State officials have revoked tax breaks from more than 550 homes in Baltimore after a Baltimore Sun analysis showed that hundreds of owners have been receiving the homestead property tax credit on multiple houses in apparent violation of state law.
The owners now owe a total of $730,000 in additional property tax for the current year. Because the city also has revised tax bills for the past three years, the government's windfall could approach $3 million, assuming the owners pay the back taxes.
"We realized some time ago that there was a need for this scrutiny," said Owen C. Charles, deputy director of the state Department of Assessments and Taxation.
Property owners have a strong incentive to pay quickly: Penalties and interest accrue on city taxes at 2 percent a month, and owners who don't or can't pay risk losing their homes through the tax sale process. Some have already written large checks, including a Howard County couple who was getting $6,400 in unwarranted credits this year on two rowhouses in Riverside.
While the state agency oversees the credit, the city issues the tax bills and loses out on uncollected local property taxes — the biggest source of money in its operating budget. A small portion of the recovered tax dollars would go to the state, but most would flow into the city's depleted coffers.
Ryan O'Doherty, spokesman for Mayor Stephanie Rawlings-Blake, said the removal of the credits is "good news."
The Sun's analysis of double-dipping with the homestead credit was part of a broader investigation of the tax program published last month.
The credit acts to keep tax bills from rapidly escalating by limiting the amount of assessed value on which Baltimore homeowners are taxed at their primary residences from rising more than 4 percent a year. Statewide the cap is 10 percent, though local governments can impose lower caps.
But since the late 1970s, the credit has morphed into a massive subsidy fueling widespread inequality — a problem made worse by errors in billing and inadequate oversight, The Sun found.
In response to the coverage, state Del. Samuel I. "Sandy" Rosenberg, vice chairman of the House Ways and Means Committee, has been working on legislation that he says would make the statewide system fairer for all homeowners by linking eligibility to income. The Baltimore Democrat said Thursday he's still researching the issue.
Under state law, an individual or a married couple is entitled to only one credit. But people have been receiving the break for years on homes they don't occupy. That includes owners who don't understand the rules, purposely broke them or didn't know they were getting a credit.
In August The Sun reported that 465 houses were receiving homestead breaks even though they had been identified by the city as vacant and unlivable. Credits to those owners this tax year totaled $325,000.
Then last fall, The Sun used an alphabetical search of homestead recipients to identify 17 owners who were improperly receiving credits on three or more homes. The state has since removed invalid credits for those owners, and many have paid at least a portion of newly imposed back taxes. Online records indicate payments have been made but not how much.
That same analysis found that hundreds of owners were receiving credits on two homes. As of Thursday, more than 500 of those credits had been rescinded, Charles said.
Typically, when the state questions the validity of a homestead credit, it gives the owner 30 days to provide documentation. In this case, the state removed the credits first, then asked owners to prove they were eligible.
Some owners never responded to the state's inquiry, Charles said, while others couldn't show they qualified. The state staggered the mailing of the letters, so the 30-day window hasn't closed for all owners.
"You may still have a handful of property owners submit documentation at the last minute," Charles said, "but I don't anticipate it's going to be anything that will substantially affect the credits that have been rescinded."
Sabrina Tapp-Harper, a Baltimore police major, is among the owners who were improperly getting two credits. One was for her primary residence, she said. But the other credit was for a rental on Elmora Avenue where she once lived. She said she was unaware she had the credit there.
Tax records indicate she now owes $3,241 going back to 2010, the furthest back online records go. Tapp-Harper, commander of the Northern District, said she's not happy about having to pay. "I don't know who would be. But hey, if it was an oversight on my part, I just have to pay it," she said.
Brett and Maria Plano were getting credits on two Riverside rowhouses, one on Webster Street and one on East Fort Avenue. The Planos weren't eligible because neither house was their primary residence. Property records show they live in Elkridge, where they received a homestead credit worth $1,258 this year.
The Planos made payments this month on both properties for the past three years, according to the city's property tax site. Plano did not return messages left Thursday at his construction company on Washington Boulevard.
For its analysis, The Sun sorted homestead recipients alphabetically and looked for repeat names to analyze their eligibility.
Charles says his state agency did a similar audit in February but did not investigate further. He said the staff was focused on reviewing a different list of suspected tax scofflaws sent in by the city, which in June launched a billing integrity program to crack down on abuse of property credits.
The state agency also has been busy processing applications under a new law that requires homeowners to apply for the credit by late 2012. Charles said that change "will certainly weed out" improper homestead recipients. For years the credit was granted automatically if land records indicated a buyer planned to live there, a factor that made abuse easier.
The city did its own A-to-Z sort several months ago but didn't act because it was afraid of flagging and needlessly alarming homeowners — for instance, two people who share the same name — who legitimately qualify for two credits, according to William Voorhees, director of revenue and tax analysis at the Finance Department.