The Journal Gazette, 600 W. Main St., Fort Wayne IN

Indiana’s homestead credit lowers homeowners’ tax bills in an effort to keep them from being taxed out of their homes.

The credit already halves many homeowners’ bills, and it would become even more valuable under Gov. Mitch Daniels’ plan to further reduce property taxes.

Yet a steady increase in the tax exemption’s value hasn’t been met with an equal effort to prevent the system from being abused.

The exemption is supposed to apply only on primary residences, but Indiana relies on little more than the honor system to keep people from taking the credit on other property.

Pam Coleman, Steuben County auditor, said the problem is common in her area of numerous lake homes. She said she has trouble ensuring that people buying lake homes don’t take the exemption on property elsewhere in the state.

“If we’re going to make homesteads so important in the taxing system, we need to nip this in the bud now,” she said.

County and state officials said it’s difficult to determine how many of the 1.66 million homesteads across the state are improperly receiving a tax break. There is no statewide check, and county auditors have to either rely on the honesty of the applicants or individually check each of Indiana’s 92 counties to verify.

Allen County Auditor Lisa Blosser said she checks property records in the county to prevent people from taking more than one exemption. But while she asks people whether they own property anywhere else, she has no way to verify whether they are being honest.

The reason to cheat the system is obvious: It saves homeowners a lot of money. A $200,000 home near Fox Lake in Steuben County would be billed $1,642.58 with a homestead exemption, but $2,371.68 without the benefit. In Wayne Township in Fort Wayne, an owner of a $100,000 house would pay $1,097.74 with the exemption, but would have to pay $2,537.72 without it.

And the more who cheat by claiming extra exemptions, the more it hurts everyone else. If a taxpayer is supposed to pay $2,000, but pays only half of that, the remaining $1,000 is spread among all taxpayers. The more illegal exemptions, the more everyone’s bills rise.

History of homestead

According to state law, homestead exemptions are given to owner-occupied homes that are primary residences. Several years ago, the exemption lowered a property’s value by $6,000 for tax purposes. The lower the tax value, the lower the taxes.

Kathy Goonen, a Realtor and appraiser in Fort Wayne, said that when the exemption was small, the likelihood of people cheating to get one was also small.

That deduction jumped to $35,000, or half a home’s value if it is worth less than $70,000, when the state switched to a market-based assessing system in 2002. The increase in the deduction kept homeowners’ bills from spiking. Landlords, who are not eligible for the exemption on rental properties, experienced dramatic jumps in tax bills.

Last year, the credit jumped again to ease tax concerns, this time to $45,000, or half a home’s value if worth less than $90,000.

The homestead exemption also qualifies a property for a separate homestead credit, which reduces the tax bill by an additional 20 percent, Blosser said.

“With it being so large, it’s now distinctly an impact,” Goonen said of the exemption. “You want to make sure it goes to the right people.”

House Bill 1001, Daniels’ property tax plan, would give the exemption greater value. He wants to cap taxes on homesteads at 1 percent of their value. While homeowners’ taxes could rise as their values increase, there would be some limits on how much could be taxed. The cap would be 2 percent for rental and other non-homestead residential property.

This means a house without a homestead credit would have a maximum tax bill twice the size of a similarly valued home with the exemption.

Contrasting controls

Like Indiana, homestead exemptions in Florida provide a large tax benefit. They not only reduce a property’s taxable value by up to $50,000, homeowners’ taxes can’t increase by more than 3 percent or the consumer price index each year.

Unlike Indiana, the Sunshine State helps its counties investigate homestead abuse and provides clear penalties to those cheating the system.

When filing for the exemption in Florida, residents must provide a driver’s license number, vehicle and voter registration and Social Security number. Before signing Florida’s application, residents read that filing fraudulent homestead exemptions is a first-degree misdemeanor, punishable by one year in prison, a $5,000 fine or both.

Rep. Phil GiaQuinta, D-Fort Wayne, said filing false information in Indiana is a Class A misdemeanor, with the same penalties as in Florida, but many county auditors were unaware any penalty existed, let alone efforts to prosecute people for violations.

GiaQuinta wrote House Bill 1293 to help people obtain homestead exemptions in a timely manner. Although he said he hadn’t heard concerns about abuse of the system, he said an amendment to his bill would make fraudulent filings a Class C felony, punishable by up to eight years and a $10,000 fine.

The bill is scheduled for discussion and vote Tuesday by the Senate Tax and Fiscal Policy Committee.

Blosser said she hears from many people with second homes in Florida. She said they are especially careful to get their Indiana homestead credit removed to ensure they don’t run afoul of Florida law.

“Florida is very official about it,” she said.

Although county appraisers in Florida are primarily responsible for verifying homestead exemptions, the Florida Department of Revenue performs an annual search of property owners’ Social Security numbers to detect fraudulent claims, according to Renee Watters, department spokeswoman. That information is forwarded to each county to help enforcement efforts, Watters said.

Coleman, of Steuben County, said she also often hears from Michigan and Florida county officials asking for affidavits that people no longer have homestead credits in Indiana.

Mary Jane Michalak, spokeswoman for the Indiana Department of Local Government Finance, said the state provided an online tool at the end of 2007 allowing people to search property records statewide. It allows anyone to view a person’s tax bill, including the exemptions. It isn’t always accurate, as the data are based on what counties provided. Michalak said it is about 80 percent complete.

The tool, however, does not allow auditors to search statewide, instead requiring them to look county-by-county for properties. Michalak said a statewide search is forthcoming, when the state gets the appropriate hardware. Auditors could then quickly search to see whether someone applying for a homestead credit has other exemptions on property in the state.

GiaQuinta said the state should examine a statewide filing system and do whatever it can to offer e-filing for exemptions. He said that while the legislature could get involved, the switch could be made administratively by the state.

“If it’s tied into one central system, you would be able to catch a lot of potential fraud,” he said.

No answers

Daniels said he hadn’t heard concerns about the exemption system but that people should be kept from violating the rules.

“I would support measures to make certain the law isn’t abused,” the governor said.

But county officials said they have had difficulty working with the state on the problem. Bill Borne, Adams County auditor, said that county enforcement efforts have even been curtailed by the state.

Some auditors asked for Indiana voter identification or driver’s license to grant the exemption, but Borne said some legislators complained about the tactics, saying the exemptions should be easier to get.

“It’s a different philosophy. ‘If you file, you have to just give it to them when they come in,’ ” he said. “That’s not fair.”

Borne said he discovered about a dozen duplicate exemptions when his office prepared multiple rebate checks for the same person, but he said state support is needed. He added that he didn’t think fraud was widespread, noting there were likely more eligible people without the exemption than property owners receiving multiple credits.

Steuben County’s Coleman said that even questions about what constitutes a legitimate homestead credit go unanswered at the state level. For example, some married couples ask whether a husband can claim a property in Allen County and the wife can get another exemption on their lake home in Steuben.

GiaQuinta said married couples shouldn’t get two exemptions, but Coleman said the state department of local government finance simply tells her to ask the county attorney.

Decisions at the county level would create a patchwork of regulations that could pit counties against one another, Coleman said. It would be more appropriate to have statewide guidelines for giving the credits, processes for catching fraud and penalties for those cheating the system.

Michalak confirmed that currently those rulings are to be made at the county level.

GiaQuinta, however, said he felt the existing law was clear: People should get the exemption only on their primary residence. He said the state should help answer a county’s questions and said the legislature could look at the issue again if necessary.

Coleman said she is unsure whether the issue can be dealt with in the short legislative session, but she plans to discuss it with legislators.

“This is going to be an increasing problem,” she said. “We need to be proactive.”

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