Kentucky county uses new tactic to get millions owed by company tied to W.Va. Gov. Justice

A county prosecutor in Eastern Kentucky is trying to collect delinquent property taxes linked to West Virginia Gov. Jim Justice by intercepting royalty payments from local coal operators to a Justice-family company.

That’s a new tack in Knott County, where Kentucky Fuel, a coal company once owned by Justice and now controlled by his children, owes more than $2 million in back taxes.The debt has been a sore spot because it has meant less money for county government and the school system as both have struggled with tight finances.

Knott County Attorney Tim Bates’ office has sued Kentucky Fuel several times to collect delinquent taxes, but began trying to collect through garnishment in recent months.

In that process, money from a third party can be seized to pay a debt owed by a person or company. For example, a creditor owed money by a person can get an order for the person’s employer to take money directly from his or her paycheck and give to the creditor, guaranteeing the payment.

The process is often used to collect unpaid child support.

“It’s revenue the school system could have used,” Bates said of Kentucky Fuel’s tax payment.

The garnishment of local coal companies to get money headed to Justice hasn’t yet brought in any cash for the county.

Bates said Larry King, who is deputy county judge-executive and heads one coal company subject to a garnishment order, promised to bring in a payment in October but didn’t.

More recently, an attorney representing King and his brother, Barry “B.B.” King, who heads another company under a garnishment order, said Barry King would bring in a payment Monday or Tuesday.

That didn’t happen by the close of business Tuesday, Bates said, but he plans to continue trying to collect.

A sharp downturn in coal mining since 2011 and a lower tax valuation on unmined coal have sapped revenue for school systems and county services in Eastern Kentucky’s coal counties.

The state gets a portion of property taxes collected by counties, but much of the money goes to local schools, counties and programs such as libraries and health departments.

Bates’ office sued Kentucky Fuel last year to collect $1.8 million in unpaid property taxes, penalties and interest, charging in the lawsuit that failing to pay taxes on time “is both a willful and repetitive method of doing business” by Kentucky Fuel.

Circuit Judge Kimberley C. Childers ordered Kentucky Fuel to pay the delinquent taxes.

The company’s delinquent property-tax debt in Knott County now totals $2,023,956 because of additional annual delinquencies, interest and penalties, according to county Clerk Ken Gayheart’s office.

Much of the debt is from the time Gov. Justice owned the company. His son and daughter took over as controllers in 2017.

Jay Justice, Gov. Justice’s son, told the Herald-Leader earlier this year he understands how important tax revenue is to counties and was working toward paying off delinquent taxes.

“We’ve never bankrupted any company and we will always make good on our obligations,” Justice said. “Sometimes it takes a while.”

Bates said he and Randy G. Slone, the assistant county attorney, learned after Childers’ judgment that Larry and Barry King had a deal to mine coal controlled by Kentucky Fuel, indicating the Justice company could be receiving money out of Knott County as it was behind on taxes.

It was not clear earlier that Kentucky Fuel could be receiving income from operations in the county. A federal mining database lists no active Kentucky Fuel mines in Kentucky.

Bates filed garnishment orders in August directing the two companies controlled by the Kings, KI-Coal and King Brothers Coal, to give the county money meant for Kentucky Fuel under any mining agreement.

The King brothers are well-known with ties to local schools needing money. In addition to serving as deputy judge-executive, Larry is married to the school superintendent, Kim King, and Barry is the basketball coach at Knott Central High School.

Larry King did not respond to requests for comment by the Herald-Leader, but Barry King said he’s not happy about being in the middle of an effort to collect taxes from Kentucky Fuel.

“I think I was drug into it,” King said.

King declined further comment except to say he is concerned that if Kentucky Fuel doesn’t get the money, it will pull out of the contract and cost his employees their jobs.

But Bates said the garnishment doesn’t violate any contract between the King brothers and Kentucky Fuel or give the Justice company grounds to pull out of the deal.

Any money recovered would be applied to a debt Kentucky Fuel owes, Bates said, meaning the company would still be receiving a benefit even if it isn’t getting the cash.

Bates said he is trying to collect badly-needed tax revenue, not disrupt jobs, and would help the King brothers defend the contract in court if allowed.

“If you’re in business with Justice you’ve got to expect to be in the legal crosshairs,” he said.

The details of any deal between the King brothers and Kentucky Fuel have not been made public.

Bates said a Kentucky Fuel attorney told him the Kings pay Kentucky Fuel $4 on each ton of coal mined or 10 percent of the gross sales price, whichever was greater.

The U.S. Mine Safety and Health Administration (MSHA) does not list any active mines for King Brothers Coal or KI-Coal in Knott County.

Last week, however, Bates learned of another coal company, Adella Coal, was incorporated last September with Barry King as president.

Federal records show Adella Coal started producing coal at a small mine at Mousie late last year.

In the first three quarters of 2018, the mine had between 14 and 18 employees and produced 45,440 tons of coal, according to MSHA.

Bates had a new garnishment order served Monday directing Adella Coal to give the state and local governments any money due to Kentucky Fuel.

“That money needs to pass through to Knott County and the school system,” he said.