Senate panel endorses tax break for Humboldt hotel operator caught in policy crossfire

Income tax refund bill a rarity because it applies to a single Kansas taxpayer

By: - February 16, 2022 11:53 am
Sen. Caryn Tyson, the Parker Republican seeking the GOP nomination for state treasurer, denounced an attack ad released by Republican rival Rep. Steven Johnson, who described Tyson as "architect" of two of the state's largest tax increases. (Kansas Reflector screen capture from Kansas Legislature YouTube channel)

Sen. Caryn Tyson, the Parker Republican seeking the GOP nomination for state treasurer, denounced an attack ad released by Republican rival Rep. Steven Johnson, who described Tyson as “architect” of two of the state’s largest tax increases. (Kansas Reflector screen capture from Kansas Legislature YouTube channel)

TOPEKA — Acupuncturist Paul Finney leveraged inherited farmland to finance renovation of a small historic hotel in downtown Humboldt.

Finney can be blunt about how that venture from 1998 to 2006 turned out: “The hotel was not a success. I closed it and put it up for sale. Nobody wanted to buy it.”

Unraveling himself from the Bailey Hotel quagmire led to a series of transactions. Finney sold the farmland, at a healthy capital gain, to pay off the hotel bank loan. The hotel was sold to a Catholic organization at a loss. He received a federal income tax refund that took into account Finney’s loss on the hotel, but he was thwarted from doing the same at the state level.

He asked the 2022 Legislature to make room in state law for someone such as himself eager for a state tax refund after absorbing a capital loss on investment in an historic hotel in rural Kansas. A bill pending in the Kansas Senate would carve an exemption so narrowly defined the Kansas Department of Revenue indicated it would exclusively benefit one individual income tax filer.

“I need your help, please, with these difficulties,” Finney told the Senate Assessment and Taxation Committee. “It’s the only way I can be made whole.”

Sen. Caryn Tyson, a Parker Republican and chairwoman of the Senate tax committee, counts Finney among her Senate district constituents. She introduced Senate Bill 430, which legislative documents say would grant the requested tax relief. After Finney’s testimony to the committee and discussion among senators of Humboldt’s attributes, the committee endorsed amendment of state law so Finney could claim a state income tax refund.

“This is a very simple bill,” said Tyson, who praised Finney and others for working to revitalize Humboldt into what The New York Times called a destination place. “I think you were just ahead of your time on the hotel.”

The bill was placed at Tyson’s urging on the Senate’s consent calendar reserved for noncontroversial items that typically get rubberstamped by lawmakers. However, it was transferred Monday to the list of bills more likely to involve robust Senate floor debate. The legislation was being held up by a senator interested in possibly adding an amendment when the bill was taken up by the full Senate, Finney said.

In an interview, Finney said the original version of the bill was drafted by Derek Schmidt at a time when Schmidt represented Finney in the Kansas Senate and before Schmidt was elected attorney general in 2010.

 

Kansan Paul Finney requested the 2022 Legislature carve out an income tax exemption in state law for him after he renovated a hotel in Humboldt that was later sold at a loss. (Kansas Reflector screen capture from Kansas Legislature YouTube channel)
Humboldt resident Paul Finney requested the 2022 Legislature amend tax law to create an opportunity for him to claim a state income tax refund after he renovated a old hotel in Humboldt that was later sold at a loss. (Kansas Reflector screen capture from Kansas Legislature YouTube channel)

 

State’s cost: $22,600

Without Finney submitting a confidentiality waiver to the state Department of Revenue, the agency reported it couldn’t make public how much Finney stood to gain from the tax exemption blessed by Tyson’s committee. However, a memorandum from the state budget director said the Department of Revenue estimated it would cost the state $22,637 to implement provisions of the bill.

Finney said the proposed income tax refund would account for most of that financial hit on the state general fund.

The memorandum explaining the bill said Senate Bill 430 would “create a retroactive exception” in state law “for one individual income taxpayer.” Indeed, qualifications for receiving this tax break precisely detailed Finney’s circumstance.

A recipient of the tax refund, under the bill, must have had net operating losses from the sale of an historic hotel that made use of money borrowed on both the hotel and farmland. The farmland must have been sold at a gain to pay off a hotel mortgage located no more than 20 miles away from the agricultural property. The hotel had to be located in a Kansas community with less than 2,500 people.

The bill would be retroactive to tax year 2006 and a beneficiary of the statute would be able to file amended tax returns for three previous years to cover the operating loss.

“I really appreciate your perseverance,” Sen. Tom Holland, a Baldwin City Democrat on the Senate’s tax committee, told Finney. “Humboldt is really a very pretty town.”

 

‘Involuntary gift’

Finney, who discovered acupuncture while a stressed out lobbyist in Washington, D.C., has worked as an acupuncturist for about 30 years and has operated a clinic in Humboldt. He has been a practitioner of botanical, homeopathic and neuropathic remedies. He has a special passion for treating auto-immune diseases. Until 2006, he operated the Harvest Health Food store in Humboldt.

He moved to Humboldt in the 1990s and was drawn to renovating the Bailey Hotel, which was built in 1899 and originally housed a creamery and had space for offices. It was the town’s last remaining structure that served as a hotel.

The farmland Finney sold in 2005 to pay the bank loan on the hotel left him with capital gains for income tax purposes. Within a year or so of throwing in the towel on Bailey Hotel, Finney sold it in 2006 at a loss. He considered himself lucky because finding a buyer was a challenge.

He said the purchaser was a Catholic organization that used the hotel as living space for people affiliated with Our Lady Queen of Peace House of Prayer in Humboldt. The building was later closed, he said, but could reopen in 2022 as a boutique hotel.

Under federal law, Finney said, he was able to get a “big” refund from the federal government when the hotel loss was factored against the farm sale gain. Kansas law forbids carrying losses backward, but 15 years ago state statute did permit losses to be carried forward to future tax years.

In this case, Finney expected to receive a “large” state refund check after a 10-year period. The Legislature and Gov. Sam Brownback repealed the 10-year refund provision in 2012 before Finney could cash in.

“My involuntary loan to the state of Kansas became an involuntary gift,” Finney said.

Our stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0. We ask that you edit only for style or to shorten, provide proper attribution and link to our web site. Please see our republishing guidelines for use of photos and graphics.

Tim Carpenter
Tim Carpenter

Tim Carpenter has reported on Kansas for 35 years. He covered the Capitol for 16 years at the Topeka Capital-Journal and previously worked for the Lawrence Journal-World and United Press International. He has been recognized for investigative reporting on Kansas government and politics. He won the Kansas Press Association's Victor Murdock Award six times. The William Allen White Foundation honored him four times with its Burton Marvin News Enterprise Award. The Kansas City Press Club twice presented him its Journalist of the Year Award and more recently its Lifetime Achievement Award. He earned an agriculture degree at Kansas State University and grew up on a small dairy and beef cattle farm in Missouri. He is an amateur woodworker and drives Studebaker cars.

MORE FROM AUTHOR