For years, Indiana’s Delaware County relied on the honesty and good will of homeowners to determine whether they were entitled to a homestead exemption that could slash their annual property tax bills by more than half. But all that changed because of the Great Recession, which forced the county to tighten its belt and lay off workers.
Now its credo is “trust but verify.” County officials in the Muncie area brought in high-powered data mining consultants to devise a system to ferret out property tax scofflaws who have been lying for years about their residential status and fraudulently claiming the exemption. When the dust settled, about 1,400 of the county’s 35,000 residential property owners had been swept up in the investigators’ net. They’re now on the hook to pay a total of $1.5 million in back taxes and penalties.
In the greater scheme of things, $1.5 million is a drop in the bucket compared to the estimated $450 billion-a-year “tax gap” Americans owe in federal taxes, as well as the billions more that property owners pocket by falsifying applications for homestead allowances.
But for state, county and local governments struggling with revenue shortfalls and program cutbacks, every tax dollar helps. Delaware County currently raises $29 million a year in property taxes and other revenue, and thanks to the anti-fraud efforts, officials potentially can increase those revenues by five percent or more in the coming years. For local officials, the introduction of state-of-the-art data sleuthing has been a real eye opener.
“It’s quite astounding, honestly, when you sit down and think about the lengths to which people will go” to cheat the government, said Tara Shinn, the Delaware County Auditor’s tax recovery project manager. “And honestly, it’s the people who have money that are doing this.”
Five Homestead Exemptions in One County
Homestead exemptions are essentially discounts on a fixed amount of a property owner’s annual tax bill and vary greatly from state to state. In Delaware County, Indiana, the homestead formula is based on the value of the property, which can reduce the property assessment by as much as $45,000, up to the first $90,000 of value. The countywide average home value is $128,000 to $130,000, and property owners, generally speaking, can save between a third and a half of their annual tax obligation.
Tax cheaters typically claim that a home is their primary residence when in fact they live somewhere else most of the year. Or, they attempt to claim an exemption for a rental property, which is taboo, or they claim an exemption for a deceased property owner. Experts know of one case outside Indiana in which someone was receiving five homestead exemptions in the same county. Not surprisingly, state and local government officials are fed up with this situation and are cracking down aggressively on cheats.