It looks like Kansas will have to repay Gene Bicknell $43 million in income tax plus interest after a recent decision by the Kansas State Supreme Court. This is the most important residence/domicile case I can remember. It’s quite dramatic. In 2021, Kansas collected $4.6 billion in personal income tax, so it’s like they have to pay back almost 1% of that to just one man. The question was whether Mr. Bicknell was a resident of Kansas in 2005 and 2006. In 2006, he sold his stake 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 that I won’t go over. Mr Bicknell won, but given the back-and-forth it was probably not an inevitable victory. Instead, I will consider some of the issues raised which may well be relevant in cases of much smaller amounts, but first a bit of context.
The Mystical Concept of Home
When thinking about your state of residence for income tax purposes, you tend to focus on things like driver’s license, voter registration, and counting the days. Do not mistake yourself. These basic elements may be very important, but they may not be decisive. You will generally be considered a resident of the state where you are domiciled. And home can sometimes seem like an almost mystical concept. It’s the place you consider your permanent residence, but there is a strange point.
Everyone has a home and even if you decide you will never return to your home, it will remain your home until you establish a new one. And in difficult cases, all sorts of things can be considered relevant in determining your true domicile. A consultant on the matter once told me that’s where the family photos are.
Personally, I think when you’re dealing with relatively wealthy people who might own homes in multiple states, the concept of domicile is a bit dated, but it persists.
Can unseparated spouses have different domiciles?
One of the issues complicating the case was that Rita Bicknell continued to claim Kansas residency until 2007, while Gene made the switch in 2003.
Rita explained that she did not immediately claim residency in Florida because she was not ready to end her involvement in 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 shares the same domicile. This ended up creating a rather complex evidentiary argument in court. There had been very careful consideration of Gene’s home in Florida, but not so much of Rita’s request to remain domiciled in Kansas. Gene was therefore not required to prove that he had a domicile different from that of Rita.
Even so, the Bicknells won. the lesson here is probably not to try this at home. If you want to earn state income tax, your spouse may have to give up the school board seat or whatever wants them to keep the old home.
Pay attention to this quiz
At the start of the audit, the Kansas Department of Revenue (KDOR) sent out a questionnaire that asked, among other things, how many days Gene was in Kansas versus Florida. The answer was 111 days each in 2004, 113 days in Kansas and 117 in Florida in 2005, and 111 in Kansas and 134 in Florida in 2006. That didn’t sound so much like giving up Kansas for Florida.
It turned out that the questionnaire had been processed by a senior wealth advisor who had commissioned a team to piece together the days from the information they had. Gene was able to establish that he hadn’t really paid attention to it and had his assistant sign it. At trial, Gene testified that he spent an average of no more than 30 days a year in Kansas during 2005 and 2006. Friends, family members and colleagues corroborated this claim.
Taking this at face value, I have to wonder about communication with the wealth advisor. The fact that those days are so close should have set off alarm bells given the stakes involved. At the very least, the questionnaire should have received comments from lawyers. Someone should have asked Gene how many days until he made that kind of damaging admission, which apparently wasn’t true.
Really consider getting rid of the old house
Another issue that caused a great deal of concern was the continued ownership of the home in Pittsburg Kansas.
Although there was no specific evidence of the value of the Bicknells’ Pittsburgh home, the district court found their Florida home to be larger and likely far more valuable.
KDOR had a counter-argument to this
In challenging the district court’s findings, KDOR argues that the value of the Bicknells’ Florida home was primarily attributable to the land and not the home itself.
It ended up not sinking the Bicknells’ case, but it certainly didn’t help.
Excellent result for the Bicknells
KDOR fought hard, but Bicknell’s team ultimately prevailed. Even church membership came into play, as they maintained membership in a church in Kansas for a few years while searching for the right one in Florida. Bicknell’s stardom and high stakes meant there was good media coverage of the decision. Jonathan Shorman from The Kansas City Star noted some of the more colorful moments:
Sometimes the lawsuits took bizarre turns. In a court filing, Bicknell said KDOR cited he visited family and friends in Crawford County, owned property there, installed a swing set in his Pittsburgh home for his grandchildren and had allowed a farm cat named Checkers to stay home as proof that he hadn’t left Kansas for Florida.
Shorman noted that Kansas will be able to handle the payment because it has a $3 billion surplus. You can hear Bicnknell’s comment here.