For-Profit Fitness Center Lobbyist Take Run At Property Tax Break

By Tim Carpenter, Kansas Reflector

March 24, 2021

TOPEKA — Congresswoman-turned-lobbyist Lynn Jenkins renewed an effort to muscle across the political finish line a bill delivering to for-profit fitness clubs in Kansas the same property tax exemption relied upon by charitable or educational organizations.

The campaign to deliver this unprecedented tax break began in 2013 when executives of Genesis Fitness Clubs, based in Wichita, hired a tag-team of lobbyists and leveraged donations to dozens of House and Senate members. That bid fizzled in 2014, but the effort was renewed in January with Jenkins taking charge of selling the idea to legislators on behalf of Genesis and other privately owned clubs in the Kansas Health and Fitness Association. The quest is to blur the distinction for property tax purposes between a nonprofit YWCA and for-profit Genesis.

Jenkins initially tried to insert the fitness-club exemption into a Senate tax transparency bill, but that floundered after Kansas Reflector reported Genesis had neglected to pay at least $549,000 in property taxes owed in Johnson, Douglas and Shawnee counties.

On Tuesday, she told legislators her clients were uniquely deserving of the exemption because too many YWCAs and municipal recreational facilities were operating in Kansas.

While the bill would help the bottom line of for-profit fitness businesses by shedding property tax payments, Jenkins and other advocates of the bill also indicated a legitimate argument could be made for exempting these companies from sales tax.

“These facilities fully expect a competitive industry. Increasingly, their competition isn’t private-sector clubs, but government-owned health clubs that pay no taxes at all,” Jenkins said. “We think fairness is equality across the board. But we’re not here, honestly, seeking fairness. We’re just trying to correct one small piece, and that’s the property tax.’”

Jenkins’ incarnation of reform sits in House Bill 2445, which was introduced Friday and subject of the House Tax Committee hearing Tuesday. The Kansas Department of Revenue couldn’t estimate potential loss of tax revenue, but cities, counties and the state could potentially lose millions of dollars annually.

The narrowly targeted exemption outlined in the bill for fitness business wouldn’t extend to weight-control facilities, health spas, dance studios, martial arts facilities, self-defense studios nor tennis, racquet or basketball facilities, swimming pools and golf clubs.

Real money

Stuart Little, representing the cities of Mission, Merriam, Prairie Village and Westwood in Johnson County, expressed opposition to the bill by exploring how the Genesis facility in Merriam would benefit from avoidance of property taxes and how entities making use of those tax dollars would suffer. The company’s fitness facility in Merriam was obligated to pay $81,000 annually in local property taxes, he said. Of that total, $18,000 would go to the city of Merriam and $36,000 would be forwarded to local public schools.

“Creating a property tax exemption for for-profit businesses sets a dangerous precedent that could compromise the ability of cities, school districts, special districts and other jurisdictions to collect adequate funding to provide essential services in the future,” Stuart said.

The bill also was opposed by the League of Kansas Municipalities and the Kansas Association of Counties.

“Government operations and not-for-profit organizations are not taxed since they are providing public goods and programming which anyone can access,” said Trey Cocking, deputy director of the League of Kansas Municipalities. “Absence of a profit motive allows them to focus on providing affordable programming and the ability to serve disadvantaged communities.”

Jay Hall, of the Kansas Association of Counties, said the precedent of establishing a property tax exemption for a certain for-profit corporation would fundamentally change the approach to property taxation in Kansas. Granting the exemption to fitness clubs could open the door to other sectors of the economy, he said.

“While there are differences in the types of property that are property tax exempt, there is a common thread. None of these property types are for-profit corporations,” he said.

In response, Rep. Clarke Sanders, R-Salina, and several other House members suggested modifying state law to compel nonprofits to pay property taxes. Others on the House committee said the situation faced by fitness centers wasn’t unique because there was overlap between government and private business with golf courses and meeting venues.

‘Fighting chance’

Jenkins said there was irony in that “struggling” for-profit fitness clubs were forced to help finance through mill levies the construction and operation of facilities controlled by recreational commissions, school districts and municipal governments. The COVID-19 pandemic exacerbated problems of for-profits like Genesis that were forced to endure closure in 2020 due to public health mandates, she said.

“During the closure period our competitors were able to turn off the lights, layoff employees and have minimal ongoing expenses. Taxpaying clubs, however, still had property taxes accruing,” Jenkins said.

In addition to unpaid property taxes by Genesis, however, the U.S. Small Business Administration reported four Genesis entities combined to receive $3.5 million to $8.3 million in Paycheck Protection Program loans during the pandemic. The federal COVID-19 relief law allows for full forgiveness of the loans.

The Genesis empire based in Wichita contained more than 20 facilities scattered among 13 cities in Kansas. It included more than 50 clubs in the six-state area of Kansas, Iowa, Nebraska, Missouri, Colorado and Oklahoma. Many of the Genesis clubs have been added in the past decade.

Greg Ferris, who has worked as a consultant to Genesis owner Rodney Steven and been associated with Kansas Health and Fitness Association about 15 years, testified in support of the property tax break as he did in 2014. On Tuesday, he complained the Derby recreation commission’s property tax levy was funding operation of a recreation center. He also asserted private fitness clubs were closing at a “rapid rate.”

“This problem is not going away,” Ferris said. “When a tax-exempt facility is built and a taxpaying business closes, the state loss of revenue continues to grow.”

Other voices

Jeffrey Perkins, a lobbyist with the International Health, Racquet and Sportsclub Association, offered written testimony to the House committee that argued the exemption from property taxes was necessary to give health clubs in Kansas “a fighting chance to compete and survive.”

“Even with this assistance health clubs would continue to support Kansas, providing tax revenue from sales tax and income tax,” he said.

Eric Stafford, a lobbyist with the Kansas Chamber, put the business organization’s influence behind the bill. He said government should discourage tax policy that created a nonprofit or public sector advantage over private industry.

However, Manhattan city manager Ron Fehr said the legislation could compromise tax revenue relied upon for economic development incentives. He said the House bill would create an “unfair tax advantage to a particular for-profit business sector across the state while all other applicable for-profit entities would continue paying property taxes.”

Blair Tanner, owner of Woodside in Westwood, said the measure would correct an injustice faced by investors in fitness businesses that had to deal with public or nonprofit recreational alternatives.

“Businesses understand risk,” Tanner said. “We know that we will have competition and we need to be better at what we do to survive. However, when your competition has the kinds of advantages these government-owned facilities enjoy, it is more than normal risk. Woodside is happy to compete against other health clubs. When things are equal, we know we can come out on top. However, things are not equal with city-owned facilities.”