The Kansas City Earnings Tax Tortoise Versus the St. Louis Earnings Tax Hare

When the pandemic struck and remote work took over, two city tax policies diverged in an asphalt jungle. Kansas City decided, as it should have, to continue refunding non-residents their earnings tax money for work performed outside of the city, which quickly became a lot of money. St. Louis City decided to illegally alter its earnings tax policy and continue to collect the earnings tax from people working outside of the city for a business located in the city. This decision was terrible for a number of reasons, and a judge recently ruled in favor of taxpayers who contested it. The city should change its policy now, though one member of the board of aldermen advises the city: “[A]ppeal it [the judge’s ruling] for the next 1,000 years.”

Even though all Kansas City did was follow the law, I still praised the city multiple times for its policy when compared to St. Louis. But now it appears that Kansas City may have a trick up its sleeve. Instead of denying taxpayers their proper refunds for remote work—which would be illegal—perhaps you just try to make it really, really hard to claim the refund in the first place. Instead of “you can’t have your refund,” it is now, “you can have your refund after you jump through this flaming hoop with a leg of mutton in your mouth.” Kansas City’s new ordinance now applies the state rules for property tax appeals and refunds to the earnings tax. There was no need for Kansas City (or St. Louis) to do that; city leaders simply want to keep more of the money.

There are important differences between property tax and earnings tax appeals. With property tax protests, the government must put the money aside and can’t spend it. For earnings tax refunds, the city government already has the money (from withholding) and people are seeking to get some of it back. Most disturbingly, based on my reading of the Kansas City ordinance (68.393),  it seems that taxpayers will have to file a lawsuit if they want to get their lawful refund (correct me if I’m wrong). If Kansas City law says you must follow the state procedure, and state procedure requires a lawsuit, then you must file a lawsuit.

From RSMo 139.031(2):

Every taxpayer protesting the payment of current taxes under subsection 1 of this section shall, within ninety days after filing his protest, commence an action against the collector by filing a petition for the recovery of the amount protested in the circuit court of the county in which the collector maintains his office.  If any taxpayer so protesting his taxes under subsection 1 of this section shall fail to commence an action in the circuit court for the recovery of the taxes protested within the time prescribed in this subsection, such protest shall become null and void and of no effect.

There is nothing wrong with Kansas City clarifying its refund procedure considering the dramatic increase in remote work. But the old process worked just fine. If refunds took a little longer in 2021 and 2022, that is understandable. Hopefully Kansas City will create rules like the informal property tax appeal system in St. Louis County to simplify the overall process for everyone’s benefit.

But if Kansas City really is trying to dissuade taxpayers from applying for a refund by making it so difficult and expensive to go through the process for what would usually be a modest amount of money, that is unconscionable. The St. Louis rabbit got trapped in a court case and appears to be losing. I guess the Kansas City tortoise is trying a different strategy.

It just goes to show that you should never say anything complimentary about local government in Missouri. They always prove you wrong in the end.