The Buzz

Kansas City earnings tax argument grows more complicated

Kansas City’s battle to protect its one percent earnings tax moved to Jefferson City Thursday. Jason Hancock has an excellent story here.

Much of the testimony involved the importance of the tax in Kansas City and St. Louis. But at least some of the discussion involved an issue we talked about on the Buzz some time ago — whether Kansas City must offer a tax credit for income tax payments its residents make to other states.

At least some legal scholars say the answer is yes. Without a such a credit, they argue, Kansas City’s earnings tax violates the Constitution.

Kansas City has pushed back against this idea. Thursday, it offered a new argument: since the state of Missouri already offers a credit for taxes paid to other jurisdictions, its lawyer said, Kansas City need not offer a credit of its own. A Kansas City credit, the lawyer said, would amount to a “double credit” for the earnings tax.

The facts are fuzzy. If Kansas City’s argument is accurate, for example, then the city need not offer a credit for taxes paid to other cities, like St. Louis. That, too, would be a “double credit.”

Yet Kansas City offers a credit for St. Louis earning taxes, and those in other cities.

More importantly, though, the city is arguing that the state of Missouri is doing what the Supreme Court says Kansas City must do — offer an earnings tax credit to its residents who work in other states. If that’s true, then Missouri is providing Kansas City (and St. Louis) a multi-million dollar subsidy every year.

Missouri, in essence, is doing what Kansas City should be doing. Missouri is losing the tax revenue Kansas City should be losing.

That will come as some surprise to state lawmakers. Missouri is not offering a similar subsidy to the rest of the state, since those jurisdictions can’t levy an earnings tax.

Stay tuned.