Closing out with the city
- Keep filing your quarterly RD-110 withholding returns through your last payroll, and enter the closure date on the final one.
- File a final RD-108 profits return for the part of the year before closing, with your closing date on the line the form provides.
- Close your city accounts by checking the closure box on the final return, or by sending the Revenue Division its Notice to Close Account form.
- List every account on the closure notice: business license, withholding, profits and any others, with the date you stopped.
- Make sure the buyer registers its own city accounts, so nothing keeps running under your name.
Timing: Use the due date printed on the current RD-108 and RD-110. An RD-111 extension gives more time to file, not more time to pay.
What the Earnings Tax Covers
Kansas City, Missouri has a 1% earnings tax. For employees, it is withheld from pay. For businesses, it is a tax on net profits, reported each year on the RD-108 profits tax return.
The return is required even in a year with a loss. Kansas City also taxes S corporations at the company level, so the city return is filed by the business rather than passed through to owners.
None of this goes away when you sell. The city wants a return for the part of the year you operated, and it wants to know the date you stopped.
Who Has to Think About This
This applies to companies doing business inside Kansas City, Missouri city limits. The city reaches into Jackson, Clay, Platte and Cass counties, so check your address rather than your county.
Suburbs such as Lee's Summit, Independence and Liberty are separate cities. Companies there deal with the Kansas City earnings tax only if they also operate inside Kansas City. Kansas side suburbs like Overland Park and Olathe have no tax like it.
Employers outside the city may still withhold the tax for employees who live in Kansas City. Ask your payroll provider what applies to you.
The Final Profits Return
The RD-108 has a line for a business that no longer operates in Kansas City to enter its closing date. Leave it blank while you are operating. Fill it in on the return that covers your last stretch of business.
In an asset sale, your company usually stops operating at closing. The final RD-108 covers its profits up to that date. Your CPA will line it up with your final federal and Missouri returns.
The city lets you request more time to file with Form RD-111, but that does not extend the time to pay. At least 90% of the tax should go in with the extension request to avoid penalty and interest.
Gain on the sale itself
Whether any part of the gain from selling your assets lands on the city return depends on how the sale is structured and what is sold. That is a question for your CPA before you sign.
Withholding on Your Last Payroll
If you have employees, you withhold the 1% earnings tax and report it quarterly on Form RD-110. The return has a line for the date the business closed.
File the RD-110 for your last quarter with that date filled in. If the buyer hires your staff, the buyer withholds from then on under its own account.
Closing Your City Accounts
The Revenue Division gives you two ways to close an account. Check the closure box on your final return, or send its Notice to Close Account form by mail or email.
The notice covers your business license, withholding and profits accounts, among others. You list each account number and the date you closed.
The city is clear that the notice does not replace a final return. You still owe a final return for the period before closure.
Letting the license lapse is not closing
The city warns that if business is found to have continued after the closing date you give, penalties and interest apply. Operating without a business license is also an ordinance violation.
That cuts both ways in a sale. Give an accurate date, and make sure the buyer has its own license and accounts in place before it opens under new ownership.
The Buyer's Side
Your city accounts don't carry over to the buyer in an asset sale. The new owner registers with the city for its own business license and tax accounts.
A purchase agreement can require the buyer to have those in place by closing day. Your attorney can add that line.
How This Fits With the State
The city is separate from the Missouri Department of Revenue. State tax clearance does not cover city taxes, and the reverse is true too.
See Missouri Form 943 tax clearance for a business sale for the state side, and Jackson County personal property declaration after a sale for the county.
This page is general information, not tax or legal advice. Confirm the details for your company with your CPA or attorney.
Sources include the City of Kansas City, Missouri Revenue Division's tax FAQs and supplemental forms page, and the instructions on the RD-108, RD-110 and RD-111.
Curious what your company would sell for first? Read what is my business worth or how selling works, then send the form or call (816) 555-0167.