Gwyneth Mellinger: Health-club tax bill good drama

04/05/2013 6:35 PM

04/05/2013 6:35 PM

In a seemingly minor bill to exempt for-profit health clubs from property taxes, Kansans have found that a legislative skirmish over a tax break can make for good drama.

For members of the media, who struggle to make tax issues interesting to the average reader or viewer, Senate Bill 72 was a gift. As word circulated in late March that the Kansas Senate had passed the bill, what the law would do and who would benefit, stunned taxpayers were in thrall to a news story about this one tax break among many.

What, Kansans asked, were senators thinking when they voted to single out health clubs for special treatment? During a legislative session when the governor says the state can’t afford to keep its promise to let a sales tax expire, how could any lawmaker believe it was in the public interest to take health clubs off the property-tax rolls?

Yet when the vote was taken in late March, 25 senators supported the tax break. Significantly, Rodney Steven, the Wichita health club magnate whose crusade this is, donated at least $45,000 to the campaigns of 24 senators, just four of whom voted against the bill. Although some lawmakers bristled at the suggestion that Steven’s support had bought those 20 votes, the whiff of a quid pro quo added intrigue to the story.

So did Steven’s claim that he and his fellow health-club owners were wronged capitalists, forced to do business on an un-level playing field. Unlikely villains in this scenario are the YMCAs in some communities where Steven’s Genesis Health Clubs operate.

For-profit health clubs like his are disadvantaged, Steven claims, because they must compete against entities like the Y’s, which don’t pay property taxes. Unreckoned in this demonization are the community services provided by such organizations. In Wichita, for example, the YMCA reportedly provided more than $10 million in free or reduced services during 2012.

Last year, Steven and his allies had hoped to encourage legislation that would tax nonprofits, a strategy that didn’t pan out. When the health-club bill was introduced this session, it also contained a provision for an exemption from sales taxes, which was stripped from the bill. The sales-tax exemption would have reduced state revenues by $3.4 million, whereas the property-tax break would cost the state just $200,000.

But the real cost of a property-tax break like this one isn’t measured at the state level but in local government offices across the state. Taking nearly 200 health clubs off the local property-tax rolls would deprive cities and counties of revenue, while school districts, which are most dependent on property taxes, would take the biggest hit.

Surprisingly, lawmakers who believe for-profit health clubs are being treated inequitably see a remedy in increasing the burden on homeowners and other local taxpayers. These are the same taxpayers who are funding local recreation facilities, which also are cited as unfair competition for health clubs.

It’s unfortunate that health clubs, which raise awareness of the need for fitness and generally are a community asset, sometimes struggle financially. But nonprofit health clubs are certainly nothing new.

Lawmakers also might consider whether a tax exemption like the one proposed for health-club businesses would obligate them to offer tax breaks to other for-profit enterprises that perceive competition from nonprofits or government services.

Regardless of what, if anything, the House does with the bill, the health-club tax-break story will have offered a riveting diversion from the usual news from Topeka.

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