State Sen. Eddie Joe Williams, R-Cabot, is aiming to crack down on people who illegally claim more than one homestead property-tax credit because he says such claims potentially are costing the state millions of dollars.
But estimates vary widely over how many people illegally claim more than one of the credits, so there is disagreement over how much the state is out each year.
Amendment 79 to the Arkansas Constitution, adopted by voters in 2000, allows a homeowner to take a homestead tax credit of up to $350 a year. A homestead is defined in Arkansas law as a "principal place of residence."
State law limits property owners to one homestead credit a year and the amount is deducted from property-tax bills. State sales-tax revenue is used to reimburse counties for granting the credits.
Under the law, when an improperly claimed homestead credit is identified, the state receives the money reimbursed for the claim, while the county gets the penalty amount. The law sets the penalty as 100 percent of the amount of the unlawfully claimed credit.
Several lawmakers last week said the options for monitoring credits could include:
• Allowing a state agency to develop a database to help counties identify people claiming multiple homestead credits.
• Contracting with a company to help counties determine the illegal claims.
• Allowing people to claim the property-tax credit on income-tax returns rather than having counties factor it into property-tax bills.
"What got us thinking about this is it seems like every couple of years, every campaign cycle, someone's opponent will do a little research and find that person has multiple locations that they are taking the $350 tax credit every year," Williams told the House and Senate State Agencies and Governmental Affairs Committees last week.
"It seems like dumb luck."
Without naming anyone, Williams made reference to former Rep. Clark Hall, D-Marvell, who claimed a homestead credit in Lonoke County and one in Phillips County under properties in the name of Hall's wife, Rebecca.
In 2012, one of Hall's opponents for the Democratic nomination in the 1st Congressional District, Gary Latanich of Jonesboro, issued a news release about Hall obtaining the credits. In response, Hall's campaign manager replied that claiming the credit twice was "a mistake" and that Hall hadn't been aware of the situation. So, Hall repaid $1,050 for tax years 2008-10 and $1,050 in penalties to Lonoke County in April 2012, according to the county's records.
"I am not blaming him," Williams told lawmakers.
It seems like in each election cycle, a few candidates have claimed two homestead tax credits, and "if that's a sampling, there could be a much larger problem there that is going unaddressed," he told his colleagues.
In 2014, then-Republican gubernatorial candidate Asa Hutchinson of Rogers and GOP Secretary of State Mark Martin of Prairie Grove and, in 2010, Republican gubernatorial candidate Jim Keet of Little Rock are among the candidates who've been the subject of news stories about them claiming two homestead tax credits. They described the extra credit as glitches and repaid some money to counties.
The credit initially amounted to $300 toward the annual property-tax bill, but was raised by the 2007 Legislature to $350.
A one-half percent state sales tax is levied to help counties grant the homestead tax credit to more than 700,000 parcels each year, and paying for the tax credit costs the state about $230 million a year, said Williams. The overall state sales tax is 6.5 percent.
"Most people cannot guarantee outside of their county that someone is not taking multiple tax credits across the state of Arkansas," Williams said. "We just don't have a good system."
People who have lake houses in places such as Garland County could unknowingly sign up to receive two of the credits -- one for the lake house and another for the regular home in places like central Arkansas and Northwest Arkansas, he said.
County officials and Arkansas Legislative Audit staff work together to prevent individuals from claiming multiple credits, said Paul Gehring, assistant revenue commissioner for policy and legal for the state Department of Finance and Administration.
Williams said some counties do a relatively good job of identifying people with multiple homestead tax credits, but others do very little to track that because they are poor and cannot afford the software used to do that.
"When you are talking about a quarter of a billion dollars [in sales taxes paying for the credits], a 5 percent to 10 percent fraud is $20 million, $30 million every year," Williams said.
Rep. Jeff Williams, R-Springdale, said third parties have attempted to create a database for assessors to use to identify people with multiple property-tax credits, but a limited number of counties participate.
"There are several ways that you could go about fixing this issue without putting a tremendous amount of pressure on the county officials to be able to do so," Rep. Williams said. "There are third-party data gatherers that have that information. The state could do it as well, but it is going to take a commitment from this body and from the Legislature to be able to put that information together."
Several years ago, Lexis-Nexis and Tax Management Associates estimated that 36,581 homestead credits were improperly claimed a year -- about 5 percent of the homesteads -- according to state records.
The firms estimated that by uncovering improper credits claimed over a three-year period, the state and counties could recoup $38 million. In addition, the firms estimated that the state and counties could collect an additional $38 million by levying penalties on those who received the improper credits.
In return for their help, the companies envisioned receiving 30 percent of the $76 million -- $23 million.
But some officials for Arkansas counties at that time opposed working with the two companies. Several questioned the companies' estimates, saying the number of improper credits was a lot lower than 5 percent. The companies said they arrived at the 5 percent figure in part by flagging Arkansans who claim homestead tax credits on out-of-state property.
State law doesn't preclude an Arkansas property owner who claims a similar credit in another state from claiming the credit in an Arkansas county in the same calendar year, Republican Attorney General Leslie Rutledge said in an advisory opinion last year.
"But it should be noted that a property owner who claims both the homestead property tax credit provided under Arkansas law, and a similar tax credit provided under the laws of another state that is available only with respect to the property owner's principal place of residence, will necessarily be out of compliance with one or both states' principal-residence condition," she added in an opinion requested by then-Rep. Micah Neal, R-Springdale.
Rep. Williams, a former Washington County assessor, speculated in an interview that 1 percent or 2 percent of the homestead property-tax credits claimed each year are duplicative, and that would still be "a substantial number, to be $2 million to $4 million of $250 million" paid out in homestead property-tax credits a year.
In January, counties were paid about $629,000 out of the funds raised from the one-half percent state sales tax to help defray their costs of administering the homestead credit for 2016, according to Whitney McLaughlin, a tax analyst for the Department of Finance and Administration.
Sen. Williams said the counties have too many employees trying to find people with multiple homestead credits.
"I would like to help you [county officials] with that process by having an identifier to every person who files [for the credit] and you don't have to worry about it because when it goes in that general database a flag goes up and you get a notice that we're not going to pay this [credit] because they have two," he said.
One option could be to have the state Assessment Coordination Department review information provided by counties to find people with multiple credits, said Rep. Jana Della Rosa, R-Rogers.
"We could certainly do that if we had the budget and the staff," said John Nichols, an attorney for the assessment department.
Former department director Debra Asbury said Rutledge opined last year that county assessors don't have to check outside the state for people with multiple homestead credits.
"The only company that I know that compiles all kinds of information is the same place where attorneys get their law information is Lexis-Nexis and they have information on all of us," she told lawmakers. "There are third-party companies that do work with them to be able to make that happen."
Rep. Williams offered the idea of putting a line on the state's income-tax form for claiming the credit.
"If it was reported on the tax return, then you have got some way to be able to identify a unique individual to a particular property that they list on the tax return," he said. "You already got the Social Security number, the unique identifier, on the form."
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Sen. Williams said Rep. Williams' idea "is a very practical approach to a complex problem."
He said there would have to be a way developed for people who don't file returns to claim the credit.
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