Applying an Abatement Refund to Outstanding Taxes

Every now and then, we receive a call questioning if an abatement (which specifies an individual tax year) can be applied to another outstanding invoice for that owner from a different tax year. For example, the assessors give you an abatement for an owner’s 2010 property tax. When you go to post the abatement into Avitar’s Tax Collect system, you find the customer has paid his 2010 property taxes, but has an outstanding 2011 tax lien. The question is whether you are allowed to apply the abatement to his 2011 tax lien.

Per RSA 76:17-d Abatement Refund:

“The selectmen or assessors may apply all or a portion of the amount of any taxes abated, along with interest computed according to this chapter, to any outstanding taxes owed by the taxpayer to the municipality. Taxes shall be considered outstanding if they are subject to interest pursuant to RSA 76:13. The selectmen or assessors shall send notice to the taxpayer of the amount credited against outstanding taxes and the date the credit was recorded.”

So, the answer is yes, you can apply the abatement to any outstanding tax bill, as long as the bill is accruing interest. Using the example above, you would apply the abatement to the 2011 tax lien and make sure your assessors/selectmen notify the owner of the amount posted.

Now here’s a little nuance you need to be aware of — you should never post an abatement refund per RSA 76:17-d to a current year first issue tax bill if the second issue is not out yet. Typically, an abatement is only posted to a first issue bill if:

  • It’s to correct an assessment error for the current year, and
  • The assessment is corrected before the second issue bill is generated.

When the second issue tax bill is created in Avitar’s Assessing, Assessing takes the total tax for the year minus the net of the first issue bill and any abatement(s) posted to it. Therefore, if an abatement refund is posted to a first issue bill, the owner will end up with an inflated second issue bill. The following shows the calculation of a second issue tax bill with and without an abatement refund:

Second Issue Without Abatement Refund:
Total Tax for the year:        $1,500.00
Minus first issue bill:      -   $750.00
                            ------------
Second issue bill:               $750.00
----------------------------------------
Second Issue With Abatement Refund:
Total Tax for the year:        $1,500.00
Minus net first issue bill   -   $250.00 
   (i.e. $750 - $500)      
                            ------------
Second issue bill:             $1,250.00

As you can see, if the second issue tax bill was generated after the abatement refund was posted to the first issue tax bill, the customer would end up owing more than they should — it will be as if they never got credit for the abatement itself.  So to correct it you would need to post another abatement to the second issue bill.  However, if you post the abatement directly to the second issue bill  (or a lien, or a supplement for a tax type other than property) you’ll be done.

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