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Status and Future of the Kansas City Earnings Tax Kansas City AGA June 2016 Meeting
Mari Ruck, Commissioner of Revenue City of Kansas City Missouri
Kansas City Star “City Manager Troy Schulte has estimated that if the earnings tax
revenue disappears, 800 Kansas City police officers would have to be let go over 10 years”.
2 Finance Department City of Kansas City Missouri
Joe Ledford Star file photo
KCUR “What's At Stake In The Earnings Tax Vote? Maybe More Than You Think” By ELLE MOXLEY • MAR 22, 2016
3 Finance Department City of Kansas City Missouri
QUESTION (Continuation of Earnings Tax) Shall the earnings tax of 1%, imposed by the City of Kansas City, be continued for a period of five (5) years commencing January 1 immediately following the date of this election? 77% Yes 23% No
“Tuesday, April 5, 2016, polls will be open from 6 a.m. to 7 p.m.”
Finance Department City of Kansas City Missouri 4
What is the Earnings Tax
A 1 percent tax on an individual’s earned income such as salaries, wages, commissions, tips and other compensation.
It generates revenue that pays for a wide variety of city services used by all who live and work in Kansas City, Missouri.
Funds basic operations such as repairing roads, trash collection, police officers, firefighters, paramedics and ambulance services.
Funds snow removal, codes inspection, historic preservation and other city needs.
Generates approximately $230 million annually.
Finance Department City of Kansas City Missouri 5
Who pays Earnings Tax?
All Kansas City, Missouri, residents are required to pay the earnings tax, even if they work outside the city.
Nonresidents are required to pay the earnings tax on income earned within Kansas City, Missouri, city limits.
The tax also applies to the net profits of businesses.
Finance Department City of Kansas City Missouri 6
Who does not pay Earnings Tax? Retirees whose income is from Social Security, pensions, retirement
accounts and other non-earned income sources do not pay the e-tax.
Others who are exempt include active military in combat zones and non-profits.
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Earnings Tax - Importance
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The e-tax generates approximately $230 million a year for the city’s General Fund
The e-tax generates 40 percent of revenue for the General Fund.
Approximately 74 percent of the General Fund pays for public safety needs, such as police officers, firefighters, ambulance services and Municipal Court operations.
50 percent of the e-tax is paid by nonresidents.
FY2015/16 Preliminary Earnings Tax Collections
ACTUAL YTD COLLECTIONS
COLLECTION
S BUDGET PRIOR YTD CURR YTD CURR YTD CURR YR VS
CURR YTD
TO
FY2015 FY2016 APR FY15 APR FY16
TO
BUDGET PRIOR YR TOT YTD
Withholding 177,635,489 179,025,000 177,635,489
181,040,953 101.13% 1.92% 21.61%
Profits 45,137,090
42,600,000 45,137,090 42,736,725 100.32% -5.32% 5.10%
Wage Earner 12,261,556
9,750,000 12,261,556 11,373,583 116.65% -7.24% 1.36%
Total E-tax 235,034,135 231,375,000 235,034,135 235,151,261 101.63% 0.05% 28.07%
Finance Department City of Kansas City Missouri 11
FY2016/17 Earnings Tax Collections YTD
ACTUAL YTD COLLECTIONS
COLLECTIONS BUDGET PRIOR YTD CURR YTD CURR YTD CURR YR VS
CURR YTD
TO
FY2016 FY2017 MAY FY16 MAY FY17
TO
BUDGET PRIOR YR TOT YTD
EARNINGS TAX
Withholding 181,040,953 187,550,000 13,890,305 22,399,419 11.94% 61.26% 42.61%
Profits 42,736,725
44,500,000 1,418,068 1,311,829 2.95% -7.49% 2.50%
Wage Earner 11,373,583
10,200,000 436,088 487,429 4.78% 11.77% 0.93%
Total ETAX 235,151,261 242,250,000
15,744,461 24,198,677 9.99% 53.70% 46.03%
Finance Department City of Kansas City Missouri 12
Earnings Tax - Drivers
Withholding
Employment
Increased Wages
Economy
IRS matches
Profits
Economy
Investment in assets
Employment
IRS Matches
Wage
Economy
Increased Wages
IRS Matches
Finance Department City of Kansas City Missouri 13
Earnings Tax - History of Collections
Finance Department City of Kansas City Missouri 14
Fiscal %
Years WIHO WAGE PROFITS TOTAL Change
FY06 138,356,196$ 7,741,335$ 34,111,964$ 180,209,495$
FY07 150,888,820 8,263,733 38,871,196 198,023,749 9.89%
FY08 154,475,881 8,918,929 37,857,522 201,252,332 1.63%
FY09 156,399,095 9,480,225 36,369,969 202,249,289 0.50%
FY10 152,576,909 7,824,962 38,090,444 198,492,315 -1.86%
FY11 156,831,247 8,763,935 36,816,328 202,411,510 1.97%
FY12 158,372,302 8,122,632 41,805,587 208,300,520 2.91%
FY13 165,807,042 7,971,249 39,413,496 213,191,788 2.35%
FY14 171,810,779 8,729,349 44,102,182 224,642,311 5.37%
FY15 177,635,489$ 12,261,556$ 45,137,090$ 235,034,135 4.63%
Earnings Tax Collections
E-Filing Options
19 Finance Department City of Kansas City Missouri
MeF
Modernized Electronic Filing
TAX
On-line tutorials For added assistance
Signing up for Quick Tax
Filing a Wage Earner Return
Making On-line Check Payments
Credit or Debit Card Payments
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E - Filing Options
QUICK TAX MEF
File & Pay (Earnings tax and all other taxes)
Request a refund
Status of a refund
Manage your accounts
Register a business
Request a tax clearance
Third-party access
For the earnings tax filings only
Integrated into professional tax software
One source entry of data
Filings interface directly with City software
Used by large companies and tax preparation professionals
22 Finance Department City of Kansas City Missouri
REVENUE DIVISION MISSION STATEMENT
The Revenue Division achieves the equitable
collection of tax obligations through
• fair administration,
• courteous customer service and
• consistent enforcement of local tax
ordinances used to fund city priorities.
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What are Tax Regulations?
Hierarchy of Tax Law
State statutes - enabling legislation for City taxes
Ordinances – codified municipal tax law
Regulations – City’s official interpretation of the codified tax law
Clarify intent of the law
Spell out current practices
Not an authorization for new taxes
Adopted by ordinance pursuant to Section 68-395 of the Code which authorizes the Director of Finance to:
“adopt, promulgate, amend and enforce rules and regulations relating to any matter or thing pertaining to the administration and enforcement of this article... All such rules and regulations must be approved by the city council before they shall become effective.”
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Who benefits?
TAXPAYERS AND TAX PRACTITIONERS
CITY
Set clear guidelines – regulations to be published on City’s website
Facilitate compliance - provide a link to the new Revenue System to assist taxpayers when filing
Decrease ambiguity of tax law – regulations updated regularly coincide with changing business environment
Ease of administration - provide audit staff and City Attorney’s Office with clearer guidelines for enforcement
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Historical Timeline of Earnings Tax Regulations
1964 - Earnings Tax effective and first set of regulations adopted
1979 - Earnings Tax Regulations revised and adopted
2007 - Consultant hired by the City to draft updated Earnings Tax Regulations – no action taken at that time
2015 - Revenue Division, Audit staff and Law Department made additional revisions
2016 - Proposed Earnings Tax Regulations
June thru August 2016 - Public comment period on proposed tax regulations
Post on city website
Press release
Meetings with key stakeholders September 2016 - Revisions based on public comment
Fall 2016 - Present proposed regulations to City Council for approval/adoption
Ongoing – Review of regulations every 10 years
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Tony’s Kansas City January 2016 Why are Missouri Republicans working to overturn the earnings taxes in Kansas City and St. Louis?
There are a lot of reasons for that . . . Here's the yearbook answer:
Last year a Supreme Court case called earnings taxes into question . . . This is complicated stuff, and it's up for another challenge soon, but here's the simplest way to put it:
"The court issued a ruling that double taxation is unconstitutional, making it illegal for two states to tax the same income . . . A brief filed with the court said the ruling could affect Kansas City’s earnings tax, but a city spokesman said that opinion is wrong and the city’s legal team thinks the tax will survive."
Since that time . . . Missouri Sen. Kurt Schaefer has filed a bill to eliminate the e-tax. Currently, the E-tax is subject to an election every 5 years - An effort that stems from billionaire Rex Sinquefield, successfully leading a statewide effort to force elections in Kansas City and St. Louis to ask voters to repeal the earnings tax.
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WWW.TONYSKANSASCITY.COM
“Billionaire Rex Sinquefield successfully
leading a statewide effort to force elections in
Kansas City and St. Louis to ask voters to
repeal the earnings tax”
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The Pitch February 2016
Missouri Sen. Kurt Schaefer wants to get rid of the earnings tax; his employer, Lathrop & Gage, doesn't quite agree
Kurt Schaefer, a Republican state senator from Columbia, wants to do away with the earnings tax in Kansas City and St. Louis.
First it was because of his annoyance caused by both cities trying to increase minimum wage beyond the state level. Then he transformed his argument into a question over whether the earnings tax is constitutional.
Schaefer introduced a bill before the Missouri General Assembly session started that would eliminate the tax all at once in 2017. For Kansas City's budget, which relies heavily on the $230 million the tax collects each year from city residents and employees, Schaefer's bill amounted to a crisis scenario. It would be bad enough, city officials said, if voters opted not to renew the tax and phase it out over 10 years when it came up for a vote April 5. Stripping it away in one fell swoop would shove Kansas City's budget off the Broadway Bridge into the murkiest depths of the Missouri River.
Eventually, Schaefer's bill got neutered, and the threat to Kansas City, at least from a legislative front, passed.
When Schaefer's not roaming the halls of the state capitol in Jefferson City, he's working as a partner for law firm Lathrop & Gage's Columbia office. Lathrop & Gage is one of Kansas City's oldest corporate law firms. Its offices are sprawled out all over the country, but it's safe to say the firm is based in Kansas City.
Lathrop & Gage doesn't see the earnings tax question the same way Schaefer does. The firm late last week cut a $10,000 check to Progress KC, the campaign committee supporting the campaign to renew the earnings tax. Presumably the partners and associates with offices in its Crown Center-area office building would like to drive to work on roads that are somewhat smooth and patrolled by police officers.
Progress KC is doing well, financially. In its quarterly report filed with the Missouri Ethics Commission, it listed $400,000 in contributions for this election cycle, including $323,750 raised in the last three months alone.
Since then, the cash has continued to flow in. Not included in that January report is $395,000 worth of high-dollar contributions to Progress KC.
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Missouri Municipal League Legislative Summary May 2016 Bills of Municipal Interest That Did Not Pass – Although these
legislative measure are “dead” for this year, we expect that many of
these issues will reappear in the 2017 legislative session.
HB 1809 - Repealed the earnings tax in the cities of Kansas City and St. Louis on
December 31, 2017.
HB 1857 - Repealed the earnings tax in the cities of Kansas City and St. Louis on
December 31, 2017.
HB 1886 - Repealed the earnings tax in the cities of Kansas City and St. Louis on
December 31, 2019.
SB 575 - Repealed the earnings tax in the cities of Kansas City and St. Louis on
December 31, 2017.
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Earnings Tax - Future
The fight goes on in Jefferson City
Uncertainty of renewal affects City’s credit rating causing borrowing to be more expensive
Renewal elections cost the City $.5 million every five years
City residents continue to support the Earnings Tax
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