New Missouri tax law has Kansans talking about retaliation

"It's really not good for any kind of interstate cooperation. We represent Kansas, and we'll do what we have to do."
Rep. Arlen Siegfreid, an Olathe Republican

A new border war may be simmering between Kansas and Missouri.

Instead of football or basketball, this clash is over taxes paid by people who work in one state and live in the other.

The first shot was fired by Missouri when Gov. Matt Blunt signed a bill this month providing an income tax break for Missourians who receive Social Security. It contained a little-discussed provision eliminating a deduction for real estate taxes paid outside Missouri.

That's a $190 ding for the typical Johnson County resident who works in Missouri.

"It's downright unneighborly," said Kansas Senate Majority Leader Derek Schmidt, an Independence Republican. "A little cross-border dialogue would be in order."

Kansas legislators have been hearing from angry constituents, and some of those lawmakers are talking retaliation if Missouri doesn't rescind the provision.

"Why shouldn't we raise taxes on Missourians working in Kansas?" asked Rep. Arlen Siegfreid, an Olathe Republican.

Rep. Kenny Wilk, a Lansing Republican, works in Missouri and will pay more taxes there. He happens to be chairman of the House Taxation Committee.

Retaliation, he said, "would actually be fairly easy to do."

One option is to enact a provision similar to Missouri's, which would increase the tax on Missouri residents working in Kansas, said Joan Wagnon, Kansas secretary of revenue.

Based on commuting patterns, Johnson County's Economic Research Institute estimates that more than 71,000 residents from eight nearby Missouri counties work in Johnson County. And at least 53,000 Johnson Countians work in those Missouri counties.

When asked this month about increasing taxes on Kansans, Blunt said he was the governor of Missouri and his focus was on reducing taxes for Missouri residents.

"That's just an example of Governor Blunt's youth and immaturity on full display," said Wilk.

Told about the risk of a retaliatory tax, Blunt shrugged.

He said the two states' tax codes probably have all sorts of things for people to complain about. He signed the legislation, he said, because its main provision was to phase out income taxes on Social Security benefits.

The Senate added the tax increase on out-of-state residents. Blunt said he did not support that change, but neither did he strongly oppose it.

"I looked at the bill as a tax cut for Missourians, particularly seniors, and it had no negative implications for Missourians," Blunt said.

If Kansas retaliates, however, some of Blunt's constituents would pay more.

The Missouri Revenue Department said the average federal return from Missouri deducted $2,178 in real estate taxes in 2006. Assuming that out-of-state residents paid the same average real estate taxes, the new tax would generate more than $14 million a year for Missouri.

For many Kansas residents, however, the higher Missouri taxes would be offset by lower taxes owed to Kansas.

Why? Because Kansans get a credit on their state returns for income taxes paid elsewhere.

Consequently, Kansas officials say Missouri essentially is raiding the Kansas treasury.

Some Kansas lawmakers said the move by Missouri could strengthen the hand of those lawmakers in Topeka who want to repeal the metro area's bistate tax compact used to finance improvements at Union Station and possibly other regional amenities.

"It's really not good for any kind of interstate cooperation," said Siegfreid. "We represent Kansas, and we'll do what we have to do."

Rep. Tim Owens, an Overland Park Republican, said Kansas residents who work in Kansas City have paid a 1 percent earnings tax to that city for many years.

"How much do they want us to pay?" Owens asked.

Not everyone wants to play the tit-for-tat game, however.

"I would see it as an anti-business measure," said Rep. Ben Hodge, an Overland Park Republican.

By the numbers

** 254,000: Kansas income tax returns from those who work in Kansas but live elsewhere.

** 145,000: Returns from Missourians who work in Kansas.

** 82,000: Itemized returns from Missourians who work in Kansas.

** More than 90 percent: Portion of those 82,000 Missouri itemizers who would pay higher Kansas taxes if the Kansas Legislature were to eliminate a deduction for property taxes paid in Missouri.