status and future of the kansas city e-tax kcmo etax update.pdfstatus and future of the kansas city...

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


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.


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.


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.


Earnings Tax - Importance


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.

Earnings Tax – Consequences if not Renewed


My Job

Nuts and Bolts of the Earnings Tax


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%


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%


Earnings Tax - Drivers

Withholding

Employment

Increased Wages

Economy

IRS matches

Profits

Economy

Investment in assets

Employment

IRS Matches

Wage

Economy

Increased Wages

IRS Matches


Earnings Tax - History of Collections


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

Earnings Tax - Growth Rate


Earnings Tax - Revenue Stream


NEW



#1 What’s New: E-Filing Options

E-Filing Options


MeF

Modernized Electronic Filing

TAX

KCMO Website

20

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

21

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


#2 What’s New: Proposed Earnings Tax Regulations


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.

24

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.”

25

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

26

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

27

Future Outlook and Influence from Jefferson City


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.


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”


http://4.bp.blogspot.com/-30IKAsNjyQQ/VpkFuBm9ulI/AAAAAAABilI/3axzZvnwrjs/s1600/rexlook.jpg

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.


Kansas City Star – March 2016


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.


December 31, 2017.


December 31, 2019.

SB 575 - Repealed the earnings tax in the cities of Kansas City and St. Louis on

December 31, 2017.


What is next?

Next Election April 2021


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


Questions?

37

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