual rental income and other income.
VI. The assessed value shall be calculated using an income approach whereby the net operating income is divided by the overall capitalization rate and, except when the municipality has updated its assessment values to equate to market values, multiplying that value by the previous year’s equalization ratio.
VII. The assessed valuation of residential rental property subject to a housing covenant under the low-income housing tax credit program shall not take into consideration the value of intangible assets including, but not limited to, government subsidies or grants, below market rate mortgage financing, and tax credits where such subsidies are used to offset project development expenses in order to allow for restricted rents. The assessed valuation shall not take into consideration the actual cost of acquisition or construction of the project.
VIII. In this section:
(a) “Capitalization rate” means an overall capitalization rate comprised of:
(1) A market capitalization rate that is typical for the geographic area in which the property is located, as determined annually by March 31 by the commissioner of revenue administration, and as published by the New Hampshire housing finance authority pursuant to N.H. Rev. Stat. § 204-C:8-a; and
(2) The municipality’s previous year’s equalized tax rate.
(b) “Collection loss” means the amount of actual uncollectible rents.
(c) “Net operating income” shall be calculated by subtracting from the potential gross income:
(1) The vacancy loss;
(2) The collection loss; and
(3) The operating expenses.
(d) “Operating expenses” means the actual ordinary and typical yearly expenses that are necessary to keep the property functional, including deposits to restricted reserve accounts required by the housing subsidy covenant or other legal restriction but excluding property taxes, mortgage debt service, and depreciation, incurred with respect to the property. Expenses for capital improvements, meaning improvements with an expected life exceeding 5 years as compared to yearly maintenance or work performed for unit turnover, shall not be considered operating expenses.
(e) “Other income” means income that is attributable to the real estate and is ordinary and recurring, such as laundry or vending income. Interest on restricted reserve funds shall be considered other income. For properties with nonresidential space that is or can be rented as commercial space to third parties, market rent, considering any legal, market, or covenant restrictions, shall be attributed to such space and shall be considered as other income. Common area space within a property that are used primarily to benefit the property’s residents or to provide services to the property’s residents shall not be separately assessed and no income shall be imputed to such space.
(f) “Potential gross income” shall be calculated as follows:
(1) For units receiving assistance under a project-based rental subsidy contract, using the rents specified in the contract.
(2) For all other units subject to a legal restriction, using the maximum restricted rents allowed by the legal restrictions governing the rents of the units for the geographic area in which the property is located. Where multiple legal restrictions apply, the most restrictive shall be used. Maximum restricted rents shall be adjusted as appropriate using utility allowances for the geographic area in which the property is located, and as provided by the New Hampshire housing finance authority pursuant to N.H. Rev. Stat. § 204-C:8-a.
(3) For all non-restricted units in properties where only a portion of the units are subject to a legal restriction, using non-restricted rents as determined by the local market.
(4) Other income shall be included in potential gross income.
(g) “Restricted reserve funds” means funds that are required by the housing covenant under the low-income housing tax credit program and are restricted to specific uses, which shall be treated as follows:
(1) Actual payments into such funds shall be considered an operating expense; and
(2) Actual interest earned on such funds shall be considered other income.
(h) “Vacancy loss” means a deduction from the potential gross income that is calculated by multiplying the potential gross income for the rental units by the rental market vacancy rate for the geographic area in which the property is located, as provided by the New Hampshire housing finance authority pursuant to N.H. Rev. Stat. § 204-C:8-a.
(i) “Multifamily rental property” means the property described in the recorded land use restriction agreement.
IX. The commissioner of the department of revenue administration shall adopt rules pursuant to N.H. Rev. Stat. Chapter 541-A concerning how capitalization rates shall be established, including a process for receiving public input prior to such establishment.