Kansas City’s “same rate, different destination” rule is the key distinction
If you shop in Kansas City, you can pay the same 3.25% local rate and still have your dollars end up in different city accounts. That difference is what drives today’s debate about online sales tax revenue and voter-approved funds.
From a shopper’s view, the tax can look identical at checkout. From the city’s accounting view, it can land in either:
- Voter-approved special revenue funds (dedicated purposes), or
- The city’s general fund (broad purposes)
This matters because Kansas City has seven voter-approved special revenue sales taxes. They broadly support services such as transit, parks, fire and public safety, and infrastructure. Yet Kansas City collects about $102.8 million annually in local use taxes tied to certain online or out-of-state purchases, and those dollars are credited to the general fund, not those dedicated funds.
For immigrants and visa holders, there’s an extra wrinkle. Sales and use taxes are generally not on your federal return. But the same purchases can intersect with federal rules if you sell online, run a side business, or receive Forms 1099.
Kansas City local sales tax vs local use tax: side-by-side comparison
Kansas City’s local tax system uses two labels that sound similar but can behave differently in the budget.
| Category | In-store purchase in Kansas City | Certain online / out-of-state purchase delivered to Kansas City |
|---|---|---|
| What you pay at checkout | 3.25% local sales tax (plus other applicable taxes) | 3.25% local use tax (plus other applicable taxes) |
| Who collects it | Local sales tax is collected through the sales tax system | Use tax is collected on qualifying transactions, often via the seller or marketplace |
| Where Kansas City credits the local share | Routed into voter-approved special revenue funds (the dedicated “buckets”) | Credited to the general fund |
| What the money can be used for | Limited to the purposes voters approved | Can be used for any city priority within the general fund |
| The “loophole” claim | Not about the rate; it’s about the dedication | Same rate to the shopper, but different destination in city accounting |
The practical result is simple. Two purchases of the same item can support different parts of city government, even when the local rate looks the same.
How the “loophole” works: the tax is due either way, but allocation changes
Kansas City’s dispute is not about whether tax applies. It’s about where the city deposits the local portion.
What happens with an in-store purchase
When you buy in a Kansas City store, the local sales tax is distributed among the city’s voter-approved special revenue funds. Those funds exist because voters approved them for defined purposes.
What happens with certain online or out-of-state purchases
When you buy from certain out-of-state retailers or through some online channels, you can still pay the same 3.25% local rate. But Kansas City accounts for that local amount as a use tax. That local use tax is credited to the general fund.
A single purchase example helps. If you buy a $100 item in-store, the local tax is paid and routed to the dedicated funds. If you buy the same $100 item in an online transaction that is treated as a use-tax collection, you still pay the local amount, but Kansas City credits it to the general fund.
A calculator on this page shows sample purchase amounts and the estimated local tax dollars. The point to watch is not the math. The point is the destination.
⚠️ Warning: Many people hear “use tax” and assume it is optional. It usually is not. The debate here is about allocation, not whether tax is owed.
Legal framework behind the discrepancy (and what “legal” means here)
Kansas City traces the issue to the city’s 1996 local use tax and later legal developments that shaped how use tax is administered.
City leadership has stated the current approach is legal. In this context, “legal” generally means:
- The city is authorized to collect the tax under current rules, and
- The city is authorized to allocate those receipts to the general fund as it does today
That is separate from the public’s expectation that a “local tax” should always flow into the same voter-approved dedicated funds.
This is why you can see the word “loophole” used. It is not a loophole that removes the tax. It is a perceived gap between how voters think local taxes work and how certain use tax receipts are booked.
Budget impact: why $102.8 million matters inside the general fund
Kansas City officials have said that redirecting the use-tax stream would create about a $103 million hole in the general fund. They also describe that revenue as roughly one-eighth of general fund resources in the most recently adopted budget.
That “one-eighth” description is important. General funds typically pay for recurring obligations, such as:
- Staffing and payroll
- Citywide operations and maintenance
- Basic service delivery that is not fully covered by dedicated taxes
If Kansas City redirected local use-tax dollars into voter-approved funds, the city would have limited options in the short run:
- Replace the revenue with a different source
- Reduce general fund spending
- Shift other revenues into the general fund, if permitted
Because the use-tax stream is recurring, cities often treat it as ongoing operating support. That makes sudden reallocation harder than reprogramming a one-time grant.
Push for change: treating use tax like other voter-approved sales taxes
Advocates for change have proposed “rightsizing” the system. The central proposal is straightforward:
- Treat local use tax dollars the same way as the voter-approved local sales taxes
- Deposit those receipts into the same dedicated special revenue funds
City administration has not recommended changes. The stated reason has centered on general fund stability and the operational disruption of removing about $102.8 million from that funding base.
Procedurally, a change is not just a press release. It could require several steps, such as:
- Updating city ordinances on allocation
- Reviewing ballot language tied to voter-approved funds
- Coordinating legal review of authority and restrictions
- Building a transition plan, including budget amendments and timing rules
What immigrants and visa holders should know (federal taxes and online selling)
Kansas City’s sales/use tax allocation is a local budget issue. But many immigrants also intersect with federal rules through online platforms.
If you earn money from online sales (for example, reselling items or running a small shop), watch for these federal items for tax year 2026 (filed in 2027):
- Form 1099-K reporting from payment platforms, if applicable
- Business income reporting on Schedule C (Form 1040) if you are self-employed
- Residency rules that determine whether you file Form 1040 (resident alien for tax) or Form 1040-NR (nonresident alien)
The IRS’s primary guide for residency rules is Publication 519, U.S. Tax Guide for Aliens (IRS PDF): Publication 519 (PDF) The IRS international portal is here: International taxpayers Forms and publications are here: Forms and publications
If you are on F-1 or J-1 status, remember the substantial presence test rules can be different in early years. Publication 519 explains the exempt individual rules and residency tests.
📅 Deadline Alert: For tax year 2026, most individuals file federal returns by April 15, 2027. A federal extension generally moves the filing deadline to October 15, 2027. (Rules can shift if the IRS announces a weekend or holiday change.)
Common mistakes (and how to avoid them)
- Assuming online purchases are “tax-free.” Many online transactions still include sales or use tax collection. Check your receipt.
- Confusing “where the tax goes” with “whether tax is due.” Kansas City’s controversy is about allocation. It is not a statement that use tax should not apply.
- Assuming all local taxes fund voter-approved programs. In Kansas City, certain use-tax receipts go to the general fund, even if the rate matches the in-store local rate.
- Forgetting the business angle if you sell online. If you have profit-motivated activity, federal income tax reporting can apply. Keep records of inventory, fees, shipping, and refunds.
Quick federal deadline reference (tax year 2026, filed in 2027)
| Tax event | Deadline | Extension available |
|---|---|---|
| Individual federal return (Form 1040 / 1040-NR) | April 15, 2027 | Yes, generally to October 15, 2027 |
| FBAR (FinCEN Form 114), if required | April 15, 2027 | Automatic to October 15, 2027 |
(FBAR is not an IRS form, but the IRS administers FBAR compliance. Many immigrants must track this if foreign accounts exceed $10,000 aggregate at any time during the year.)
“You are [X] if…” (a practical classification)
You are an in-store voter-fund supporter if you buy in a Kansas City store and the 3.25% local sales tax is credited into the voter-approved special revenue funds.
You are a use-tax general-fund supporter if your purchase is treated as a Kansas City local use tax collection on a qualifying online or out-of-state transaction, and the local amount is credited to the general fund.
You are an online seller with federal reporting exposure if you receive platform tax forms (such as 1099-K) or run sales with a profit motive that belongs on Form 1040 Schedule C, subject to your residency status under IRS Publication 519.
- Review receipts for whether your online purchase collected local tax, and understand that allocation can differ.
- If you sell online, keep records and confirm whether you file Form 1040 or Form 1040-NR for tax year 2026.
- If you have foreign accounts, check whether FBAR applies using the $10,000 aggregate rule.
⚠️ Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax situations vary based on individual circumstances. Consult a qualified tax professional or CPA for guidance specific to your situation.
