Rental businesses must be registered and licensed to do business in Kansas City, Missouri. The first step is to submit a Registration Application (Form RD-100).
Form RD-100 can be submitted electronically on Quick Tax or in person to the City’s Business License Office at 1118 Oak Street, Kansas City, Missouri 64106. Commercial properties must obtain a Zoning Clearance. Residential properties must be registered through the Health Department's Healthy Homes Program.
Once the application is processed, the appropriate tax accounts will be created and you will receive a notice listing your account numbers to reference on returns you file and when communicating with the Revenue Division.
Form RD-108/ 108B is a tax return filed annually and is used to pay the 1% earnings tax on the net profits of a business. The return is due by April 15 of each year and is required even if there is a loss. If you file income taxes on a fiscal year basis, the return is due 105 days from the end of your fiscal year.
Extensions of time to file may be requested by submitting Form RD-111. Extension requests are granted to provide an additional six months to file. They are not an extension of time to pay the tax due. A payment of at least 90% of the tax due must be submitted with Form RD-111 to avoid penalty and interest. This request is separate from an extension request submitted to the IRS for federal income tax purposes and should be sent directly to the Revenue Division. The IRS does not send this information to municipalities.
- Rental income is subject to the earnings tax to the extent that the rental, ownership, management, or operation of the property from which the income is derived constitutes a business activity of the taxpayer in whole or in part. Factors to consider that determine taxability of the activity include:
- A legal entity was created to hold (or manage) the property.
- The income is generated from activity in the regular course of the taxpayer’s trade or business; for example, a real estate business.
Other factors that may be used to determine whether the income is the result of a business activity or “hands-off” in nature include:
- The amount of personal involvement by the taxpayer, including the taxpayer’s employees or agents. This includes the extent to which the taxpayer participates in management decisions, such as advertising a property, vetting or approving tenants, deciding on rental terms, approving expenditures and similar decisions.
- The frequency and number of transactions that produced the income.
- The amount of time and attention the taxpayer devotes to rental operations during the year.
- The proportion of the income relative to the taxpayer’s other earnings or income.
The following are some examples to assist with determining the taxation of rental income:
- Jim Taxpayer bought his first home in Kansas City, Missouri after he was offered a job as an engineer with a local firm. After several years, he purchases another home in Kansas City, Missouri where he continues to be employed full-time as an engineer. Jim does not sell the previous property but instead chooses to rent it out as he does not believe he can recoup its value through a sale. Jim does not set up a legal entity to hold or manage the property and participates in all management decisions including selection of the tenant, lease terms, and such things as arranging to have the lawn mowed. He does not own any other rental property and intends to sell the property as soon as he believes it can be sold for a price that will allow him to recover its value. Jim’s rental income would not be considered earned as the activity is not in the regular course of his business and therefore does not constitute a business activity.
- Joan Taxpayer operates a sole proprietorship that buys old buildings and residences, refurbishes them, and resells them. She also sometimes rents out such buildings and does not use a management company. Joan’s rental income is subject to tax because it is incidental to her business and she is active in its management.
- Joe Taxpayer bought land in Kansas City, Missouri, and built a 200-unit apartment building, Riverfront Rentals. When Joe Taxpayer died in 2019, his grandchildren, John and Jane Taxpayer, who are both teachers, inherited the land and building. Having no experience with operating an apartment building and no time to devote to it, John and Jane entered into a management agreement with James Smith, a realtor with extensive experience in managing residential rental property. Under the agreement, John and Jane will pay Smith 20 percent of the rental income, and Smith will oversee the day-to-day operation of the building and make all of the management decisions, including selection of tenants, lease terms, and approving building expenditures. Smith devotes a considerable amount of time to managing Riverfront Rentals. Because Smith is engaged in a business activity, his share of the rental income would be earned and subject to the tax. The rental income of John and Jane Taxpayer would not be considered earned.
- John and Jane Smith are siblings. They form a limited liability company (LLC) to purchase a fourplex in Kansas City, Missouri. They rent out the fourplex. Both John and Jane have full-time jobs. They employ a leasing agent to list available units, but ultimately approve tenants. They also contract with a company to have all maintenance performed, including regular upkeep and lawn mowing, but approve larger expenditures, such as replacement of HVAC systems, etc. John and Jane’s rental income is subject to the tax because the LLC was set up to own rental property, is generating income from its ordinary operations, and the taxpayer is active in management decisions of the LLC.
- All net profits from rental real estate business activities of a sole proprietor who is a resident of Kansas City, Missouri are subject to tax, regardless of the location of property or properties.
- Net profits from rental real estate business activities of a sole proprietor who is not a resident of Kansas City, Missouri are subject to tax based only on activity in Kansas City, Missouri. Complete Schedule Y of Form RD-108B to determine the amount of net profits subject to tax.
Employers are required to deduct the earnings tax on wages and salaries paid to residents of Kansas City, Missouri and non-residents performing services within Kansas City, Missouri city limits.
In general, taxable earnings are gross compensation less contributions to cafeteria plans and qualified deferred compensation plans, similar to the amount used to calculate Box 1 of Form W-2 for federal income tax purposes. The withholding tax is to be remitted to the City at the same frequency used for state income tax withholding purposes. Remittances can be made electronically on Quick Tax or by using Form RD-130M or Form RD-130QM.
In addition to regular remittances, Form RD-110 is a return that is filed quarterly to report the taxable earnings paid for the quarter. The return is required even if there was no withholding during the quarter. Payments can be made with Form RD-110 for amounts not previously paid through prior remittances. Employers with 250 or more employees must file electronically through Quick Tax. Third party payroll providers may use the Bulk Filing Program to file returns electronically.
After the end of each year, employers are also required to file a reconciliation of annual withholdings to payments remitted on Form RD-113. The return is due by January 31. W-2 information is also required to be submitted at the same time. W-2 information should only be provided for employees who had earnings tax withheld from their compensation. Employers with 250 or more employees must file Form RD-113 and submit W-2 information electronically through Quick Tax.
- Remittance due dates are published annually.
- Employers that fail to submit Form RD-113 or W-2 records are subject to a penalty. The penalties mirror those charged by the Internal Revenue Service.
A business license is required in instances where the owner is active in the management of the rental property. If the owner employs a management company, then the management company is required to obtain the business license - not the property owner.
To obtain a license, new businesses are required to file Form RD-105 no more than 60 days after opening in Kansas City, Missouri. A business license must be renewed each year by filing Form RD-105 prior to March 1. The cost of a license is determined by the amount of gross receipts from the prior calendar year using rate Table A included with the form.
- Gross receipts include payments received for use or occupancy of property; lease cancellation payments, advance rent, expenses paid by a renter in lieu of rent, the value of property or services provided in lieu of rent; and any other charges or fees earned in the regular course of business.
- Short-term rentals with less than eight bedrooms are subject to business licensing similar to traditional rentals greater than 30 days.
- Businesses with more than eight bedrooms for rent are considered hotels and are subject to both the Convention and Tourism Tax and Arena Fee (see the Tax Guide for Hotels for more information).
Code of Ordinances, Chapter 40, Article I
2020 Due Dates for Rental Businesses
1 New Year's Day - City Offices closed
20 Martin Luther King Jr. Day - City Offices closed
31 Employer' Quarterly Return of Earnings Withheld (Form RD-110) -
4th Quarter 2019
Employer's Annual Reconciliation of Earnings Withheld
(Form RD-113)/ 2019 W-2 Information
17 Presidents Day - City Offices closed
29 Business License (Form RD-105)
30 Employer's Quarterly Return of Earnings Withheld (Form RD-110) -
1st Quarter 2020
25 Memorial Day - City Offices closed
3 Independence Day (observed) - City Offices closed
15 2019 Profits Earnings Tax (Form RD-108/ 108B) and Extension
(Form RD-111), calendar filers
31 Employer's Quarterly Return of Earnings Withheld (Form RD-110) -
2nd Quarter 2020)
7 Labor Day - City Offices closed
2 Employer's Quarterly Return of Earnings Withheld (Form RD-110) -
3rd Quarter 2020
11 Veterans Day - City Offices closed
26 Thanksgiving Day - City Offices closed
27 Thanksgiving Holiday - City Offices closed
25 Christmas Day - City Offices closed