Businesses upset at fee increase for tax appeals in Kansas

Commercial property owners who want to appeal their property tax valuations now have something else to complain about.

The Kansas Court of Tax Appeals in Topeka voted Wednesday to change the filing fees for those appeals after the Legislature slashed the court's funding earlier this summer.

"We now have the highest filing fees in the nation for commercial tax appeals," said lawyer Jim McIntyre.

Fees have doubled, tripled or gone even higher, McIntyre said, depending on the number of parcels within a property and what county it is in.

What used to cost, say, $125 to appeal now might cost $1,600 due to the number of parcels, he said.

"It's going to be a mess."

He plans to file a lawsuit on behalf of several Wichita commercial property owners against the state this week to stop the fees from taking effect.

"A lot of people have a lot of money at stake here," McIntyre said.

According to Sedgwick County, there were 3,618 appeals of commercial property taxes in 2010. Since January, there have been 522.

Until a few years ago, the entire budget for the Court of Tax Appeals came from the state's general revenue fund and property owners didn't have to pay to contest their valuations.

In recent years, the majority of the budget still came from the state, and commercial property owners made up most of the rest with filing fees.

Now, commercial property owners will fund about two-thirds of the court's budget.

"What it does, it restricts access to the courts," said Jim Hudson, co-owner of Tax Adjustment Specialists, which is one of several Wichita-area companies that help commercial and some residential property owners appeal their taxes.

For small tax issues, he said, the increased fees will mean "it's just no longer feasible to take those cases."

Hudson said $25 is about the most commercial property owners have to pay in nearby states.

"In fact, most of the surrounding states don't charge anything to file," he said.

All Kansas property owners — residential and commercial — can make an informal appeal to their county appraiser's office through a hearing for no fee.

The next level is a small-claims division of the Court of Tax Appeals that's generally used for residential property appeals.

The highest level for appeals is to the judges with the Court of Tax Appeals.

Residential property owners generally don't have to pay to appeal their property taxes unless they take it to the highest level, which isn't as common as taking it to the small-claims division.

That's part of why McIntyre is filing the lawsuit.

"They're treating commercial taxpayers worse than residential taxpayers — far worse," McIntyre said.

He said the suit will allege denial of the constitutional rights of due process and equal protection.

He said the new fees also violate the state Constitution's classification scheme, in which commercial properties are taxed at 25 percent of their fair market value and residential properties are taxed at 11.5 percent.

"In my opinion, that classification requires that residential ... homeowners pay based on a proportion of use," McIntyre said. "That prohibits the Legislature from setting the filing fee at zero."

McIntyre said that companies asking for industrial revenue bonds or that groups, such as churches, asking for tax exemptions — both of which also involve appeals — also will have to pay significantly more.

Judges opposed

McIntyre said he will name Gov. Sam Brownback in the suit.

"Brownback said he's a big supporter of business, yet the people being gouged here are businesses," McIntyre said. "The bigger the commercial taxpayer, the more they're getting gouged."

Brownback's office referred calls to the state Department of Revenue, which referred calls to the Court of Tax Appeals.

That office declined to comment and instead provided a transcript of judges' remarks at an Aug. 4 Court of Tax Appeals a hearing on the fee changes.

The judges disagreed with the increased fees.

"I don't like trying to try to fill gaps by setting fees," Judge Trevor Wohlford said. "I can't get my brain around that. ... I've disagreed with the philosophy behind this for a long time."

Judge Fred Kubik added, "None of us really agree with this process."

He said the fees are "so much that it discourages people from getting the equity that they're entitled to."

He said he's "hoping that it won't stay this way, but for the moment, we don't have any choice."

Local owners uneasy

The filing fee changes are a topic of conversation in the Wichita business community this week, as many commercial property owners and others in the commercial property business learn of the change in filing fees.

"I am troubled by this change," said Steve Martens of Grubb & Ellis/Martens Commercial Group.

"The state's making it awfully expensive and very inconvenient ... with these fees," he said. "The state has almost annually made it more difficult for people to protest their property valuations."

Hudson said this is the second increase in less than a year.

He said that for small claims — those involving property worth less than $2 million — fees went from $20 to $100 in November.

With the new fee structure, Hudson said, the top end of small-claims filing fees will be $200.

"In less than a year, you've had 1,000 percent increase in that fee," he said. "And that's actually down from what they were proposing. ... That's why we're moving forward with this lawsuit."

Martens said that because property owners can't change the mill levy or how property is assessed, appeals are the only way for them to protest the county's valuation of their property.

"It's a very disappointing scenario," he said. "You kind of wonder what the Kansas Legislature was thinking about when they did this to commercial property owners."

State Sen. Carolyn McGinn, R-Sedgwick, said senators initially wanted to fund the Court of Tax Appeals with $654,248.

"We negotiated over 20 rounds, and the House had insisted on cutting the (state) budget $50 million," she said.

Finally, they reached a compromise to fund it with $325,000.

"Now the burden seems to have gone onto those that pay the fees," McGinn said. "They should call their House representatives and senators and let them know that they would like this looked at again next year."