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Chandler auditors have launched a new probe into city housing ownership, hoping to catch scofflaw landlords and collect hundreds of thousands of dollars in unpaid rental taxes.
Armed with new property data from county records and an Arizona State University internship program, the municipal sleuths are hoping to repeat a successful 2005 program that caught hundreds of landlords who weren't paying and collected $1.6 million in back sales taxes, said Lee Grafstrom, tax and audit supervisor.
Since May, the staff and interns have been searching more than 90,000 county property records representing every parcel in Chandler and looking for owners whose mailing addresses don't match their properties. Mismatches generate letters reminding owners that all residential rentals in the city must be licensed and pay sales taxes on rent. If the response is "I live there," auditors check utility bills, he said. And if the bills are in someone else's name, the city continues its investigation and sends more letters.
It's worth the trouble, Grafstrom said. The 1.5 percent municipal rent tax amounts to $270 a year for a house that rents for $1,500 a month. Interest on delinquent taxes is 8 percent, and because there's no statute of limitations on back taxes the city routinely tries to collect back as far as 1984, he said. If the landlord doesn't pay, the city files liens against the property and can collect when it's sold.
Chandler doesn't expect to collect as much in this effort as it did the first time because there are expected to be fewer scofflaws and they would likely have purchased the properties within the last two years, Grafstrom said.
Harry Lewis has been caught in Chandler's aggressive rental tax collection policies.
Lewis has owned a home near Dobson and Elliot Roads for more than 30 years and once lived there. But when Lewis, 68, moved in 1984, he decided to rent it and hired a property manager to take care of things. He said he also notified Maricopa County that the property was a rental.
Now a resident of Surprise, Lewis said he found out recently that the property manager he retained from 1985 to 1991 didn't pay required Chandler sales tax. Now the city is dunning him for $1,869. Most of that is interest and penalties.
"There should be some statute of limitations for back taxes," Lewis said. "I'm retired and on a fixed income."
City Attorney Michael House said there is no statute of limitations on taxes. And Grafstrom, the tax and audit supervisor, said Chandler is aggressive about collecting rental taxes because they're easy to document and a large number of landlords aren't paying. If property owners don't pay, the city files a lien and collects when the property is sold.
Lewis said Chandler collectors have threatened to file a lien on his house, and his former property manager isn't taking responsibility. "It seems like such a long time ago; I don't know why they have to go back that far," he said. Since he changed property managers in 1991, the taxes have been paid, Lewis said.
Grafstrom said Chandler set 1984 as the date from which the city seeks back taxes because in 1987 it adopted the model cities tax code which has no statute of limitations on back taxes. Prior to that, the city code allowed auditors to go back three years for collections.
Although only $457 of Lewis' back tax bill is the actual tax owed, Grafstrom said Chandler is prohibited by law from waiving interest charges.
The city also has authority to cite and fine rental tax scofflaws, but hasn't been doing that, he said.
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