Missouri tax increase raising ire in Kansas

Monday, August 20, 2007

JEFFERSON CITY, Mo. -- Early one August morning 144 years ago, Missourian William Quantrill and hundreds of armed men descended on Lawrence, Kan., killing almost 150 residents and causing $2 million in damage to their homes and businesses.

Relations between Missourians and Kansans never have entirely recovered, although their rivalries these days typically are settled with college footballs and basketballs.

Perhaps that history of bad blood helps explain why some Kansans are hopping mad about a new affront from Missouri -- one that could siphon several million dollars out of the Kansas treasury into Missouri's.

Missouri's new policy

For years, Missouri has allowed people who live elsewhere but work in Missouri to deduct the property taxes they pay on their out-of-state homes when they itemize their Missouri income taxes -- just as Missouri residents can itemize deductions for their own property taxes.

Kansas has a similar tax policy. So do five of the seven other states neighboring Missouri or Kansas that charge income taxes.

But a new Missouri law will halt that nonresident tax break next year, meaning Kansans who commute to work in places like Kansas City, Mo., Joplin and St. Joseph will pay higher income taxes to Missouri. The same will hold true for residents of other states who work in Missouri.

Kansas officials are outraged.

Missourians "have created another border skirmish over here, which we don't need," said Kansas Revenue secretary Joan Wagnon.

Kansas Rep. Kenny Wilk, chairman of the House Taxation Committee, is vowing a tax retaliation unless Missouri backs down.

"Missouri just needs to decide whether they want to do this the hard way or the easy way," said Wilk, who lives in Lansing but works in Kansas City, Mo. "We will respond to make sure we recoup all -- and plus a bit more -- of what we're losing."

Government response

Kansas Gov. Kathleen Sebelius has asked Missouri Gov. Matt Blunt to call upon lawmakers to repeal the nonresident tax increase.

Blunt said he will support a repeal next year. But he did not include it on the agenda for a special legislative session, which ironically is getting underway right around the anniversary of the infamous Aug. 21, 1863, Quantrill raid.

Blunt explains that special sessions should be reserved for issues on which there is a consensus among lawmakers. In this case, some of the Missouri senators who amended the tax increase onto one of Blunt's priority bills see no reason to reverse it.

"What obligation do we have to Kansas people? Why would we want to give them a break on Missouri taxes?" declared Sen. Joan Bray, a Democrat from St. Louis.

Senate president pro tem Micheal Gibbons, a Republican from suburban St. Louis, sounded equally defiant.

"In Missouri, we're willing to stand on our own feet," Gibbons said, "but we don't need to stand up for someone else -- for some other government."

Results of the change

Lost in vitriol is the fact that Missouri's nonresident tax increase is unlikely to directly effect the pocketbooks of individual Kansans. Because of the way tax codes work, Kansans who pay more Missouri income taxes should see comparable reductions in their Kansas income taxes. The same holds true in almost any state.

"It's a wash for the taxpayer," Wagnon said, "but basically it transfers money from Kansas [government] into Missouri."

Missouri estimates it stands to gain $11 million annually in income taxes, primarily coming from residents of its neighboring state. Kansas estimates a loss of $5 million next year because of the change in Missouri's tax law.

What some Kansans may not realize is that some Missourians along the Illinois border have been subjected to a similar tax situation. Thousands of Illinois residents who work in St. Louis or other Missouri border towns have been allowed for years to deduct their property taxes from Missouri's income tax -- even though Missourians who work in Illinois are not allowed to do the same.

Some St. Louis area senators had tried for years to pass legislation bridging the Mississippi River with greater parity on property tax deductions. They finally succeeded this year.

But Missouri may have started a chain reaction that goes beyond Kansas.

Missouri's governor, at least, is trying to appease his neighbors, particularly in Kansas.

"I don't think it's beneficial for our legislature to engage in some warfare with the other eight states that touch Missouri and compare and contrast the tax codes," said Blunt, who assured: "We're not going to re-enact the Quantrill raids, certainly."


A look at state tax policies

Missouri recently enacted a law ending the ability of nonresidents to deduct the property taxes paid on their out-of-state homes from their Missouri incomes taxes. Kansas officials are upset. Here's a look at the income tax policies of neighboring Midwestern states.

ALLOWS DEDUCTIONS FOR NONRESIDENT PROPERTY TAXES

Arkansas

Colorado

Iowa

Kansas

Kentucky

Oklahoma

NO DEDUCTIONS FOR NONRESIDENT PROPERTY TAXES

Illinois

Missouri

Nebraska

NO STATE INCOME TAX

Tennessee

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