Fees Received for Non-Mandated Services are Not PILOTs

Appeal of the City of Portsmouth
Appeal of the City of Portsmouth
No. 2003-547
Friday, June 25, 2004

In the Appeal of the City of Portsmouth, the New Hampshire Supreme Court held that certain payments received by the City of Portsmouth from the Pease Development Authority (PDA) airport district were not a “payment in lieu of taxes” (PILOT), and, thus, were not includable in the calculation of the City’s 2002 total equalized valuation.

A portion of the PDA consists of an airport district, which is located in both the City and Newington. The airport district is exempt from State and local property taxation. In 1998, the PDA and the City entered into a contract, whereby the City provided certain municipal services to the PDA. In exchange, the PDA paid to Portsmouth a fee in “an amount equal to the amount that would have been paid annually as ad valorem taxes but excluding any school tax component[.]” Previously, the Department of Revenue Administration (DRA) did not include monies paid by the PDA to the City for services related to the airport district in the calculation of the City’s total equalized valuation. Revenues generated from non-airport services, however, were reported to the DRA as a PILOT and included in the City’s total equalized valuation.

In 2003, the DRA opined that approximately $1.2 million, which the PDA paid the City for services related to the airport district, constituted a PILOT within the meaning of RSA 21-J:3, XIII. RSA 21-J:3 provides that the DRA shall include “payments in lieu of taxes as may be equitable and just” when equalizing the valuation of the property assessed.

On appeal, the Court considered whether the PDA payments constituted a PILOT. Although the statute does not define PILOTs, the Court determined that they are “sums paid by an otherwise tax exempt property owner . . . to a municipality to compensate for the burdens of providing basic municipal services such as police and fire protection.”

Moreover, the Court examined RSA Chapter 12-G:14, which concerns, among other things, the PDA’s obligations with respect to taxation and municipal services fees. The Court held that payments “for security provided by [the City] to the PDA airport district . . . are not PILOTs, because [the City] is not obligated to provide security to the PDA airport district.” (Emphasis added). Further: “Since [the City] is obligated to provide all municipal services to the non-airport district property, the legislature mandates a PILOT payment that offsets the costs associated with providing such services.”