These days every penny counts. And, three fund firms believe thy have found a way to save some pennies.

The trio of firms with Kansas City-based operations -- American Century, DST Systems and Morgan Stanley's Van Kampen Investments unit -- filed suit last Friday in Jackson County, Missouri Circuit Court to get themselves reclassified for local tax purposes. If successful, the firms may also be able to garner a $1.55 million refund on taxes they already paid to the city.

The three firms all contend that they should be considered to be "accountants" or "investment companies" under the Kansas City Code. That classification would allow them to pay a flat fee rather than a percentage of gross receipts to the city. Failing that reclassification, the firms also argue in court papers that the city has no right to impose taxes on them under its charter. Finally, the firms argue that the tax burdens interstate commerce since it does not apportion their revenues between Missouri and Kansas.

Each of the three firms has retained Lathrop & Gage to represent it in the suits.

Meanwhile, the case also has important implications for the city that is itself cash-strapped. Under its current budget, it is running a $7.5 million deficit. The city gains $18 million in revenue from the business license tax. If it loses the tax revenue from the three firms, the city warned bondholders that the loss "would be both material and extremely harmful to the city's financial condition."

Interestingly, the firms have already won for the 2004 even if they lose this case in court. Earlier this year the city legislature amended the law to cap the business license tax at $25,000.  

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