Originally published on Forbes.com Nov 10th, 2014
The Kansas Court of Tax Appeals declared war on non-lawyer property tax consultants in 2012. COTA lost the war – badly. How badly you may ask? There is no longer a Kansas Court of Tax Appeals. It is now the Board of Tax Appeals, which has members, not judges.
Among other provisions of the bill that demoted the Court is one that provides that the Board is prohibited from determining who may represent taxpayers, what constitutes unauthorized practice of law and whether or not a contingent fee arrangement is contrary to public policy.
With the big legislative win well under his belt, the mid-October decision by the Court of Appeals (In the Matter of Protest Appeals of the Kathy Lyerla Living Trust et. al.) might just be the icing on the cake for Jerry Chatam , the consultant who led the charge that changed the playing field for tax appeals in Kansas. The recent COA decision appears to have vindicated Mr. Chatam and attorney Linda Terrill who were accused by COTA of engaging in champerty.
Champerty?
J. W. Chatam and Associates which has been representing taxpayers in property tax appeals since 1994 is not a law firm. Jerry Chatam has a degree in civil engineering. He began working in the assessment field in 1981 in his native state of Mississippi working for county governments. Marriage influenced him to move to Kansas and in 1994, he began representing taxpayers.
Mr. Chatam thinks decades in Kansas have obliterated his accent, but the traces are still there, just as forty years in New England have not stopped me sounding like I grew up with a view of the Empire State Building. JWC represents taxpayers in 34 states, which gave him some staying power, but he believed that COTA ruling that appeals could be thrown out because forms had been signed by non-attorneys was devastating to other players in his industry.
Taking a more charitable view of the activity of then Chief Judge, Sam Sheldon, who resigned from the Board, I’m thinking that he might have been wanting to move COTA up the prestige ladder similar to the United States Tax Court, which though a court has attributes of an executive branch entity. In the end things did not work out so well for Mr. Sheldon, who attended a law school with Governor Brownback where they were part of a small Bible study group. Sam Sheldon is the author of the Crucifixion Trilogy, novels inspired by the Apostle’s Creed, that tell what happened when Jesus descended into Hell and confronted Satan. I don’t know if there is a connection there, but I just could not leave that detail out.
]Mr. Chatam tugged at my heartstrings when he pointed out that his client was a “widow lady”. When I did my mother’s tax return, she was always annoyed that she was referred to as single, rather than as a widow. Mr. Chatam ended up spending into the six figures on the litigation, while his fee for the representation of the widow who had sold a house assessed at $900,000 for $600,000 ran into the hundreds of dollars.
Not all the decisions you make in your business are determined by how you profit from it.
That percentage fee is where the “champerty” comes in. In its 2012 decision COTA explained
Champerty is frequently exciting and stirring up quarrels either at law or otherwise. Generally, in order to constitute the essential elements of champerty, a person having otherwise no interest in the subject matter of the claim makes an agreement to defray, in whole or in part, the expenses of litigation whereby the fruits of the litigation would be divided
And of course, they found that Jerry Chatam was a champ, or whatever it is you call somebody who has been practicing charmperty. That voided the validity of the widow lady’s appeal and also spelled quite a bit of trouble for Linda Terrill, who was the attorney on many of JWC’s cases.
The decision is pretty involved, but those are probably the high points. If it had stood up it would have destroyed the property tax consultant industry at least as it is practiced in Kansas.
Appeals Court Slams COTA
The Appeals Court, which unlike COTA now BOTA, is an Artilce III Court under the Kansas Constitution rather than an executive branch entity was not having any of it.
If a timely notice of appeal is filed with the Court of Tax Appeals, the failure to have the proper party sign that notice does not deprive the Court of Tax Appeals of jurisdiction over the appeal.
The Court of Tax Appeals has no authority to determine the validity of contractual agreements between taxpayers and those hired by the taxpayers to represent them before the Court of Tax Appeals. Nor does the Court of Tax Appeals have authority to determine whether a party is engaging in the unauthorized practice of law or whether an attorney is violating attorney-ethics rules.
Then appeals really laid into what the legislature left of COTA (now BOTA).
On the facts of this case, where the judges of an administrative-law court have concluded that the representatives of a party lack credibility (one as a witness sworn under oath and the other as an attorney who must make truthful representations to a tribunal) and have conducted an inquisition on matters beyond the agency’s jurisdiction to the detriment of the party, a reasonable person would lack confidence that the judges could provide a fair and impartial hearing. Accordingly, in this circumstance, the failure of these judges to recuse from further proceedings in the case would be unreasonable under.
I don’t think I have ever seen this before. The Appeals Court is sending the case back, but telling BOTA that it was such a bad decision that none of the original judges can be involved. There is a discussion about the practical implications of this. Apparently there is enough turnover on the small panel that they will not have to invoke the “doctrine of necessity”. I could get into that, but I think “champerty” is enough discussion of obscure legal terms for one tax blog post.
The Other Jerry
Jerry Chatam encouraged me to speak to Jerry Lunn, the representative for the 28th District in the Kansas House of Representatives. Representative Lunn led the legislative effort to rein in the Court of Tax Appeals. One of the aspects of the legislation is that after going to BOTA taxpayers will have a “second bite at the apple” in district court before going to appellate. He told me that there were accusations that the whole exercise was being tailored to affect the result in the domicile case of Pizza Hut franchisee O. Gene Bincknell, which I covered back in April. Representative Lunn indicated that he hadn’t really been aware of the case until the accusation arose.
Representative Lunn indicated that the effort to rein in COTA, which had “gone rogue” was bipartisan and passed the house unanimously. Besides backlogs and the overreach against consultants (which as it turns out did not require legislation to fix), there was a general sense that COTA deferred too much to the counties, which collect the real estate taxes and set values of property in Kansas. The counties compute a mill rate for the taxing jurisdictions based on their budgets.
There is a sense that counties assigning higher values to commercial properties being backed by a biased COTA was a way to covertly raise taxes. Representative Lunn has a business background and just won his second term in the legislature as a Republican. He told me that he had gotten tired at yelling at the TV while was watching Fox News and started working on campaigns and then found himself nominated for the legislature.
Another Side To The Story?
I from time to time represent taxpayers at audits and am inclined to root for taxpayers in disputes with taxing agencies when I read cases. Among the taxpayers I will always root for are disabled veterans and widows. And I really like both Jerries who were very accessible and generous with their time. So I’m tempted to tell this as a kind of Mr. Smith Goes to Topeka story.
You could, however, also frame it as commercial real estate owners versus school kiddies and cops and firefighters.
Mr. Chatam tells me that he looks at assessors as colleagues engaged in a search for truth and that he turns down most of the cases presented to him and settles most of the rest amicably without litigation. On the other hand, I doubt anybody hires him so that they can pay more real estate taxes. Representative Lunn, part of the new wave of Republican state legislators has a bit of a cut government spending air about him. He calls himself a Reagan Republican committed to smaller government, lower taxes and free markets, values shared by the Tea Party. Among the groups supporting the counter-assault on COTA was the Kansas Chamber of Commerce.
Opposed to the bill that converted COTA to BOTA was the Kansas Association of Counties which was concerned that details in the bill might create a “market for private appraisers who are willing to undervalue property”.
In commenting on the process surrounding the bill Greg McHenry, Appraiser of Riley County ,wrote in Appraising The Plains (scroll to Page 6)
This year’s Legislature is pretty much a cesspool where appraisers and anyone else in local government are despised. We are no longer given equal time or even the opportunity to dispute the lies and misinformation spread throughout committee hearings.
Why This Story Has National Significance
The results of the most recent election do not necessarily mean much of a change in Washington. There is still the divided government we have come to know, if not love. The states are a different story . Republican ascendancy in state legislatures and governors mansions has grown. It is worth remembering that the contemporary anti-tax movement has its roots in resistance to California property taxes.
This situation may create what I am going to call the Tea Party Paradox. There is a desire for less government and lower taxes in general, but also a sense that what government there is should be more local and state than federal. So now we have the situation where the people who want to slash the federal government are positioned to slash the levels of government, that they view as more benign, although perhaps still in need of pruning.
Then there is what I will call the Lois Lerner Effect. Anti-tax zealots are using misbehavior in one of the more obscure, less significant parts of the IRS to condemn the entire system and advocate an entirely new system. What happened in Kansas with the Court of Tax Appeals indicates that zealous legislators can restructure a system relatively quickly once they get a head of steam up.
I can’t fault Jerry Chatam for zealously representing his clients and his industry on two fronts, but it turns out that he didn’t need to change the courts to win. He won with the courts as they were. Now Kansas gets to see if the structural changes have unintended consequences.It is worth noting that lowering tax rates cuts taxes for everybody, but making forums more taxpayer friendly only cuts taxes for people who complain about them.
Other Sources
There are more twists and turns to this story, which seems to have not gotten the coverage that it merits. I hope to look into it further, but here are a couple of other related items.
Here is Jerrry Chatam’s letter to the Kansas Senate, which explains his grievance with COTA and its then chief Sam Sheldon.
Here is a story by Andy Marso in the Topeka Capital-Journal about some of the back and forth of restructuring the Board of Tax Appeal