Tax Guide for Rental Businesses

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This guide is intended for use by businesses that have real property for rent in Kansas City, Mo.

Getting Started
Profits Tax
Earnings Tax Withholding
Business License
Due Date Calendar

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 City Hall, 1st floor, 414 E. 12th St., 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.

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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.

Tips

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.

Resources

Code of Ordinances, Chapter 68, Article VI
Earnings and Profits Tax Regulations

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Tax Guide for Rental Businesses