During the pandemic, cities around the country faced a sudden decline in the number of people commuting in from surrounding areas. For these cities, this posed a major problem, since commuters who switched to working remotely made up a substantial portion of cities’ tax bases. Under existing tax rules, this meant that these commuters were no longer taxable, as these newly remote workers weren’t even setting foot in the city, let alone benefiting from city services. But while many cities faced these difficulties, St. Louis was one of just a few cities that came up with a solution that an ostrich burying its head in the sand would be proud of: simply pretending that nothing had changed.
Rather than acknowledging that it no longer had any justification for taxing remote workers who spent all their time working outside the city, St. Louis went ahead and informed workers who insisted upon following state mandates to stay home that they still owed St. Louis’s 1 percent earnings tax as if nothing had changed. The reasoning that advocates of the tax continue to use is that they “need” the revenue — a theory of tax jurisdiction that would give me the right to tax St. Louis officials to pay off my mortgage.
Unfortunately for St. Louis, the statutory language of its earnings tax is exceptionally clear: the tax applies to compensation earned by nonresidents for “work done or services performed or rendered in the city.” Not “work done near the city,” or “work that had once been done in the city but now isn’t,” and not even “work that is done outside the city but that we really need to tax.” Even four years after the pandemic’s inception, St. Louis has made no effort to change the underlying statute.
The clear disconnect between the statutory language and the way St. Louis has applied its interpretation of the language led six employees of St. Louis-based businesses to file for refunds for income tax paid on income earned while remote. In early 2023, the trial court ruled in favor of the employees, ordering St. Louis to issue refunds. St. Louis then appealed this decision, receiving the same answer from the Appeals Court on May 28.
Unfortunately, the appeals court did not grant the plaintiffs class-action status, meaning that individual taxpayers who were strongarmed into paying the city’s earnings tax will each need to claim refunds on their own rather than having them be issued automatically. St. Louis hopes this fact will limit the amount of ill-gotten gains it needs to refund, but taxpayers who paid the city’s tax on income earned remotely should absolutely claim refunds.
St. Louis appears determined to try to keep its revenue source from finding out that they can get their money back. Demonstrating impressive commitment to ignoring reality, the city’s tax website continues to wrongly tell taxpayers that they owe tax on income earned remotely for St. Louis-based businesses.
St. Louis has also only barely dodged state-level preemption to remove any lingering doubts. Legislation that would have prohibited St. Louis from taxing remote workers and required it to issue refunds passed the state House by a wide margin but was not voted on by the Senate before the state’s legislative session ended. Nevertheless, Missouri state preemption remains possible, and perhaps even likely, in the coming years, particularly if St. Louis continues to stubbornly insist that it has the power to tax remote workers even in the face of judicial rebukes.
It’s worth noting that while St. Louis continues to lose court cases mainly on the basis of its own statutory language, the theory that a jurisdiction can tax remote workers no matter where they physically work is more widespread and insidious. Several states, most notably New York, continue to enforce these backwards and unfair tax schemes, creating confusion for taxpayers and violating long-established principles that taxpayers should only face tax obligations in jurisdictions that they have a substantial connection to.
Missouri legislators should take the city’s continued commitment to grabbing remote workers’ tax revenue in the face of repeated court losses as all the more reason to pass definitive legislation forcing St. Louis to stop. In the meantime, if you or anyone you know has been pressured into paying this invalid tax, don’t let St. Louis pull the wool over your eyes — file for a refund.
