Originally published on Forbes.com April 17th, 2014
When O. Gene Bicknell sold his interest in NPC International, Inc to Merrill Lynch Global Private Equity in 2006, the price was not disclosed. At that time NPC was the largest Pizza Hut franchisee with 790 stores in 26 states. (The Pizza Hut brand is a subsidiary of Yum! Brands, Inc.) According to this story, he paid $90 million for the 35% of the company he bought back from the public in 2002. My inference from a recent decision in the Court of Appeals of Kansas (Sorry can’t find a free link) is that he did pretty well. The Kansas Department of Revenue assessed Mr. Bicknell $42,544,676 for 2005 and 2006. The top rate in Kansas in 2006 was 6.45% making me think that the sale to Merrill Lynch was north of $700 million, which is more than double the implicit 2002 valuation. So what do Mr. Bicknell and Kansas differ on?
Check out this story in the Joplin Independent which starts with
Pittsburg, KS entrepreneur Gene Bicknell (at left) shakes the hand of Clair Goodwin who just recently retired as a full-time news correspondent for the Joplin Globe. Goodwin had the honor of sitting at Bicknell’s table during a Leadership Joplin Symposium/Luncheon March 1, 2006, in which Bicknell was the guest speaker.
From one viewpoint, the article is wrong right from the first two words. In 2006, Mr. Bicknell was not a “Pittsburg, KS entrepreneur”. In 2005, the year before the sale of NPC, Mr. Bicknell had become a Floridian.
At least that is Mr. Bicknell’s position. Apparently, the Kansas Department of Revenue has a different feeling.
The March 28 decision by the Court of Appeals did not decide the issue. It was just a round in the litigation and it is a bit on the lawyerly side. It is of some interest, though, so I will do my best to explain it.
Kansas Does Some Complifying
In 2005, when Mr. Bicknell decided to transform from Kansan to Floridian, the Kansas DOR’s regulation on the subject of domicile was a marvel of brevity.
(a) ‘Domicile’ shall mean that place where a person resides, where the person has an intention to remain, and to which the person intends to return following any absence.
“(b) To constitute a change in domicile, there shall be intent to change, actual removal, and the acquisition of a new domicile. The domicile shall not be changed by removal for a definite period or for particular purposes nor by abandonment of the old domicile until the acquisition of a new one is effected.
“(c) A voting residence shall constitute evidence of domicile. The state where an individual’s driver’s license is issued and the state where an individual’s vehicle is registered shall also constitute evidence of domicile.”
Although clauses (a) and (b) capture some of the nebulous, practically mystical nature of domicile, clause (c) makes it seem real simple. Although it does not come right out and say that the driver’s license, voter registration, and vehicle registration make it a done deal, there is that implication.
New regulations are much more elaborate and cover much more ground. They add numerous other factors to consider including:
The percentage of time that the person is physically present within the state of Kansas and the percentage of time that the person is physically present in each jurisdiction other than the state of Kansas;
the location of the person’s domicile for prior years;
the location of services performed by the person in the course of employment;
the change in the person’s living quarters;
the person’s ownership of other real property;
the jurisdiction from which any motor vehicle registration was issued to the person and the actual physical location of the person’s vehicle or vehicles;
the purchase of any resident fishing or hunting licenses by the person;
the filing by the person of a Kansas tax return, report, or application as a Kansas resident or a nonresident individual;
the fulfillment or failure to fulfill by the person of the tax obligations required of a Kansas resident;
the address where personal mail is received by that person and not subsequently forwarded;
the representations made to any insurance company concerning the person’s residence and on which any insurance policies are issued;
There is also something of a catchall thrown in- “any other fact relevant to the determination of that person’s domicile”.
The regulations also indicate that there are some things that will not be considered.
The location of any organization to which the person makes charitable contributions; and
the location of any charitable organization for which the person serves as a board member, committee member, or other volunteer.
You don’t want to discourage your emigres from continuing to help out the “old country”.
What Was Litigated?
This is where it gets a little lawyerly. Mr. Bicknell’s attorneys want to argue that the regulations should not apply in his case since they were issued after he moved. They have other problems with the regulations such as unconstitutional vagueness. DOR argues that they are relevant since the bulk of the assessment relates to 2006. The Court of Appeals ruled that the challenge to the regulations is premature. There will be plenty of time to challenge the regulations after the Kansas Court of Tax Appeals (COTA) has issued its decision. At this point, it is not known whether Mr. Bicknell was harmed by the regulations. He is a very charitable guy, so they may have helped him.
The COA indicated that COTA had a six-day trial scheduled beginning March 8. I’ll be looking forward to it. Mrs. Bicknell remained a Kansan until 2008, which might be an interesting angle. Cases like this tend to end up reading like novels, so I’m really looking forward to it. This is the largest dollar domicile case that I have noted in the several years that I have been following them.
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