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In Depth: Remote working takes bite out of KCMO earnings tax

KC City Hall
Posted at 6:01 PM, Feb 11, 2021
and last updated 2021-02-11 19:23:55-05

KANSAS CITY, Mo. — Every year, Kansas City, Missouri, receives nearly $300 million in revenue from its 1% earnings tax, which helps pay for everything from weekly trash collection to road repairs and even police officers.

However, like nearly all facets of life, it's a major revenue stream that's been disrupted by the COVID-19 pandemic.

Almost half of the people who pay the earnings tax, which is levied on individuals who live or work in KCMO, do not reside in the city, so roughly $115 million of the $292 million generated annually comes from nonresidents.

With so many people working remotely during the past year, the city faces the prospect of a major spike in the number of earnings tax refunds it will have to pay out.

KCMO Mayor Quinton Lucas said Thursday that the situation continues to be a "major concern," like the dip in sales and tourism tax revenues.

According to KCMO Finance Director Tammy Queen, the city refunds $4 million of earnings tax revenue in a typical year. KCMO has budgeted an estimated $17 million, more than four times the usual annual amount, for the upcoming fiscal year.
Taxpayers have a five-year window to ask for refunds.

The proposed budget for the next fiscal year projects a $23 million, or 7.8%, decrease in earnings tax revenue, and that assumes the earnings tax renewal, which must be reauthorized every five years by voters in KCMO, passes during the April 6 municipal election.

City of St. Louis officials confirmed in June that it will not issue earnings tax refunds for remote workers. Lucas said KCMO considered taking the same stance.

"Last tax year has happened," he said. "I think it might be a little unfair to change things up in midstream. Therefore, we're going to try to weather this challenge through the funds we have at the city now and also, of course, federal stimulus dollars that we do hope come through."

KCMO officials hope assistance from a new stimulus can help fill the budget gaps left by dips in sales and convention/tourism tax revenue.

For example, the hotel/motel tax was projected to bring in $27.5 million from May 1, 2020, through April 30, 2021, but the current revised estimate in the new budget anticipates just $7.9 million.

The city's proposed budget, which Lucas announced parts of Wednesday during his annual State of the City address, narrows a projected $70-million budget gap to around $15 million.

"What that tells me is if we can get more than $15 million in federal support, that can help fill that up," Lucas said. "And if we get even more, we can do things and help fund things like our COVID vaccinations we're doing through the health department."