Double sales tax or quadruple property tax? KC has few options if E-tax vote fails

If voters knock down a decades-old tax in the upcoming April election, Kansas City officials say services could be thrown into disarray as it would be extremely difficult to replace hundreds of millions of dollars in lost revenue.

Kansas City voters will go to the polls April 7 to vote on whether to keep the long-running 1% earnings tax for another five years. More than 77% of voters voted to renew the tax in 2021.

The earnings tax is collected from the salaries and wages of those who live in or work in Kansas City, alongside the net profits of businesses. (It does not include sources like pensions, Social Security payments and other retirement income.)

Half of the earnings tax is paid by people who live outside of Kansas City, according to city documents. Somebody who lives in Shawnee but commutes to a job in the Plaza, for example, pays the 1% tax on their wage.

That’s hundreds of millions of dollars each year that Kansas City uses to pay for a variety of services and functions. Among them: fire protection, police service, trash collection, debt payments, health care programs, dangerous building removal, affordable housing and street repairs.

The earnings tax generated about $351 million for the general fund in the last city budget, while about $22 million was directed to economic development funds. The proposed budget for the 2026-27 fiscal year, which will go before the City Council for final approval at a later date, projects another bump in overall earnings tax revenue.

A vote to renew Kansas City’s earnings tax, which has existed in some form since the 1960s, would not raise taxes.

If voters reject renewing the tax, officials told the City Council at a January hearing that the city would need to explore scenarios to “replace” it.

“The reason why we have those in quotations is because there’s not really a great source to simply replace $351 million worth of revenue,” finance official William Choi told the council.

Earnings tax revenue reflects about 45% of the city’s general fund and brings in more dollars than other funding sources like property taxes or sales taxes, budget documents show.

What could replace earnings tax in Kansas City?

The city would not be allowed to revive the earnings tax if voters choose to not renew it in April.

If the renewal fails, the earnings tax would be phased out over 10 years, or by 0.1% each year for 10 years until it’s gone.

The city could look into increasing other taxes to make up for the lost revenue: perhaps doubling the city’s sales tax portion to 6.5%, or more than quadrupling the city’s property tax levy rates, Choi said.

(Other government agencies levy sales and property taxes on top of the city’s rates.)

But officials can’t just do that on their own — or quickly — to make up the lost money: Increasing sales or property taxes would each require changes to state law and separate approval by voters.

A mailer to voters from Together KC, a group advocating for renewing the tax, says there is “no realistic path” to replacing what the city loses if the tax is not renewed.

The city would otherwise be looking at “significant” cuts to core city services if it loses earnings tax revenue, including public safety, trash collection, street repairs and more.

And it could impact the city’s credit rating and ability to borrow money and disrupt long-term contracts that rely on the funding.

“The earning tax is one of the most critical and stable revenue sources for the city, supporting the core services that residents, business and visitors rely on every day,” council member Andrea Bough, chair of the city’s finance committee, told The Star. “Without the earnings tax, the city would face significant budget shortfalls.”

Why do KC residents vote on renewing the earnings tax?

The earnings tax in Kansas City was first implemented in 1963 and has been at 1% since the 1970s.

But in a statewide ballot initiative in 2010, Missouri voters overwhelmingly passed a law that requires voters in cities with an earnings tax to vote on it every five years. That implicates Kansas City and St. Louis.

The Star reported at the time that Kansas City voters themselves narrowly supported the new 2010 restrictions: 52% to 48%, driven by anti-tax sentiment in suburban Platte and Clay counties.

Kansas City voters have since supported the earnings tax by wide margins in 2011, 2016 and 2021.

Several other cities in the United States collect earnings taxes, including Philadelphia, Pittsburgh and Cleveland.