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Exemption would have big local impact

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 said 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 a total of $45,000 to the campaigns of 24 senators, just four of whom voted against the bill. Although some lawmakers bristled at the suggestion Stevens' support had bought those 20 votes, the whiff of a quid pro quo added intrigue to the story.

So did Stevens' claim he and his fellow health club owners were wronged capitalists, forced to do business on an unlevel playing field. Unlikely villains in this scenario are the YMCAs and YWCAs in some communities where Stevens' Genesis Health Clubs operate.

For-profit health clubs like his are disadvantaged, Stevens claims, because they must compete against entities like the Ys, which don't pay 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 non-profits, 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 such as 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.

In Leavenworth County alone, the property tax break reportedly would eliminate at least $58,000 in revenue. Statewide, the total likely would be in the millions of dollars.

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 and their presence, which a business owner might consider in determining where to locate a club, says something about a community's actual need for additional for-profit providers.

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

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

Gwyneth Mellinger is professor and chairwoman of the Department of Mass Media at Baker University, Baldwin City.