Some are living high on low taxes

The Grand Rapids Press ^ | , June 22, 2003 | Ed White

[FourPeas]

Some are living high on low taxes

Sunday, June 22, 2003

By Ed White
The Grand Rapids Press

In winter, when ice fills the harbor, art galleries cut their hours, and Saugatuck slows down like any resort town, Barbara Van Gelderen checks the property rolls and sends dozens of letters.

Her question: Do you really live here?

The city assessor isn't conducting her own census. Van Gelderen is skeptical when property-tax bills are mailed out of town to people who claim Saugatuck as their "principal residence."

Officials in Lansing estimate that $50 million or more has been lost statewide because owners are claiming a homestead exemption on their tax bill when they mostly live elsewhere in Michigan or even out of state.

Sometimes it's simply a mistake that's quickly corrected. At other times, however, assessors have uncovered deliberate attempts to dodge a system that has been in place since voters approved Proposal A, a sweeping overhaul of property taxes, nearly 10 years ago.

"There is a substantial number of dollars that could be recovered," admits Scott Schrager, a senior official at the state Treasury Department.

"It's a question of how quickly these things get discovered," he said. "There have been budget cuts throughout the department and fewer people working on this than when Proposal A was passed."

Increased enforcement in two eastern Michigan counties already has turned up 1,300 questionable cases, including people who have taken exemptions on two properties, the state said.

In Saugatuck Township, which includes Douglas, another popular summer spot, assessor Alan Jeffries figures he has rejected at least 150 homestead claims since 2001, many for properties along Lake Michigan.

A man who claimed he was commuting to work in southern Ohio bought a $1 million home on Lakeshore Drive and saved thousands with a homestead exemption before Jeffries discovered it. The Illinois owners of another million-dollar home onthe same road had an exemption for eight years before losing it in May.

"If you can afford a second home, you can afford to pay the taxes," Jeffries said. "Schools are hurting for money."

'There's a sense of urgency'

The state Senate last week unanimously approved legislation that would require frequent audits, give more policing authority to local governments and reward them with a cash bounty if they blow the whistle on illegal exemptions. It's part of a package of bills to fill holes in the state budget.

"There's a sense of urgency," said Sen. Cameron Brown, R-Sturgis, who was alarmed when his home county, St. Joseph, uncovered dozens of improper exemptions on waterfront homes near the Indiana border. "It's been unregulated, unattended and neglected."

So what's a homestead exemption? And why is it so valuable?

In 1994, Michigan voters raised the sales tax to 6 percent in exchange for a dramatic cut in the amount of property taxes earmarked for schools. Suddenly, homeowners began paying 6 mills of taxes -- far below the statewide average of 35 mills before Proposal A was placed on the ballot.

But there still is a costly catch for some.

Anyone who owns a home that is not their principal residence pays as much as 18 mills in additional school taxes, or $1,800 on a property with a taxable value of $100,000. It could be a rental home, a cottage, a vacation condo or vacant land.

"When someone isn't paying what they should, it literally hurts every child in the state," said Bill Anderson of the Michigan Townships Association, noting the money goes to schools.

Indeed, it's not pocket change in scenic Saugatuck, 35 miles west of Grand Rapids in Allegan County, where the average home is worth about $174,000. Many have sold for $1 million or more along the Kalamazoo River, a gateway to Lake Michigan.

Oval Beach and Douglas Beach are just minutes from the snug, prosperous downtown, where summer visitors can dock their boats, browse art galleries, watch live theater and enjoy fine dining. The 14-ounce veal chop costs $29 at Marro's Restaurant on Water Street.

"A natural tranquilizer," the visitors bureau boasts of Saugatuck and Douglas. "No one rushes, and no one rushes you."

'Not the job for a thin-skinned person'

As the city assessor, Van Gelderen judges property values and sends tax bills twice a year. In February, she challenged 61 people to show why they deserved a homestead exemption from the 18-mill school tax.

She asked that they include a copy of their driver's license and voter registration card. Not everyone was pleased, of course. A man responded by sending a copy of his Michigan license enlarged to 8 1/2 inches by 11 inches.

"People immediately get defensive. This is not the job for a thin-skinned person," Van Gelderen quipped.

John Peters of Evanston, Ill., bought a condo last year and apologized for signing a document seeking a homestead exemption. He admitted that Saugatuck is not his main address.

The document was "among the many forms" when the property changed hands, Peters told Van Gelderen. "We should have read it more carefully."

Sixteen homeowners said they were immediately rescinding their exemption, while 18 convinced the assessor they're still entitled to it. Van Gelderen wants more information from 11 people and has doubts about 16 others. She wants the Treasury Department to intervene.

Paul Turnbull considers a $250,000 Saugatuck condo his chief residence, but the tax bill is mailed 200 miles away to Bloomfield Hills in Oakland County.

He changed his driver's license and voter registration to Saugatuck late last year. Turnbull told Van Gelderen to contact him at three phone numbers -- in suburban Detroit. Nonetheless, he said his homestead exemption is legitimate.

"I have one homestead in Saugatuck and have been in the process of moving there over the last year," Turnbull said in an e-mail to The Press. "Thanks for pointing out my tax bill has not been sent to my Saugatuck address. I must have missed that and have remedied the situation."

Patricia Rotchford has a Michigan driver's license and voter card, though the tax bill on her $175,000 house goes to a postal box in suburban Chicago. A brochure promoting Mason House as a rental home is in her tax file at City Hall.

Rental properties are not entitled to a homestead exemption. Does she lease it to summer tourists? "Not really," Rotchford replied before abruptly hanging up.

On her answering machine at an Illinois phone number, Rotchford says: "If you're calling regarding the rental house, please clearly spell your name."

'Are they sleeping there?'

The Treasury Department has criteria to help assessors determine someone's principal residence. They include a driver's license, voter registration and the address on an income-tax return. There is no rule that says a person must spend a certain amount of time at one place to qualify for a homestead exemption.

"That's the gray area," said Al Nykamp, assessor in Ottawa County's Park Township, next to Holland. "I don't know that the state has a good definition. It's supposed to be the place you return to. But that doesn't have a lot of teeth.

"There's a lot of guesswork," Nykamp said. "Is it legitimate or are they trying to hide something?"

Ottawa County's assessment chief, John Johnson, said: "We've made jokes about being the bed police: Are they sleeping there?"

Since becoming Saugatuck Township's assessor in 2001, Jeffries regularly fires off letters to out-of-state people denying their homestead claim. A Michigan driver's license with a local address doesn't mean much to him -- "anybody can get one." The best proof, he said, is a tax return, but he doesn't see many.

They typically surrender when challenged and ask: "How much is it goin' up?"

Jeffries recalled how a woman complained that he had awakened her with a phone call at 5 a.m. He didn't know the area code was in Oregon, which is three hours behind.

"I told her, 'Oh, I thought you live in Michigan. You have a homestead here,'" Jeffries said.

"If you don't deserve it, you shouldn't get it," he said. "I'm very adamant about that. ... I can't believe schools don't do more about these. It's scary. The money is huge."

'The majority ... are simple mistakes'

Assessors can take away a homestead exemption, but only the Treasury Department can order the payment of past school taxes. Homeowners can appeal to the department and, ultimately, the Michigan Tax Tribunal if they disagree with a denial.

Homestead problems are not limited to expensive second homes. Shila Kiander, the assessor in Cedar Springs and Solon and Spencer townships in northern Kent County, sometimes discovers vacant land and rental properties that shouldn't have the exemptions.

"The majority that come across my desk are just simple mistakes," Kiander said.

If lawmakers are going to change the law, Jeffries prefers they give more power to local assessors to pursue past taxes instead of the state.

"The state is so short-staffed," he said. "If you don't have the staff to police it, don't put it into law."

Schrager of the Treasury Department said the agency supports giving more power to local officials and rewarding them if they're successful.

"They are quite capable," he said. "They can close the deal."

[Prodigal Son]

bump

[tdadams]

This is exactly the kind of attitude you can expect when the government considers itself as having first claim on your money. Harass and punish anyone who tries to protect their assets rather than handing it over to big government. It's for the children!