A new property tax setup created to pay for New Hampshire's schools was ruled unconstitutional today, renewing the possibility that the Live Free or Die State will have to institute an income tax.

The state Supreme Court ruled that the way the tax was to be phased in amounted to an unfair break for richer communities.

The decision creates a huge hole in the budget; more than half of the $825 million promised for education this year was to come from the property tax. Schools had been getting money under the plan since July.

After the same court ruled in 1997 that the state unfairly relied on local property taxes, which vary widely from town to town, lawmakers adopted a uniform statewide property tax of $6.60 per $1,000 of property value. About 50 towns with lower tax rates--mostly those with more expensive property--had to raise the rates to the statewide level and send the extra money to the state, which was to have distributed it to poor towns.

To soften the blow, the Legislature phased in the increase over five years in these richer communities to avoid bankruptcies and foreclosures that could have occurred with abrupt tax increases.

But some poorer communities challenged the phase-in as unconstitutional because it gave tax breaks to entire towns without regard to whether individual taxpayers needed it.