It appears that Kansas will have to return $43 million in income tax plus interest to Gene Bicknell after a recent decision of the Supreme Court of The State of Kansas. This is the highest stake residence/domicile case I can recall. It is pretty dramatic. In 2021 Kansas collected $4.6 billion in individual income tax, so it is like they have to pay nearly 1% of it back to just one guy. The issue was whether Mr. Bicknell was a Kansas resident in 2005 and 2006. In 2006 he sold his interest in NPC International, Inc to Merrill Lynch Global Private Equity. At that time NPC was the largest Pizza Hut franchisee with 790 stores in 26 states.
I covered the case in 2014. It has a tortured procedural history which I am not going to review. Mr. Bicknell won, but given the back and forth, it was probably not an inevitable victory. Instead I will look at some of the issues that arose that might well be relevant in cases of much more modest amounts, but first a little bit of background.
The Mystical Concept Of Domicile
When thinking about what your state of residence is for income tax purposes, there is a tendency to focus on things like driver’s license, voter registration and counting days. Don’t get me wrong. These basic sort of things can be very important, but they may not be determinative. You will generally be considered a resident of the state where you have your domicile. And domicile can sometimes seem like an almost mystical concept. It is the place that you consider to be your permanent home, but there is an odd point.
Everybody has a domicile and even if you decide that you are not going to ever return to your domicile, it remains your domicile until you establish a new one. And in the hard cases, all sorts of things can be viewed as relevant in determining what your true domicile is. A consultant on the issue once told me that it is where you have the family pictures.
Personally, I think that when you are dealing with relatively prosperous people who might own homes in multiple states, the concept of domicile is kind of dated, but it persists.
Can Nonseparated Spouses Have Different Domiciles ?
One of the issues complicating the case was that Rita Bicknell continued to claim Kansas residency through 2007, while Gene had made the change in 2003.
Rita explained she did not immediately claim Florida residency then because she was not ready to end her involvement with certain professional, political, and charitable activities in Kansas. But she testified that she still spent most of her time in Florida between 2003 and 2008.
There is a presumption that a married couple share the same domicile. This ended up creating a fairly complex evidentiary argument in the courts. There had been a very close examination of Gene’s Florida domicile but not so much of Rita’s claim of continued Kansas domicile. So Gene was not required to prove that he had a different domicile than Rita’s.
Even though, the Bicknells won. the lesson here is probably not to try this at home. If you want to win the state income tax, your spouse may have to give up the school board seat or whatever it might be that wants them to hold onto the old domicile.
Pay Attention To That Questionnaire
At the start of the audit Kansas Department of Revenue (KDOR) sent out a questionnaire that among other things asked how many days Gene was in Kansas versus Florida. The answer was 111 days in each in 2004, 113 days in Kansas and 117 in Florida in 2005 and 111 in Kansas and 134 Florida in 2006. This did not look so much like having abandoned Kansas for Florida.
It turned out that the questionnaire had been handled by a senior wealth advisor who had a team reconstruct the days from information they had available. Gene was able to establish that he had not really paid any attention to it and had his assistant sign it. At trial Gene testified that he didn’t average more than 30 days per year in Kansas in 2005 and 2006. Friends, family and colleagues corroborated this claim.
Taking that at face value I have to wonder about the communication with the wealth adviser. Having those days be so close should have set off alarm bells given the stakes involved. At the very least the questionnaire should have had input from attorneys. Someone should have asked Gene about the day count before making that kind of damaging admission, which apparently was not true.
Really Consider Getting Rid Of The Old House
Another matter that caused a lot of concern was maintaining ownership of the house in Pittsburg Kansas.
While there was no specific evidence about the value of the Bicknells’ Pittsburg house, the district court found their Florida house was larger and likely much more valuable.
KDOR had a counter argument to that
In challenging the district court findings, KDOR argues the value of the Bicknells’ Florida house was mostly attributable to the land and not the house itself.
It ended up not sinking the case for the Bicknells, but it sure did not help.
Great Result For The Bicknells
KDOR fought hard, but Bicknell’s team finally prevailed. Even church membership entered into the case, as they maintained their membership in a Kansas church for a few years while looking for just the right one in Florida. Bicknell’s celebrity and the high stakes meant that there was a good bit of coverage on the decision. Jonathan Shorman of The Kansas City Star noted some of the more colorful moments:
At times, the lawsuits took bizarre turns. In one court filing, Bicknell said KDOR cited that he had visited family and friends in Crawford County, owned property there, installed a swingset at his Pittsburg house for his grandchildren and allowed a farm cat named Checkers to remain at the house as evidence he hadn’t left Kansas for Florida.
Shorman noted that Kansas will be able to handle the payment since it has a $3 billion surplus. You can hear Bicnknell’s commentary here.