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Startup Aims to Modernize the Property Tax Exemption Audit

By combining a county’s tax rolls with machine learning and more than 80 different data sources, The Exemption Project creates a ranked list of properties likely to have unqualified or unclaimed homestead exemptions.

It’s no secret that out-of-date tax rolls can cost state and local governments millions. Especially in states like Florida that levy no income tax, property taxes are a chief source of revenue, and they depend on an accurate record of homestead exemptions — tax breaks that reduce the amount owed for one’s primary residence, due to life circumstances such as the death of a spouse or deployment by the military. Some people underpay taxes by failing to notify the local assessor when an exemption expires, and others overpay because they don’t apply for an exemption for which they’re qualified. It can be prohibitively labor-intensive for a property assessor to keep regular tabs on this.

Enter The Exemption Project, a startup in Chicago that offers county governments an online portal and data service to identify unqualified and unclaimed exemptions on tax rolls. Launched in early 2019, the company is the brainchild of CEO Tyler Masterson and Chief Data Scientist Joe Walsh, both veterans of government data work who had met the year before, both looking for something socially responsible to do.

Masterson told Government Technology they were specifically looking to start a business, something that would use data science and machine learning to improve an aspect of core government operations, and they came upon homestead exemption auditing.

“County governments, for the last 10 years, have been doing this homestead exemption audit about every three to six years,” he said. “The problem is, people die, they rent their place, they discover Airbnb, they move away, they get divorced … and they become unqualified in that time. So we decided to build a proactively monitoring solution.”

Proactivity is key to the value proposition, Masterson said, because changes to exemptions happen so often that local governments can’t catch most of them by hiring staff once every six years to comb through local obituaries and real estate websites.

“Once you get outside the context of the government’s own data silos, they don’t have access to that data, nor the skills or the tools … to identify who those individuals are,” Masterson said.

To spare them the trouble, The Exemption Project can process a county’s tax roll through more than 80 data sets which the company has either bought, requested or generated: from credit bureaus, public utilities, the IRS, Social Security information, voter records, Postal Service records, court records, foreclosures and vacancies, social media, professional licenses, et cetera. Using machine learning to recognize who in the tax roll might have an unclaimed or unqualified homestead exemption based on that data, The Exemption Project’s software, called TrueRoll, generates a "stack-ranked" list of most likely candidates.

The county can then prioritize and verify each case, removing unqualified people from the automated exemption rolls and placing liens on properties to collect back taxes, if owed.

It can also work the other way — for unclaimed exemptions, it can start notifying people.

“If we can help them use data to identify pockets of people who are not receiving the exemptions they should be getting, they’re not going to give them back taxes, but they will use it to make them aware,” Masterson said. “‘Did you know, as an active-duty military individual, you can claim a primary residence exemption even when you’re not living here?’”

Not yet two years old, The Exemption Project has customers in Texas, Illinois, Washington and particularly Florida, where rental properties are common and, according to Masterson, every county’s tax rolls are in a standard format.

Eddie Creamer, property appraiser for St. Johns County, Fla., and more than 250,000 residents, said he contracted The Exemption Project for two reasons: first to audit the county’s 84,000 currently approved homestead exemptions for things like additional properties, rental properties and voter registrations in different states; and then for an ongoing monitoring process.

Creamer said phase one kicked off in November, and he’s 90 percent finished sending questionnaires to the 5,500 residences whose exemptions might be expired or improperly claimed. He said the county has placed almost $800,000 in liens for back taxes, penalties and interest so far, and collected more than $200,000 of that.

He said phase two is ongoing monitoring by The Exemption Project, checking the county’s tax rolls against those data sets for the rest of the fiscal year. Creamer said he’s “very satisfied” with the collaboration so far and is open to renewing the contract next year.

“[To monitor homestead exemptions in-house] I would probably have to assign three staff internally, full-time, or hire three new staff, and subscribe to LexisNexis or some service like that, and then go through the process,” he said. “Once it was over and we had removed the exemptions, I would still have the staff and those subscriptions. The efficiency in using [The Exemption Project] is, I get access to all that, they work very well with our staff on a weekly basis, and then my cost becomes variable in the collection process. Once phase one is over, I don’t have that cost anymore.”

The comparison with LexisNexis is one Masterson also made, explaining the role of proactive monitoring. He said in 2016, Cook County, Ill., paid LexisNexis Risk Solutions about $1.2 million to audit the city’s homesteads.

He added that The Exemption Project signed contracts last month with King County, Wash., home to Seattle, and Cook County, which encompasses much of Chicago.

Editor's note: This story has been corrected to remove inaccurate information about a contract between LexisNexis Risk Solutions and Cook County, Ill.

Andrew Westrope is managing editor of the Center for Digital Education. Before that, he was a staff writer for Government Technology, and previously was a reporter and editor at community newspapers. He has a bachelor’s degree in physiology from Michigan State University and lives in Northern California.