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Improper homestead tax credits costing state millions, 2 firms say

by Michael R. Wickline | August 10, 2014 at 4:09 a.m.

People illegally claiming multiple homestead tax credits are costing the state millions of dollars, according to data-tracking companies that want to help the government collect the money.

LexisNexis and Tax Management Associates Inc. offered to pinpoint people who are unlawfully claiming multiple homestead tax credits in exchange for 30 percent of the revenue.

Their proposal generated little enthusiasm in Arkansas. Some local officials said the companies' revenue forecasts were unrealistically high.

State Sen. Larry Teague, D-Nashville, vice chairman of the Senate Revenue and Taxation Committee, said he had a bill drafted for the 2013 legislative session to allow the state's chief fiscal officer to contract with an independent contractor, "on a contingency fee basis or otherwise," to verify the legitimacy of claims for property tax credits.

He said LexisNexis wanted to sell the state a system to track duplicate homestead tax credits, and he talked to contract lobbyist Robert D. Smith III of Little Rock about it.

But Teague said the draft legislation "just never got any traction" among officials for the state and counties. Teague ended up not introducing it.

The homestead tax credits improperly claimed by Republican gubernatorial nominee Asa Hutchinson of Rogers have raised questions about how widespread the problem is.

Tax Management Associates contracts with the state of Michigan, and Tax Management Associates and LexisNexis contract with counties in Florida, Georgia, Indiana, Louisiana and South Carolina to identify improperly claimed homestead credits.

Chip Cooke, chief executive officer for Tax Management Associates based in Charlotte, N.C., said his company helped Michigan collect $78.6 million after identifying 28,000 improperly claimed homestead tax credits in that state.

Amendment 79 of the Arkansas Constitution, adopted by voters in 2000, allows a homeowner to take a homestead tax credit.

A homestead is defined in Arkansas law as a "principal place of residence." The credit initially amounted to $300 toward the annual property tax bill but was raised by the 2007 Legislature to $350.

The state gave $229.7 million to its 75 counties last year to compensate for revenue lost because of the homestead tax credit, according to records in the state treasurer's office.

The counties granted homestead credits on 718,331 parcels in assessment year 2013, said Tom Rugger, manager of the tax credit section for the state Department of Finance and Administration.

State law limits property owners to one homestead property tax credit a year, up to a maximum of $350. Under the law, the county "shall extend a penalty of one hundred percent of the amount of the unlawfully claimed homestead property tax credit."

LexisNexis, which is based in Dayton, Ohio, and Tax Management Associates estimated about two years ago that 36,581 Arkansas homestead tax credits were improperly claimed annually -- 5 percent of the homesteads, according to records obtained from the state Assessment Coordination Department.

By uncovering improper homestead tax credits claimed over a three-year span, the state and counties would recoup $38 million, the firms estimated.

In addition, they estimated that the state and counties could collect an additional $38 million by levying penalties on those who received improper tax credits.

In return for their help, the companies envisioned receiving 30 percent of the $76 million -- $23 million.

Debbie Asbury, executive director of the Arkansas Assessment Coordination Department, said in an email dated March 18, 2013, to a Louisiana state auditor that department officials have talked with LexisNexis and Tax Management Associates and "in this department we would love to see this implemented."

The department isn't responsible for auditing of duplicate homestead credits, and the Legislative Audit Division "does give a cursory look, nothing in-depth," she said.

Under state law, when an improperly claimed homestead tax credit is identified, the state is to receive the money reimbursed for the claim, while the county is to get the penalty amount, Asbury said.

But some officials for Arkansas counties opposed working with the two companies. Several questioned the companies' estimates, saying that the number of improper homestead tax credits is a lot lower than 5 percent.

Cooke said he's not sure whether the 5 percent estimate in Arkansas is too high, but the percentage of improperly claimed homestead tax credits is about 2 percent based on trends in other states.

The companies arrived at the 5 percent figure, in part, by flagging Arkansans who claim homestead tax credits on out-of-state property.

But it's unclear whether the law applies to homes outside the state, according to Karla Hutchens, community liaison for the Pulaski County assessor's office. Asbury said the law does cover homes outside the state.

Cory Scott, chief operating officer of DataScout LLC of Fayetteville, which contracts with an undisclosed number of Arkansas counties to help them find duplicate homestead tax credits, estimated several days ago that up to 1.5 percent of the homesteads across the state -- roughly 10,000 homesteads -- have improperly claimed the property tax credit.

He said his estimate doesn't include property owners who claim homestead tax credits in Arkansas as well in other states. "In its current state, the law is open for interpretation."

Even so, the potential recoupment for the state could be up to $1.75 million from one year of a tax credit and up to $1.75 million from the 100 percent penalty, Scott estimated.

Joe D. Thompson, chief assessment administrator for the Pulaski County assessor's office, said officials there didn't like the idea of paying "a bounty" to a company, giving them a large share of the tax credit revenue when the county officials would have to help determine whether the credits was illegally claimed.

Instead, he said, he decided to contract with DataScout Inc. for $4,900 a year starting last year to help track down duplicate homestead credits, saying it's a good use of taxpayers' money. Hutchens said DataScout initially helped identify about 500 improperly claimed homestead tax credits last year, and it has helped identify five or six a month since then.

Given the lack of enthusiasm for Teague's draft bill in 2013, it's unclear if similar legislation will be considered in 2015. Teague is unopposed in the Nov. 4 general election.

Teague said recently that he has "no idea" how many homestead tax credits are improperly claimed in the state and how much money that's costing the state.

He said his wife, Howard County Assessor Debbie Teague, told him that she doesn't think "it's a huge problem."

"In the big counties, it may be a big issue. In the small rural counties, they just know about everybody," Teague said.

A section on 08/10/2014

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