Understanding the Classification Hearing Process in Local Taxation and Tax Policy

This article is a helpful resource for local officials and other interested parties seeking to understand the Classification Hearing process as it relates to local taxation and tax policy.

Author: Bureau of Local Assessment

Each year, municipal officials across the Commonwealth are tasked with making important decisions that shape the property tax burden within their communities. Chief among these responsibilities is the classification hearing, a formal step in the annual tax-setting process that allows the local selectboard, town council, or city council to determine whether property taxes will be shifted between residential, commercial, industrial, and personal property classes.

The classification hearing is not only a legal requirement but also a critical policy tool. It ensures transparency, public engagement, and fairness in the distribution of local tax obligations. This article provides an overview of the hearing process, its statutory framework, and practical considerations for municipal officials preparing for this annual decision.

Statutory Framework

The authority for classification hearings derives from M.G.L. c. 40, § 56, which requires the local selectboard, town council, or city council to hold a public hearing each year prior to setting the tax rate. The classification process is tied to the principles established in Proposition 2½ (M.G.L. c. 59, § 21C), which limits the total property tax levy a community may raise but allows for policy decisions about how that levy is distributed among different classes of property.

At its core, classification does not increase or reduce the total levy itself. Instead, it determines how the levy will be shared among property owners. The options available include:

• Residential Factor (Shift): Determines how much of the tax levy is borne by residential versus commercial/industrial/personal property.
   
• Open Space Discount: Reduces the tax levy paid by the open space class to no less than 75 percent of its full and fair cash value. Those taxes are shifted to the residential class alone, which means a higher residential tax rate.
   
• Residential Exemption: Reduces taxable value for qualifying owner-occupied residential properties, shifting more of the burden to non-owner-occupied and higher-value homes.
   
• Small Commercial Exemption: Grants an exemption to eligible small businesses, shifting the burden within the commercial class to larger businesses.

These decisions are made during the classification hearing and are voted on annually by the local selectboard, town council or city council.

Role of the Bureau of Local Assessment

The Division of Local Services (DLS) Bureau of Local Assessment (BLA) provides guidance, certification, and oversight to ensure that classification decisions are made on the basis of fair market value assessments and in compliance with state law. Prior to a community holding its classification hearing, BLA must approve the community’s property values through the certification or interim year adjustment process. Only once values are approved may the classification hearing occur.

DLS provides local officials with key data, such as the Classification Report (LA-4) and new growth figures, which illustrates the financial impact of classification decisions. This ensures that communities are making policy choices based on reliable and equitable data.

Preparing for the Hearing

1. Certification of Values - Before the hearing, the assessors must complete the valuation process and receive certification from BLA that all properties are assessed at full and fair cash value. This step ensures compliance with constitutional requirements of equity and uniformity in taxation.
    
2. Submission of Forms - Assessors submit the LA-4 form, which details property values by class, along with the LA-13 (new growth) and other related documentation. These reports serve as the foundation for the classification options presented at the hearing.
    
3. Presentation Materials - Assessors typically prepare a classification presentation for local officials. This presentation explains the available options, illustrates the tax shift scenarios, and shows the potential tax bill impact for different classes of property. Charts, sample tax bills, and historical comparisons are often used to help decision-makers and the public understand the consequences of each option.

Conducting the Hearing

Understanding the community’s organizational structure helps identify who is involved in the process and the role each party plays. The video Mining DLS Property Tax Data for Classification Hearings explains the purpose of the classification hearing and identifies the stakeholders (audience) whether its residents, elected officials, or the business community. It demonstrates how to mine the DLS Municipal databank utilizing the City & Town data visualizations which can be used for classification hearing presentations, and provides examples of presentations that have been used in cities and towns across the Commonwealth.

The Classification Hearing is a public meeting subject to the Open Meeting Law. Notice must be posted, and residents, taxpayers, and business owners must be given an opportunity to participate.

During the hearing:

1. Presentation by the Assessors – Assessors outline the classification options, provide context on property values, and present the estimated tax impact under various scenarios. DLS provides a Gateway Option Table to aid in developing presentation scenarios and examining effects of various shifts and changes to tax burdens between/within property classes. For communities looking to explore a residential exemption, DLS has a calculator to use to estimate the tax impact of a residential exemption.  These tools and more can be found on the DLS Tax Rate Setting page.
    
2. Public Comment – Members of the public may ask questions or voice concerns. This ensures transparency and gives taxpayers the chance to understand how policy decisions affect them.
    
3. Deliberation and Vote – The select board or city/town council votes on whether to adopt a residential factor that shifts the tax burden, and whether to implement residential or small commercial exemptions.

Once a decision is made, the vote is recorded, and the community submits the LA-5 form to BLA for approval of the tax rate.

Policy Considerations

Classification hearings are not just procedural—they represent significant policy decisions with real impacts on residents and businesses. Municipal officials should consider:

• Equity and Fairness – Shifting the burden to commercial/industrial taxpayers can reduce residential bills but may place additional strain on local businesses.
   
• Economic Development Goals – Communities seeking to encourage business growth may choose a single tax rate to signal fairness and predictability to the business community.
   
• Housing Affordability – Adoption of a residential exemption may benefit year-round residents but shift higher taxes to rental or vacation properties.
   
• Revenue Stability – Shifting tax burdens may affect collections, appeals, and long-term growth of the tax base.

Each community must balance these considerations due to its unique demographics, economic conditions, and policy objectives.

After the Hearing: Tax Rate Setting

Following the classification hearing and vote, the community completes the tax rate setting process. The LA-5 is submitted with the annual recap form to the Bureau of Accounts, which reviews the vote and the supporting data before approving the final tax rate. Only after DOR approval may tax bills be issued.

The classification decision is valid for only one year. Each year, the process repeats, allowing communities to adjust policy in response to changing circumstances.

Best Practices for Municipal Officials

1. Engage Early – Begin preparing for classification well before the hearing. Ensure values are certified and materials are ready.
2. Educate Stakeholders – Use plain-language presentations and examples to make the tax impact clear to the public and policymakers.
3. Promote Transparency – Encourage public participation and provide materials in advance when possible.
4. Consider Long-Term Strategy – Avoid making classification decisions in isolation. Consider how tax policy interacts with housing, business development, and municipal service needs.
5. Document Clearly – Maintain accurate records of the hearing, the vote, and supporting data for both public transparency and DOR compliance.

Final Perspective for Public Officials

The classification hearing is a cornerstone of municipal tax policy in Massachusetts. It gives communities the flexibility to balance tax burdens across property classes while ensuring compliance with state law and constitutional standards of fairness.

By preparing thoroughly, engaging the public, and weighing the broader policy implications, municipal officials can make informed decisions that support their community’s fiscal health and long-term goals.

The Bureau of Local Assessment remains committed to supporting local officials throughout this process, offering guidance, certification, and resources to ensure every community can meet its obligations with confidence and clarity.

Helpful Resources

Municipal Finance Training and Resource Center  City & Town Data Visualizations & Reports  Subscribe to DLS Alerts 

City & Town is brought to you by:

Editor: Dan Bertrand

Editorial Board: Tracy Callahan, Sean Cronin, Janie Dretler, Christopher Ketchen, Paula King, Jen McAllister, Jessica Sizer and Tony Rassias

Date published:	October 2, 2025