Johnson County Commission Chairman Ed Eilert and Rep. Stephanie Clayton, an Overland Park Democrat, have called on Kansas Governor Laura Kelly to appoint judges who will change property tax law from the bench, and it seems that Kelly is taking their advice.
Gov. Laura Kelly announced the appointment of Robert Marx to the board in April of 2020. An appraiser from Fairway, Marx boasts more than 40 years of experience as a property appraiser. Marx’s forays into a broad debate about how to value commercial properties concern some lawmakers. If confirmed, they worry he will use his authority to legislate from the tax appeals bench.
The Senate Assessment & Taxation Committee, chaired by Sen. Caryn Tyson, held a hearing last week to consider the appointment.
“We have people legislating from the bench in Kansas,” Tyson said. “My concern is that you may take that upon yourself to legislate from the bench and not follow the letter of the law.”
Marx denies he would do so, but legislators say his record suggests otherwise.
The Kansas Board of Tax Appeals settles disputes between property owners and taxing authorities. The board’s three members decide property tax appeals, tax grievances, and appeals from school districts with declining enrollment.
Kelly said Marx brings meaningful experience and a long career to the role.
“I have no doubt he will act impartially and thoughtfully to ensure tax fairness to all Kansans,” Kelly said in a press release announcing his nomination. However, critics worry his history in advocating against so-called “dark store theory” appraisals will lead to finding in favor of government entities over property owners in disputes over big box store appraisals.
Nomination raises property tax controversy
‘Dark Store Theory’ is a phrase coined by government officials referring to setting commercial property values based on the value of the land and the building.
That’s how county appraisers valued big-box retailers like Walmart and CVS, until Johnson County Appraiser Paul Welcome changed the valuation methodology in 2015, adding building lease values to ad valorem assessments. The result: Johnson County’s 57 big box stores increased from $400 million in valuation in 2015 to $742 million in 2016, an 85% increase in a single year.
Linda Terrill, a property tax attorney, told the Kansas City Star in 2019 that the 2016 valuation change to commercial property is similar to basing a residential property’s value on the homeowner’s income.
“If you win the lottery on Monday, your house isn’t suddenly worth more on Tuesday,” she said. “And if you file bankruptcy on Wednesday, your house is still worth exactly the same thing.”
All 57 big box property owners in Johnson County filed property tax appeals in 2016. Some of the cases are ongoing, and the retailers are winning every case. A September 2019 BOTA ruling admonished the Johnson County Appraiser’s Office for illegally hiking appraised values on Walmart and Sam’s Club stores. The panel said, “…the County admittedly is making its record for an appeal seeking the reversal of Kansas precedent….”
Marx appeared as a witness for Johnson County against Walmart in that case.
BOTA appointments a strategy to sidestep the legislature
Marx told lawmakers during his confirmation hearing that he would follow the letter of the law in deciding cases before the board of tax appeals. He said the county’s appeals following BOTA’s big-box decisions are pending. He said if the courts determine that dark store appraisals are the law, he will follow it.
“I’m not trying to make law,” he said. “I can only tell you this. There’s nothing in the statute that tells me that I have to assume that the property is vacant. Why assume something that’s not true?”
His testimony in a 2018 appearance before the Senate Tax Committee, however, indicates he believes the court is wrong in ruling against the county.
Some lawmakers believe the Kelly administration and some county commissioners hope to sidestep the legislative and legal process by confirming activists to the three-person board of tax appeals.
Officials endorse judicial activism at town hall
During a January 2020 forum in Prairie Village, Ed Eilert, chair of the Johnson County Board of County Commissioners, said the legislative process and the court process take time.
Eilert said, “The legislature could take action. The BOTA makeup could change, or the courts could make a different decision. It’s significant.”
Rep. Stephanie Clayton, an Overland Park Democrat, said she prefers stacking the BOTA.
“One thing that I at least would prefer as far as strategy is concerned is that knowing the makeup of the legislature and knowing the influence of certain entities over certain legislators, none of who are present this evening, I would find any sort of legislative move risky,” she said. “I am going to take a defensive approach when it comes to this particular issue in the legislature. Next week, there will be two appointments to the BOTA. I would prefer to see changes being made at that level because it is much less volatile than at the legislative level.”
Johnson County Commissioners weigh in
Eilert attended a variety of meetings, including school board meetings, legislative hearings, and town halls. At each, he told attendees that valuing only the land and buildings for big-box retailers results in tax increases for residential property owners. In 2018, for instance, he told the Shawnee Mission School Board that a decision by the board of tax appeals to use so-called “dark-store” valuations for Target stores caused the retailer’s tax liability to plummet by 30%.
“That’s a lot of money that’s not collected. And if it’s not collected from that class of property, who pays? Eilert told the school board. “All of us that are left, and that means primarily residential properties.”
Dave Trabert, CEO of Kansas Policy Institute, which owns the Sentinel, says Eilert is distorting the truth to scare people. He says Eilert didn’t tell citizens that the county first exorbitantly increased the value on Target stores and that they are paying more tax after the BOTA decision than the year prior. Trabert says Eilert likely knows the county will continue losing their cases and is just setting up homeowners for a tax hike he wants to impose.
“It’s like saying ‘we built our budget assuming we could steal from one group of taxpayers, so if the state won’t let us, we’ll have to steal from someone else. Eilert and several other commissioners could easily eliminate some unnecessary spending, but they won’t.”
Commissioners meet with Kelly administration
Commissioner Becky Fast said she and Eilert met with members of the Kelly administration on the topic.
“Governor Kelly knows this is a top priority for us,” she said at the forum. “…Counties across the state are very concerned about who is currently on the board of tax appeals and have given input in terms of the importance of having someone on the board of tax appeals that understands the impact of this appraisal theory.”
Kansas law prohibits members of the board of tax appeals from deciding cases based on a government entity losing tax revenue.
“Cases before the board shall not be decided upon arguments concerning the shifting of the tax burden or upon any revenue loss or gain which may be experienced by the taxing district,” Kansas statute, K.S.A. 74-2433, reads.
Kelly administration shares Senator’s private emails in support of Marx
Johnson County Commissioner Janae Hanzlick went one step further. Hanzlick shared a private email sent to Sen. Molly Baumgardner by a constituent, Jack Shelton. In the email, Shelton, a retired real estate appraiser from Overland Park, urges Baumgardner to confirm Marx. Shelton addressed the email solely to Baumgardner.
However, it ended up as a part of the public record. Scott Allegruci, director of appointments in the Kelly administration, forwarded it to the Senate committee tasked with vetting Marx.
Shelton says he sent the email to Baumgardner and blind copied Hanzlick.
Allegruci sent the email to the committee. Allegruci wrote, “…former member of the Kansas Real Estate Appraiser’s Board, retired Jack Shelton, sent an email to Senator Baumgardner yesterday regarding the appointment of Mr. Marx to the BOTA. It seems like information that the entire committee might like to read, and a copy is attached.”
Baumgardner had yet to read the email before it appeared in the packet for public consumption.
“It is grossly inappropriate and an absolute breach of professionalism to have the director of appointments take a piece of email that was sent to me. I don’t know how he got it, but he did. If I want to share email, I can. That’s my privilege. It’s my right,” she said.
She noted that Allegruci didn’t receive the letter from her or from the sender of the email.
“I simply want to say that the actions of the appointment director have clearly tainted this particular appointment process. There is no process by which those actions should be tolerated or condoned.”
She requested that the committee forward Marx’s nomination to the full Senate for consideration without a recommendation to confirm him. A majority of the committee agreed.
“It’s interesting that a county commissioner would be interested or be pushing to get this individual onto the board of tax appeals,” Baumgardner said.