• AIM Team

Judge rules St. Louis City erred in taxing remote worker

By Philip McCarty

June 9, 2022 - Judge Thomas McCarthy, on May 4, handed the City of St. Louis a loss as he ruled that they erred in not refunding the earnings tax paid by Marc Kolaks in 2020. As an employee of AT&T, Kolaks noticed in July 2020 that the earnings tax was being withheld by his employer. He promptly applied for a refund, which was refused by Gregg Daly, the city’s Collector of Revenue. Kolaks then paid the rest of his 2020 earnings tax under protest. When Daly continued to refuse the refund, Kolaks filed suit through his attorney Mark Milton. Judge McCarthy ordered that Kolaks recover $1,565.

Both St. Louis and Kansas City require that people working within their city limits pay a tax on their earnings. For St. Louis the amount is 1%. Before the pandemic, the City of St. Louis allowed refunds to those who worked away from the city certain days, such as for travel. But they are not allowing those who worked remotely during the pandemic the same refund. The policy did not change until 2020. According to the St. Louis Post Dispatch, Kansas City is allowing the refund and working to get the checks out as fast as possible.

The ruling by Judge McCarthy was a bit of a surprise as St. Louis Circuit Court Judge Christopher McGraugh handed the city a win in January. Judge McGraugh threw out most of the lawsuit filed by Mark Milton and Bevis Schock. The judge ruled that people already had recourse by filing the taxes under protest. Attorney Milton points out that, in order to comply with this rule a person would have to file a protest every two weeks when they received their paycheck. “You’d have to protest at the time your employer makes a payment,” Milton said. “It’s pretty obvious what they’re doing. Any objective person who sees what the city did knows they did it out of desperation. They’re not following the law.” (See article)

“We contacted the City Collector early in the pandemic and were shocked they were not allowing refunds of taxes they are trying to collect from activity occurring entirely outside their borders,” said Ray McCarty, president and CEO of Associated Industries of Missouri. “It is a long-established constitutional protection that a government may not tax activity that happens entirely outside their borders. St. Louis City is just hoping nobody can afford to challenge and will likely continue to use taxpayer money to appeal as they lose each decision. At some point, it is not advantageous for any one taxpayer to appeal. That is a horrible way to set and enforce tax policy,” he said.

The City of St. Louis will be appealing the decision by Judge McCarthy. The stakes are high for both the city and the workers. According to the St. Louis Post Dispatch, approximately one-third of the city’s tax collected, or about $180 million in 2020, comes from this earnings tax. For those working remotely, every cent counts as inflation eats into their paycheck. This is just another item that needs to be rethought and restructured as we come to grips with a new post-pandemic normal in business.