In 2019, the governors of Kansas and Missouri both committed to a truce, pausing the pointless, destructive tax border war. Prior to that, Kansas City-area companies would regularly leverage millions of dollars from their respective states in order to move just a few miles across the state line.
Waddell and Reed received $62 million to move from Kansas to Missouri, while AMC Theaters got over $21 million to move from Missouri to Kansas. Neither move took the respective companies out of the KC area.
The result of this nonsense was millions of dollars lost to state services, most notably public schools, all for companies to relocate — not create — jobs. State money was in the mix, too — it was not just a Kansas City issue. The choice is then whether to cut essential services like schools and infrastructure, or make up the revenue by raising taxes on individuals and small businesses that do not have powerful, well-connected lobbyists. No jobs are created in this process, except of course for lawyers and lobbyists.
This is absurd. Fortunately, Kansas Gov. Laura Kelly and Missouri Gov. Mike Parson agree.
In 2019, they agreed to a tax break truce, and it is holding. The Missouri General Assembly also passed legislation codifying it, but only if the Kansas Legislature would pass similar legislation within two years, which they did not.
Kelly and Parson have each been re-elected since, but to make this commitment more binding once their terms are up, the two legislatures need to renew their own deal. This time, the Kansas Legislature needs to reciprocate.
To be clear, both states are still gung-ho about tax breaks such as the massive “APEX” deal that lured a Panasonic electric-vehicle battery factory to DeSoto. However, since 2019 there have been no massive tax packages dangled before existing Kansas City employers to move a few blocks or a few miles. Yet unfinished business remains. Not only do the legislatures need to make the deal permanent, there is yet another issue that they need to address: A lack of tax reciprocity.
Hundreds of thousands of taxpayers live in Kansas and work in Missouri, and vice-versa. Each one is required to file and pay taxes in both states. Each state offers residents a credit for taxes paid to other states, but the process is cumbersome and error-prone.
By contrast, Ohio has had a tax reciprocity agreement with all states which it borders for decades. Most notably, this includes the Cincinnati area, a substantial portion of which lies in Kentucky.
Under those agreements, one pays taxes to the state where one lives, not where one works. A single state tax return is filed, and that is the end of it. If there are any complications, the other state need only check the taxpayer’s state of legal residency. Kansas could also do this with Colorado, Nebraska, and Oklahoma.
Opportunities are being lost and time wasted because of the baffling complexity of filing two tax returns and negotiating each state’s complicated process of taking a credit for the taxes paid to other states. It also incentivizes many people with otherwise-simple tax status to rely on paid tax preparers, wasting money. But for the border issue, these taxpayers could easily complete the forms on their own.
This should not be an ideological or partisan issue. The Kansas Legislature needs to renew the tax truce legislation and pass tax reciprocity — the sooner, the better.
