Task force says KC needs to reform business license tax

Kansas City should replace its complicated, unfair business license fee with a rate structure that removes much of the favorable treatment given to select businesses.

That was the final recommendation Monday from a citizens commission that spent this summer looking at business license reform.

For most businesses, reform would mean little or no change in the license tax. They might even pay less.

But change is always hard, commission members acknowledged, because some businesses that have enjoyed a low rate for decades could see their tax rise dramatically.

“I don’t think it’s going to be an easy task to make any changes,” commission member Steve Glorioso admitted.

“There will be winners and losers,” agreed commission chair Susan Stanton.

The commission didn’t receive much feedback from the business community, but Glorioso said he didn’t think that silence equaled consent. Some people have expressed fears that drastic reform could drive businesses to move to Kansas.

Over the last 15 years, three other task forces have recommended reforms, only to see those efforts fizzle because of opposition from some influential businesses.

The group’s report now goes to the City Council, where Mayor Sly James said it deserves a fair hearing.

“We can at least attempt to address some of the things in our control to make this work better,” James told the commission.

More than 14,000 businesses pay some type of tax for the privilege of doing business in Kansas City, generating $21 million in revenue for the city.

There are 100 business categories, with payments ranging from $1 to $400,000 a year. Most businesses pay based on gross receipts, with payments averaging $1,500.

But many businesses pay a flat fee set decades ago, with payments averaging $700 or less. Some of Kansas City’s most lucrative businesses, such as investment companies, pay a maximum of $2,500.

The report recommends eliminating flat fees and changing to a two-tiered rate structure:

• For businesses that report gross receipts, $50 for the first $20,000, plus 60 to 80 cents per $1,000 gross receipts over $20,000.

• For businesses with no gross receipts but a workforce presence, $50 for the first $20,000 of gross payroll, plus 60 to 80 cents per $1,000 gross payroll over $20,000.

The exact rate between 60 and 80 cents would be chosen to be revenue neutral and to avoid a revenue windfall.

Even if the council approved a new rate structure, it probably would have to go to a public vote.

City staff sampled 63 percent of all business license accounts and found 90 percent of those would pay less, or face an increase of less than $50. But top businesses that currently enjoy a flat fee could see increases averaging $31,000. A few businesses would see increases of several hundred thousand dollars.

The commission had received comments from some businesses urging a simpler system. One man wrote that he spends as much time calculating the fee for his wife’s small business as he does preparing federal and state income taxes.

After three previous tries, James and the commission said they hope this is an attempt that works.

“There is no reform without some pain,” commission member Jim Rice said. “This may be our best shot.”