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Court denies St. Louis earnings tax appeal, exempting work done outside city

Rici Hoffarth
St. Louis Public Radio
St. Louis has lost its appeal of a court decision that exempted six people who live outside the city and work remotely from paying its 1% income tax.

Updated at 5:35 p.m. with comments from lawyers and city officials

A Missouri appeals court has upheld a lower court's decision that exempts six employees from paying a 1% St. Louis earnings tax while working remotely outside the city.

A three-judge panel of the state’s Eastern District Court of Appeals on Tuesday denied an appeal from St. Louis Collector of Revenue Gregory FX Daly and other city officials, who argued the workers for city-based employers were subject to the earnings tax because they “rendered services” in the city, even if they were doing so remotely.

“The Court holds the Earnings Tax Ordinance’s language is clear and unambiguous and the remote work done and/or services at issues were not performed or rendered in the city,” Judge Michael S. Wright wrote in the decision. “Employees were not liable for the earnings tax for the days they worked remotely outside the city and are entitled to refunds.”

The 1% earnings tax, which is imposed on city workers, makes up about 37% of the city’s general revenue fund. The city imposes the tax on salaries, wages and other compensation by residents outside city limits for work done in St. Louis.

A spokeswoman for Mayor Tishaura Jones said the administration considered the dispute over the earnings tax when developing spending plans.

“In creating the 2025 budget proposal, the mayor took a financially prudent approach to take into account the potential impact of today’s decision,” the spokeswoman said in a statement. “We do not believe this decision will require changes to the budget or will impact the current level of city services.”

In 2021, employees sued the city after St. Louis officials denied their requests for earnings tax refunds for days they worked outside the city during the pandemic. Judges in 2022 and 2023 ruled in favor of six remote employees.

The Legal Roundtable tackles earnings tax case on ‘St. Louis on the Air’

The city’s tax collectors argued that services rendered in the city equated with services done in the city and were subject to taxation, an argument the appeals court rejected.

“Collectors correctly noted in oral argument that the world changed as a result of the pandemic,” Wright wrote. “We note the Ordinance’s language has not.”

Additionally, the taxes are meant to pay for roads, lighting, fire services and other resources, but remote workers are not taking advantage of those services when they are physically outside St. Louis, the judge wrote.

The appeals court judges affirmed the trial court's decision to deny class-action status. That means the decision only applies to the six employees who brought the suit. The court also denied the plaintiffs’ motion for attorneys’ fees.

However, the decision could hamper the city’s ability to collect earnings taxes and affect tax collection. It could set a precedent that would cost the city revenue, said Mark Milton, an attorney for the workers.

“That's not our clients' or the nonresident taxpayers' problem to solve,” Milton said. “The city's budget is what it is; that's a legislative issue and an executive issue.“

Christian Stein, one of the plaintiffs, worked for years for a bank in St. Louis. He said the city had in the past reimbursed him for the taxes he paid when traveling and working outside the city. But during the coronavirus pandemic, the city suddenly denied his refund.

“People have been teleworking for years, and the collector always issued refunds for teleworking days,” he said. “And as the opinion points out, there was no change in the law. If the city wanted to change the law, if the state wanted to change the applicability of the earnings tax to nonresidents, they had an opportunity. ... They didn't do it.”

The workers’ lawyers said the total tax refunds collected for the six workers will total around $10,000.

Bevis Schock, one of the employees' attorneys, said he hopes the city will issue refunds to more people than the six he represented.

“The public understands that taxes have to be paid,” he said. “But the only taxes that have to be paid are taxes that are specifically and lawfully assessed by the legislative and executive branches.”

City revenue officials continue to object to how judges are ruling on the earnings tax.

“Obviously, the Court's conclusion that the earnings tax does not apply to remote work is contrary to the City's and the Collector's position,” Daly’s office said in a statement. “We are reviewing this decision and exploring many options to determine the best path forward. We will keep the community apprised of our next steps as soon as possible.”

Sarah Fentem is the health reporter at St. Louis Public Radio.