By John Celock
Kansas tax officials will only recoup $163,986 in back taxes in a sale of sex toys from a delinquent business, an auction that follows similar ones from items ranging from mufflers to ice cream to Mexican food.
Officials from the state Department of Revenue and a national tax administration group explained that the state would only be able to collect the back taxes owed by a chain of sex shops and not more from the auction. The clarification comes as state Senate Minority Leader Anthony Hensley (D-Topeka) earlier this week accused Gov. Sam Brownback (R) of selling the sex toys – from the chain Bang – in order to plug a budget gap following income tax cuts that Brownback has implemented.
Revenue Department spokeswoman Jeannine Koranda told The Celock Report Friday that the money from the sex toy auction will be used to fulfill the $163,986 in back taxes along with any other debts the sex shop owner has. She said any money raised through the auction above the debts would go to the owner.
“In this case we are not involved in the sale. We have not been involved with the items since July,” Koranda said. “He contracted with the auction company to liquidate the items. The money is to pay his debts. Any money left after he can keep.”
Koranda said that as opposed to other business seizure auctions, the Revenue Department has arranged for the owners of Bang to auction off the items and then repay the back taxes. In other cases the state arranges with the auction company. She noted that in no case does the state actually auction items from seizure.
Veranda Smith, the deputy director of the Federation of Tax Administrators in Washington, D.C., said that only collecting the amount of back taxes owed is common practice for tax administrators nationally. She said that states that have to resort to auctions will collect the back taxes, along with any funds needed to pay the auntioneer and to cover any other costs of storing the materials. She said the state’s job is to keep the items secured and in the case of perishable items, frozen, in order to sell them.
“Usually you don’t end up with something that sexy. You don’t usually auction off unless you are in desperation in dealing with the taxpayer,” Smith told The Celock Report. ”It is incumbent on the tax agency as the steward of the state’s fund to maximize what is owed.”
Smith equated the sex toy sale to a case in the 1990s where the IRS had to run a brothel in Nevada due to unpaid taxes. She did call auctions “a last resort” but said they are “not unusual.”
Hensley made the comments Wednesday after news of the sex toy sale came to light. He accused Brownback of engaging in the porn business in order to plug the budget gap. Hensley and Democrats, led by Democratic gubernatorial nominee Paul Davis, have been attacking Brownback over the tax cuts, saying that the cuts put the state on the course for bankruptcy and are causing large budget holes. Brownback and his Republican allies argue that the cuts, which include large cuts for corporate taxes, will increase state revenue by spurring economic development. Brownback pledges more cuts if reelected while Davis promises to freeze the cuts.
“Brownback is so desperate to fill the massive hole in the state budget caused by his reckless income tax cuts that the state of Kansas is now in the porn business,” Hensley said in a statement Wednesday. “This is the same governor whose supporters spent this past week attacking his opponent for a strip club incident that happened 16 years ago.”
Hensley was referencing a report by the Coffeyville Journal over the weekend that Davis was present in a Coffeyville strip club receiving a lap dance when police performed a drug raid. Davis, an attorney for the strip club’s owner, said he was in the “wrong place at the wrong time” and was not arrested in the incident.
Hensley, through a spokesman, declined to comment on the sex toy sale money going only for the debt, referring back to his Wednesday statement.
Republican lawmakers told The Celock Report on Thursday that they believe Hensley is engaging in a “political folly” and taking a “cheap shot.” Sen. Michael O’Donnell (R-Wichita) questioned if Hensley wanted sex businesses treated differently from other small businesses in the state.
The Revenue Department’s website includes a list of over 60 past business seizures performed since March 2011, shortly after Brownback took office. The list of businesses include automotive parts stores, a Dairy Queen, 10 Taco Tico locations owned by one business, a Mexican restaurant and florists. The exact items auctioned from these businesses was not detailed.
Koranda noted that if a business is seized they could avoid the auction by working the tax agency on a payment plan. The department’s website includes press releases about businesses that worked out plans after a seizure.
Koranda said there is no particular timeline for when the Revenue Department performs a seizure, noting that it is done on a case by case basis, dependent in part on if the business is responsive to the agency and if they are working to resolve the debt. She said the agency has no particular busy season for seizures, saying that they are ongoing since many of the business taxes are paid throughout the year.
Earlier this week, the owner of Kite’s Bar & Grill in Manhattan told the Topeka Capitol-Journal that he believed a recent seizure by Kansas tax officials was related to his backing Democratic candidates and in challenging state alcohol regulators over an underage drinking citation. The Revenue Department said that the bar owed $37,515 in taxes, which the owner said was repaid.
Koranda told The Celock Report that the Kite’s seizure was related to taxes not politics.
“In this particular case, that owner has a track record of tax noncompliance dating back to 2011,” she said. “There are multiple warrants filed against him going back that far. In no way was the recent seizure a part of retaliation. It is habit of noncomplaiance.”
Smith, from the Federation of Tax Administrators, noted that there is one business tax agencies try not to take over, and it’s not sex shops.
“The one thing that the tax agency has learned not to do is seize a bridal store. The irate mothers come down on you,” she said. “You have to make sure that you are going to run it and that you have someone to take the money and give the dresses to the purchasers.”