Constituent policy

Senate panel approves tax break for Humboldt hotel operator caught in political crossfire

TOPEKA — Acupuncturist Paul Finney has used inherited farmland to fund the renovation of a small, historic hotel in downtown Humboldt.

Finney can be candid about how this 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 the Bailey Hotel quagmire led to a series of deals. Finney sold the farmland, at a handsome gain, to pay off the hotel’s bank loan. The hotel was sold at a loss to a Catholic organization. He received a federal income tax refund that accounted for Finney’s loss on the hotel, but he was barred from doing the same at the state level.

He asked the 2022 Legislature to make room in state law for someone like him wanting to get a state tax refund after absorbing a capital loss on an investment in a historic hotel in rural Kansas. A bill pending in the Kansas Senate would create an exemption so narrowly defined that the Kansas Department of Revenue has indicated it would benefit an income tax filer exclusively.

“I need your help, please, with these difficulties,” Finney told the Senate Committee on Assessment and Taxation. “It’s the only way to cure me.”

Sen. Caryn Tyson, a Parker Republican and chair of the Senate Taxation Committee, counts Finney among her Senate District voters. She introduced Senate Bill 430, which according to the legislative documents would grant the requested tax relief. After Finney’s testimony before the committee and discussion among senators of Humboldt’s attributes, the committee approved amending state law so that Finney could claim a state income tax refund .

“It’s a very simple bill,” said Tyson, who praised Finney and others for working to revitalize Humboldt in what The New York Times called a place of destination. “I think you were just ahead of your hotel stay.”

The bill was placed at Tyson’s request on the Senate’s consent schedule reserved for non-controversial items that are generally approved by lawmakers. However, it was moved Monday to the list of bills most likely to involve extensive debate in the Senate. The legislation was stalled by a senator interested in possibly adding an amendment when the bill was considered by the full Senate, Finney said.

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

Humboldt resident Paul Finney has asked the 2022 legislature to change the tax law to allow him to claim an income tax refund after he renovated a former hotel in Humboldt which was later sold at a loss. (Kansas Reflector screenshot from the Kansas Legislature YouTube channel)

State cost: $22,600

Without Finney submitting a confidentiality waiver to the state Department of Revenue, the agency said it could not 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 the bill’s provisions.

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

The memorandum explaining the bill said that Senate Bill 430 would “create a retroactive exception” in state law “for an individual income taxpayer.” Indeed, the qualifications to receive this tax relief precisely detailed Finney’s situation.

A recipient of the tax refund, under the bill, must have incurred net operating losses from the sale of a historic hotel that used the borrowed money on both the hotel and the farming lands. The farmland must have been sold for a gain to pay off a hotel mortgage within 20 miles of the farm property. The hotel was to be located in a Kansas community with fewer than 2,500 people.

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

“I really appreciate your persistence,” said Sen. Tom Holland, a Baldwin City Democrat on the Senate Taxation Committee. “Humboldt is really a very pretty town.

“Involuntary Donation”

Finney, who discovered acupuncture while a stressed lobbyist in Washington, DC, worked as an acupuncturist for about 30 years and operated a clinic in Humboldt. He was a practitioner of botanical, homeopathic and neuropathic remedies. He has a particular passion for the treatment of autoimmune diseases. Until 2006, he operated the Harvest Health Food store in Humboldt.

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

The farmland that Finney sold in 2005 to pay off the bank loan on the hotel left him with capital gains for income tax purposes. Less than a year after 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 buyer 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 then 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 deducted from the gain from the sale of the farm. Kansas law prohibits carrying back losses, but 15 years ago state law allowed losses to be carried back to future tax years.

In this case, Finney expected to receive a “big” refund check from the state after 10 years. The Legislature and Governor Sam Brownback repealed the 10-year repayment provision in 2012 before Finney could cash out.

“My involuntary loan to Kansas State became an involuntary gift,” Finney said.