Earnings tax change for treatment of remote workers advances
March 3, 2022 - The House Committee on Rules - Legislative Oversight advanced HB 1740, filed by Rep. Shamed Dogan and co-sponsored by Rep. Jim Murphy. The bill would prevent a city from applying its earnings tax to remote workers.
The earnings tax is levied in the City of St. Louis and the City of Kansas City on wages earned by workers working in each city. The City of St. Louis also has a tax paid by employers located in the City.
The COVID pandemic resulted in "stay at home" orders from the Mayor of the City of St. Louis. Many companies also encouraged their employees to work from their homes, rather than congregating in office buildings. Similar orders were issued in Kansas City.
Prior to the pandemic, the City of St. Louis allowed workers a credit against the earnings tax for days the employee worked outside the City. However, the City did not allow this same treatment during the COVID pandemic. Kansas City allowed workers to obtain a refund of earnings taxes paid on wages earned outside the borders of Kansas City, while St. Louis denied such refunds.
The legislation would allow employees a refund for earnings taxes paid on income not earned within the City, something we believe to be the current law, but a position not now recognized by the City of St. Louis. Associated Industries of Missouri is the only employer organization supporting the legislation.
"It is unfair and likely unconstitutional for the City of St. Louis to try to tax employees who do not live in the City and are not earning income in the City when they work from home," said Ray McCarty, president and CEO of Associated Industries of Missouri.
While a judge rejected a class action lawsuit on technical grounds, at least one employer has challenged the City of St. Louis' ability to tax income earned outside the City.
Following the Committee vote today, the bill may be worked on at any time by the Missouri House. We will continue to report on progress of this legislation.