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.
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.
