A new effort to crack down on Leelanau County property owners who have been underpaying taxes on improperly designated "principal residences" has been modestly successful, according to county officials.

A “Homestead Audit” program instituted early this year has put more than $81,600 into the coffers of local public school districts, nearly $3,500 into township coffers and more than $9,700 into county coffers. Those figures reflect collections through the end of September.

The Leelanau County Board of Commissioners authorized the county’s Equalization Department and Treasurer’s Office to implement the program in January 2007. At the time, officials pointed out that many properties in Leelanau County are “second homes” on which too many taxpayers are improperly claiming the “homestead” or “principal residence exemption” (PRE).

Claiming the PRE allows property owners to avoid paying the 18-mil “non-homestead” tax that helps support Michigan public schools. The main beneficiaries of the homestead audit program, therefore, are public schools.

However, when overdue taxes are collected, the county is authorized to retain up to 70 percent of interest penalties under state law. Townships and other local units of government are given 20-percent of the interest while the state takes 10 percent.

Early this year, county equalization director Laurie Spencer told commissioners that a preliminary review of county records indicated that “homestead audit” investigations should be conducted on about 1,500 properties. She suggested that if a paid position were added in the Equalization Department to conduct the audits, the position would pay for itself in increased revenue from interest owed on the taxes.

Although the county board stopped short of authorizing another position in the Equalization Department, it gave the go-ahead for the program to be executed with existing personnel and time as available.

As of the end of the third quarter of 2007, some 70 audits had been successfully completed, bringing in more than $86,600 overall.

Equalization Department manager Pam Zientek said last week that employees in her department were still conducting the audits and that final figures for 2007 were not yet available.

“There’s no doubt that the local schools and the county now have more money than they would have otherwise had without this program,” Zientek said. “It’s a slow, laborious process to conduct these investigations, but we’re getting it done.”

She said much of the investigative work is accomplished through a review of records in the county Register of Deeds Office. In addition, officials can obtain voting records, income tax records and other documents to verify whether taxpayers are claiming the “principal residence exemption” properly.

Zientek said she believed it was misleading to call everyone who has failed to pay the proper “non-homestead” levy a “tax cheat.”

“We’ve been getting calls all year from the people we’ve identified; and many of them just honestly didn’t understand that there was any problem until we explained it to them,” Zientek said. “But what’s fair is fair, and almost everyone we’ve contacted so far has been cooperative and has paid what they owe.”

Zientek said that only three of the audited property owners had so far filed an appeal with the Michigan Tax Tribunal in Lansing.

The Equalization Department conducts the audit program in cooperation with the Leelanau County Treasurer’s office, which collects the taxes and penalties and keeps track of program finances.

County treasurer Vicki Kilway said she agrees the program has been modestly successful and has brought more funds in to the units of government owed money. Kilway pointed out that in 2003, she and many other county treasurers in the state conducted a one-time “amnesty” program that resulted in a number of “non-homestead” taxpayers paying up.

Investigations conducted since then by the Equalization Department have included tax bills from 2004 through 2006. Although many of the tax parcels audited in each year overlap with other years, some 39 were discovered for 2004, 45 for 2005 and 58 for 2006 – with a grand total of overdue taxes and penalties of $111,470. Of that amount, more than $86,000 had been collected and distributed as of Sept. 30.

As a result of the program, the following gains were made by county schools: Glen Lake Community Schools, $23,120; Leland Public School, $37,037; Suttons Bay Public School, $4,407; and Traverse City Area Public Schools, $17,113. Those numbers, too, reflect audits conducted and disbursements made through the end of September only.

Six of the county’s 11 townships so far have gained money through the program – mostly through the 1-percent tax administration fee tacked on to bills sent out by the townships, as well as a share of interest on penalties. Centerville, Cleveland, Elmwood, Empire, Kasson and Leland Townships combined earned $528 in tax administration fees and nearly $3,000 in interest penalties as a result of the program.

The state of Michigan has gained $1,418.

Leelanau County itself has gained $9,783 in revenues through the “Homestead audit” program. Of that amount, the county spent $1,376 on office supplies and postage for the program – mostly on certified mail deliveries to delinquent taxpayers. The net benefit to county coffers was $8,407, Kilway said.

“Even at the pace we’re going, we could run out of properties to audit eventually,” Kilway said. “It seems that a lot of the problems with people not paying the right taxes stemmed from home sales being completed without the proper paperwork being filed,” she said.