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  • Writer's pictureAIM Team

Taxpayers win STL City Earnings Tax challenge

By Ray McCarty, president/CEO, Associated Industries of Missouri

May 29, 2024 - The Eastern District Court of Appeals issued a decision yesterday in the St. Louis City Earnings Tax challenge, holding the tax does not apply to work done outside the city limits. The lawsuit was brought by plaintiffs Mark Boles, Nicholas Oar, Kos Semonski, Christian E. Stein, II, Marc S. Kolaks, and Raymond T. Jaeger.

Associated Industries of Missouri tried to work with the St. Louis Collector of Revenue Gregg Daly since the beginning of the pandemic to ensure the tax was not collected from people that performed their work entirely outside the city limits. At the time, the City of St. Louis had mandated everyone work from home. When those homes are located outside the City of St. Louis, there should have been no earnings tax liability. The City of St. Louis did not agree and, although they allowed credit for work performed outside the city when traveling or for temporary reassignments, they did not allow credit for working from home on a regular basis. Kansas City allowed the credit for work from home during the pandemic.

In upholding the lower court ruling, the Eastern District Court of Appeals held:

"In sum, this Court interprets the Ordinance term 'in' to mean the work or 'services performed or rendered' must be done in the geographic parameters of the City. Consequently, the earnings from qualifying work or services completed by nonresident Employees when they work remotely outside of the City are not subject to the earnings tax. Therefore, Employees were entitled to judgment as a matter of law..."

Although the Court ultimately found the earnings tax was not due on such work, the Court did not agree with all of the plaintiff employees' arguments.

Plaintiffs had sought "class action" status that would have allowed refunds to all taxpayers with little effort, but the Court ruled against the class action status because the refund process in both statute (Section 139.031, RSMo) and in the city ordinance does not allow for class refunds and the existing refund process allowed an "adequate remedy" for taxpayers that were inappropriately charged tax. We are not sure how taxpayers are to seek refunds for prior years, since the City has been illegally collecting this tax since 2020.

Plaintiffs had also argued applying the tax outside the borders of the city constituted a new or expanded tax in violation of the Hancock Amendment. The Court held that the application of the earnings tax was not an increased levy or an expansion of the tax base. Citing a 1986 Missouri Supreme Court ruling, the Court denied that point:

"Simply put, the earnings tax was applicable to one type of property since its effective date: earnings. Employees confuse the imposition of a tax with the assessment of a tax and, in turn, misconstrue the real issue. The question is not whether the base was broadened to now tax a new

property (i.e., tax remote work), but whether Collectors inappropriately assessed the earnings tax

to earnings from remote work. Therefore, this Court holds Collectors’ assessment of earnings tax

to remote work, while improperly done, see supra, does not violate the Hancock Amendment."

The Court also denied a motion requesting attorneys' fees.

To read the full decision, you may CLICK HERE. If we hear more about changes to the refund process, we will update this article.



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