Senate rejects windfall for Kansas health club kingpin in property tax bill

House and Senate return to conference on legislation

The Senate Assessment and Taxation Committee, led by Sen. Caryn Tyson, agreed to an offer from the House tax panel to include a controversial property tax exemption for Kansas health clubs Friday. The House and Senate must still vote to approve the measure. (Tim Carpenter/Kansas Reflector)

TOPEKA — The Kansas Senate late Friday rejected an agreement between committees from both chambers on a property tax bill after including a highly scrutinized property tax exemption for health and fitness clubs.

House Bill 2313 includes provisions to provide financial relief for smaller retailers hurt by temporary shutdown orders during the pandemic, and expands a law exempting Kansans in the military from paying property taxes on two vehicles. The bill also includes an extension of a 20-mill property tax levy that generates $750 million annually for K-12 public schools.

In a tradeoff, the House contingency offered to support a Senate-backed section of the bill providing elderly Kansans with a residential property tax “freeze” in exchange for including House Bill 2445 — the fitness club exemption. The measure received a House committee hearing in March but did not pass out of committee in either chamber.

Rodney Steven, a Wichita businessman who owns Genesis Fitness Clubs and was represented by former congresswoman Lynn Jenkins, sought the exemption because he said nonprofits and municipal recreational facilities made it difficult to operate profitably. Tax records acquired by Kansas Reflector indicate Stevens owed at least $549,000 in pre-pandemic property taxes to several Kansas counties while engaging in this effort.

Sen. Caryn Tyson, a Parker Republican, accepted the House offer to try and push the measure across the finish line on what looks to be the final day of the legislative session.

“We’ll put this up in the air and see where the chips fall,” Tyson said.

The Senate rejected the measure by a vote of 11 to 27. The House and Senate planned to send negotiators to iron out issues in the bill, which previously passed the Senate without the health clubs provision by a 33 to 6 vote.

Had the measure been passed by the Legislature and signed by the governor, Genesis Health Clubs owned by Steven would avoid an estimated $2.5 million annually in property taxes. The exemption would siphon $1.1 million per year from Johnson County property tax revenue and between $273,000 to $366,000 from Sedgwick and Riley counties.

In a meeting Thursday, several members of the House Taxation Committee expressed displeasure with some major Senate amendments sent to them in the final days of the session. On the floor, Representatives chose not to concur on the changes sending it to Friday’s conference committee.

The bill would require a property tax refund from state and county governments to support certain small businesses forced to close, limit capacity or cut hours amid the COVID-19 pandemic. Larger retailers who were able to remain open — like grocery, liquor and hardware stores — would not qualify for the tax break.

To be considered for the tax break, businesses could have had no more than $2.5 million in annual revenue. Eligible businesses also could not have accepted more than $150,000 in other pandemic financial relief funds.

Changes to the bill agreed upon by the two chambers included no property tax relief for businesses if they were made whole using COVID-19 relief funds. It also clarifies that dentists can get relief as can “personal services” such as massage therapists and chiropractors.

Rep. Adam Smith agreed to include a property tax freeze for certain Kansans 65-years and older in exchange for the health club provision. The bill had not been considered by either the Senate or House. (Sherman Smith/Kansas Reflector)

An amendment to the bill by Sen. Tom Holland, a Baldwin City Democrat, providing qualifying Kansans over the age of 65 and disabled veterans with household incomes of less than $75,000 a property tax freeze did not sit well with the House. Rep. Adam Smith, a Weskan Republican, proposed striking the provision, but in exchange for the health club provision and the inclusion of a five-year sunset on Holland’s “golden years” tax measure, relented.

“That bill has not made it out of your committee … and it has not crossed either chamber?” Tyson asked.

“That is correct,” Smith said.

The decision to include a bill not passed by either chamber drew the ire of some stakeholders for exempting someone delinquent on their taxes. Some argued it was against legislative rules and that people seeking tax relief ought to be current on all payments.

It is unclear what the statewide financial toll would be on city and county budgets if owners of all health clubs in Kansas were granted permission to quit paying property taxes after Dec. 31. The proposed amendment would apply to health club partnerships, corporations or other business organizations charging a fee for access to weight and strength training related to cardiovascular fitness. The amendment would exclude dance studios, martial arts facilities, swimming pools, golf courses and health spas.

“HB 2445 is bad policy, and the bill needs to be sent back to the conference committee,” said Trey Cocking, deputy director of the Kansas League of Municipalities, in a tweet following the agreement. “This is saying to the little old lady who can barely pay her taxes you have to pay a little bit more so that people that can afford an expensive gym membership can pay a little bit less.”