‘All right, all right.’ KC may change ‘ridiculous’ tax refund policy for remote workers

Kansas City may reverse a new policy that makes it far more difficult for non-resident remote workers to get refunds of city earnings taxes that are withheld from their paychecks.

The proposal comes after complaints about a little-noticed ordinance passed last March that made the refund process so cumbersome that officials planned to reap a windfall worth as much as $17 million from unclaimed refunds.

The proposed ordinance that makes the process easier to get a refund was dated Feb. 9 — three days after The Star made officials aware it was working on an article about the impediments the city had created that made it hard for people to get a refund. The proposal was to have been discussed at Wednesday’s regular meeting of the city council’s finance committee, but the meeting was canceled for the Chiefs’ victory parade.

It will come up next week instead.

If approved, the change will be good news for taxpayers like Chester Brock, who has been counting on a refund worth $700 that might have been denied him otherwise.

“All right, all right!” Brock said when a reporter relayed the news.

Like a lot of remote workers, Brock’s wallet grew fatter when he began working from home four years ago. Besides saving on gas for those long commutes from his house in Lee’s Summit to an office downtown, he was no longer obligated to pay the 1 percent earnings tax that Kansas City collects from its residents and non-residents who work in the city.

Getting the city to refund the money withheld from his paycheck was fairly simple until recently.

“You’d fill out a form, maybe two forms, submit your W-2 and you’d get a refund in three to five weeks,” Brock said.

Soon, it will be that way again, should the City Council approve the change. But under the current process, you had to take the city to court to get an earnings tax refund. And even then there was no guarantee you’d get one even after paying the $37.50 it costs to file a case in small claims court.

Councilwoman Andrea Bough agrees that the process now on the books is “unfair” and “ridiculous,” which is why she suggested that the city change course.

“There were some conversations that were going on in the finance department and I was hearing from others, and I started pushing, so let me just say when I started asking questions, were the wheels already greased?“ Bough said. “I think so, and others were talking about this.”

The city altered the simpler refund process that Brock alluded to last spring after paying out millions of dollars in E-tax refunds the past couple of years due to the boom in telecommuting spawned by the pandemic.

By changing the refund process the city would get to keep as much as $17 million in refunds this year, an aide to Mayor Quinton Lucas explained at a March 2, 2022, finance committee meeting. No members of the public testified.

Councilwoman Heather Hall was the only committee member to express concern that day.

“I don’t want us to say we’re making this even more difficult for people to do that just because we want to make $17 million — which I think is great,” she said then. “But let’s be sure if these people are really qualified to get this money refunded back to them that I want to make this a comfortable and easy process for them to be able to at least apply to get their refund back.”

Hall then voted for the change without realizing how difficult it might be, as none of the details were spelled out at the time by city staff.

Getting a refund became very difficult, as it turned out, according to an information sheet from the Missouri Society of Certified Public Accountants. Instead of making one request for a refund at the end of the year, the city’s new policy required a lot more paperwork and cost, said the CPA group, quoting Kansas City commissioner of revenue Mari Ruck.

“Within 30 days of your employer remitting your withholding to the city,” Ruck said, “you must file a payment under protest (form). For each payment under protest you file, you must file a petition in Jackson County Court within 90 days.”

Any mistakes and you’re out of luck.

“We were getting a lot of questions, like, is this really what you intended? Or, how is this fair?” Bough told The Star. “Is this what you intended that every time you remit earnings tax that you’re going to ask people to file a lawsuit? That’s crazy. And I don’t think, honestly, that our courts want to see that either.”

Lucas is co-sponsor of the ordinance that will remove those court filing requirements.

Early in the pandemic, Lucas and others were concerned about the impact that increased E-tax refunds would have on the city budget. Midway through the 2021 income tax filing season, already more than 11,500 non-residents had requested refunds for that first year of the pandemic.

Prior to COVID-19 shutdowns, Kansas City officials didn’t raise a fuss about refund checks. It was city policy. Refunds only amounted to a few million dollars every year.

Refunds were viewed as a matter of fairness. Why should nonresidents pay to support city services that they weren’t using, like police and fire protection, just because their employer had a Kansas City mailing address? Likewise, remote workers weren’t adding to the wear and tear on city streets because they weren’t driving to and from the office.

When it appeared big money might be at stake one year into the pandemic, however, Lucas said the city might cancel the refund program.

But he later backed off and $23 million was set aside the past two fiscal years to account for E-tax refunds, city budget books show.

St. Louis took a tougher stance and last spring got a favorable court decision in which a judge ruled that taxpayers needed to comply with the cumbersome process outlined in state statute that said taxpayers had to file suit to get a refund.

Bough said that state law was not written with the E-tax in mind and said Kansas City is no longer in the dire shape some feared it might be financially. The proposed 2023-2024 budget that the city manager submitted this month estimates that the city will collect $305 million in earnings taxes in the upcoming budget year, up $29 million from this year’s adopted budget.

“At the beginning of COVID,” Bough said, “there were those who were very concerned about the city going broke. That’s not as big of a concern now. And I kind of approached the city manager and the mayor and said, Is there something that we can do (about the refund process)?

“We need to be fair, we need to have a process that works.”

The change she and Lucas have proposed will do that, she said.