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September 21, 2003Agencies going after tax cheatsState says 30,000 may be illegally using exemptionByRecord-Eagle staff writer LELAND - Long-time seasonal residents George and Chris McKisson aren't thrilled about paying more local property taxes than some of their year-round neighbors. But the couple was more troubled to learn that tens of thousands of Michigan property owners aren't paying the same higher non-homestead property tax rate the McKissons have paid for almost 10 years at their quiet summer home on Lake Leelanau. "Situations like that make me madder than the dickens," Chris McKisson said. The state treasury department is teaming with county treasurers and local assessors to root out property owners who are taking the 18-mill homestead exemption for non-qualified properties like vacation homes, vacant lots or rental properties. "We estimated that there are 20,000 to 30,000 improper homestead exemptions in the state," said Scott Schrager, special assistant to state Treasurer Jay Rising. The state figures to take in an extra $50 million for the school aid fund this year by targeting those questionable exemptions, and local units should earn millions more in interest and penalty fees for helping in the investigation. Homestead exemptions became part of local property tax administration in 1994 when state voters approved the Proposal A school financing system. It established a two-tiered property tax system to pay for public schools - a six-mill state education tax collected on all properties and up to an 18-mill local school levy on all properties not covered by a homestead exemption - like commercial businesses, vacant lands or second homes. Under the law, the homestead exemption is supposed to apply to a property owner's "primary residence," or for eligible farmland. The owner of a $200,000 property with a taxable value of $100,000 would save around $1,800 per year in school taxes through the 18-mill differential. Statewide, Schrager said there are upwards of 2.2 million homestead exemptions on file, representing a property tax savings of around $2.7 billion. Tracking down even a fraction of those improperly using the exemption could mean millions of dollars to cash-strapped schools and local governments. "A small percentage of a big number is still significant, therefore it warrants our attention," he said. Local officials won't estimate how widespread the problem is around northern Michigan. But they admit the potential is there with the vast number of second homes and rental properties in the region. "There's probably a lot of people out there who filed (homestead exemptions) not really knowing whether they were eligible," said Grand Traverse County equalization director Laurie Spencer. McKisson said a few years ago he looked into switching the couple's permanent address to Michigan from Toledo to save on his tax bill, but his wife didn't want to make the change. "I'm too old to be moving," she laughed. But McKisson said he never considered trying to slip a bogus homestead exemption past officials to cut his taxes. "I never felt you should try to be evasive about things like that," he said. "We want to pay our fair share." Some local officials believe ineligible homestead exemptions are unfair to all taxpayers. "I want everyone who qualifies for a homestead exemption to be able to get one," said Chris Krellwitz, the assessor for Elmwood and Empire townships in Leelanau County. "But by the same token, when someone is getting a homestead exemption who doesn't qualify, then somehow all the rest of us are picking up their tax." Tax officials have long suspected there were scores of situations around the state where the homestead exemptions were being taken by property owners who don't qualify. A closer review of tax rolls in Oakland and Genesee counties by the state discovered more than 1,000 questionable exemptions, including ones where people were claiming homestead exemption at two different locations. To target those situations, the Legislature this year passed Public Act 150 to foster more cooperation between the state and local tax collectors to crack down on ineligible exemptions. The law provides an amnesty period through Nov. 1, where taxpayers can voluntarily withdraw a homestead exemption and only pay the back taxes without interest and penalty going back a maximum of three tax years. After that date, property owners who have their exemptions denied by the counties or state will owe the back taxes plus a 1.25 percent monthly interest penalty. Rejected exemptions can be appealed by property owners to the state Tax Tribunal. "If you go back three years, the interest and penalties to a homeowner could be substantial," Grand Traverse County Treasurer Bill Rokos said. "I think we need to re-educate people about what is a homestead and how do you qualify (for an exemption) ... there's a lot of confusion out there." As a financial incentive to the counties to participate in the audits, the state is offering 70 percent of the interest collected to the entity that denies the exemption. Other taxing units will share the rest. Schrager won't discuss specifics on what kind of information will be used to investigate the homestead situation. Some general "red flags" he said are persons who file income tax returns as part-time residents of Michigan but claim the homestead exemption on their local tax bills, or couples filing joint tax returns but claiming two different homesteads. But authorities are willing to give the public the benefit of the doubt. "It's not a criminal issue, and it's not being treated as such," Schrager said. "This is a program to benefit the school aid fund and correct these improper homestead exemptions - end of story."
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