Local governments battle health club tax break

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Local governments Tuesday fought back against a proposal to give for-profit health clubs a property tax exemption, renewing a fight that unfolded several years ago in the Kansas Legislature.

Representing the Kansas Health and Fitness Association, former Congresswoman Lynn Jenkins asked lawmakers to put the for-profit health clubs on the same level as nonprofit and government-owned gyms that don’t pay taxes.

It was the second time that Jenkins appeared before the House tax committee asking for the tax break after failing to get it tacked to legislation that is intended to foster transparency in property tax bills.

Since Jenkins last appeared before the committee, it was revealed that a prominent Kansas gym operator, Rodney Steven, owed thousands of dollars in unpaid property taxes. Steven didn’t testify Tuesday and the issue about his taxes didn’t surface.

Steven runs Genesis Health Clubs, which is one of the board members of the fitness association. Greg Ferris testified Tuesday on behalf of the group.

In 2013 and 2014, Steven, a frequent contributor to Kansas lawmakers, unsucessfully pushed similar legislation to tax nonprofit health clubs like YMCAs.

Cities and counties said the latest proposal would ultimately shift property taxes onto homeowners and would potentially open the door to other for-profit businesses seeking property tax exemptions.

Trey Cocking

“Property tax exemptions equal higher taxes for everybody else. Let’s be clear, that’s what this does,” said Trey Cocking, deputy director for the League of Kansas Municipalities.

“This is not letting them out of their taxes,” Cocking said.

“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,” he said.

It was unknown how much the property tax exemption would cost the state since the revenue department didn’t have data on the assessed valuation of the specific properties that would benefit from the bill.

But data compiled by county officials shows that a property tax exemption for Genesis’ 21 properties in Kansas could be worth about $2.6 million yearly.

Johnson County would take the biggest hit at about $1.2 million, followed by about $366,000 in Riley County, $302,000 in Shawnee County, $273,000 in Sedgwick County and $152,000 in Douglas County.

Jenkins told the committee that health clubs are increasingly facing competition from nonprofit and municipally owned gyms that don’t have the burden of paying taxes.

She said local governments have spent more than $100 million in the last 15 years on “gigantic facilities,” causing private competitors to close.

“While nonprofit and government owned entities certainly compete in other industries, this is the only industry in Kansas that I’m aware of where tax-paying clubs represent such a small portion of the market compared to other large facilities that pay absolutely no sales tax, no income tax, and no property tax,” she said.

As a former state legislator, Jenkins said she understood the importance of protecting the tax base.

“However, the failure to adopt this legislation poses a greater threat to the tax base than its adoption,” she said.

Jenkins said more than 150 private clubs have closed in the last 20 years when government owned health clubs “began their aggressive expansion.”

But Jay Hall, general counsel for the Kansas Association of Counties, said the bill could set a precedent for other businesses that want tax exemptions in the future.

“This is quite a big shift to add a completely new category of entity to the tax exemptions,” Hall said.

“Our concern is if we start exempting for-profit businesses from taxation, the next time it will be a different business requesting an exemption based on a different set of circumtances,” he said.

Republican state Rep. Adam Smith of Weskan chairs the House tax committee. He wasn’t making any commitment about the bill’s future.

“I promised the proponents they would have a hearing because it’s a bill that needs vetted,” Smith said.

“I don’t like all the speculation that happens if proposed legislation doesn’t have a chance to be heard,” he said.

“Let the proponents make their case, let the oppoens state their case and move forward with the facts,” he said.