Jonathan Shorman
October 14, 2015

A little-noticed court ruling raises the possibility Kansas may eventually have to pay $42 million to a former Pizza Hut magnate over his challenge of a massive tax bill the state leveled against him years ago.

A sum that large could alter the state’s fiscal footing as Kansas continues to face declining revenue estimates.

Gene Bicknell has been engaged in a rolling battle with the state since it audited the taxes he paid from 2005 to 2008 and found that he owed $42 million based on his 2006 sale of NPC International – America’s largest holder of Pizza Hut franchises with hundreds of restaurants.

The Kansas Department of Revenue contends Kansas was Bicknell’s primary residence at the time of the sale, but Bicknell has maintained he was living in Florida.

Bicknell handed over the $42 million in 2013 but has been fighting to get the money back ever since. The Kansas Court of Tax Appeals, also known as COTA, determined Bicknell was a Kansas resident, and he appealed the ruling.

In a September decision that has drawn little public attention, the Kansas Court of Appeals lambasted the tax appeals court’s earlier ruling, saying the lower court had blatantly ignored state regulations.

“It is well established that COTA must give adequate reasons for its decisions. In its order, COTA focused exclusively on Kansas statutory law and caselaw…concerning Gene’s tax-residency status. COTA expressly ignored or disregarded the applicable (Revenue) regulations in explaining its findings and conclusions,” the Court of Appeals opinion reads.

Essentially, the Court of Tax Appeals must rule again on Bicknell’s situation, this time taking into account state regulations potentially favorable to Bicknell’s case.

While re-adjudication is no guarantee Bicknell will ultimately prevail, if he does the state faces a $42 million payout.

The Legislature and Gov. Sam Brownback forged a revenue and budget deal in June to pay for Fiscal Year 2016, which runs July 2015-June 2016. The legislative package raised sales taxes and Brownback announced millions in cost-cutting measures.

In total, the legislative and executive actions were supposed to leave the state with about $77 million in the bank at the end of the fiscal year. But revenue collections have fallen below expectations during the first three months of the year.

The state has taken in about $42 million less in revenue than expected – or about $61 million less than estimated if only tax collections are taken into account.

But an additional $42 million hit from a payout to Bicknell – if it came during the current fiscal year – would likely push the state’s end balance into negative territory unless Kansas beats revenue estimates later in the year.

“This would put us upside down at this very moment,” Annie McKay, director and lobbyist for the liberal-leaning Kansas Center for Economic Growth, said.

McKay said that during a normal revenue year the state would more easily be able to absorb a fiscal blow like a major legal payout.

House Appropriations Chairman Ron Ryckman, Jr., R-Olathe, indicated any payout would likely come from the state’s general fund. Even if Kansas has to pay Bicknell years from now, an additional $42 million in required spending could throw a wrench into any year’s budget.

“Our revenue stream goes up and down and we react to the money we do have and appropriate what we have available,” Ryckman said when asked if a payout would complicate the Appropriations Committee’s task.

Department of Revenue spokeswoman Jeannine Koranda declined to comment, citing pending litigation.

While Bicknell’s ongoing legal odyssey may one day have financial ramifications for Kansas, it is only the latest development in his life, which has been full of interesting developments. He bought his first pizza restaurant in Pittsburg in 1962, starting a company that now owns hundreds of restaurants.

In the 2006 sale of NPC International, 100 percent of Bicknell’s equity ownership was transferred to Merrill Lynch Global Private Equity. The Kansas City Business Journal reported in 2007 the deal was worth $615 million.

A message left with an attorney representing Bicknell in the tax case was not returned Wednesday. But in 2014 , Tim Connealy, chief financial officer for the Bicknell Family Holding Co., told the Associated Press the dispute had frustrated Bicknell after a lifetime of building companies and creating jobs “to better the state.”

“The state was solely concerned with making sure it could to get a cut of Mr. Bicknell’s life work,” Connealy said at the time. “The state’s actions are nothing short of a slap in the face to Mr. Bicknell and all of the economic and philanthropic benefit that he brought to his former state.”

In addition to his involvement in business, Bicknell twice ran for the Republican nomination for governor – in 1986 and 1994.

Bicknell’s interests also extend beyond business and politics. He has involved himself in entertainment and the arts, including authoring a 2002 book – “Never Fry Bacon in the Nude. ”

Read more from the Topeka Capital Journal here.

KendraTOPEKA CAPITAL JOURNAL: Little-noticed court ruling revives possibility Kansas will have to refund man $42 million in taxes