Bill aims to stop St. Louis’ 1% earnings tax on remote workers

(The Center Square) – Employees of businesses located in the City of St. Louis who worked remotely during and after the pandemic won’t pay a 1% earnings tax under proposed legislation.

House Bill 1740, sponsored by Rep. Shamed Dogan, R-Ballwin, states salaries, wages, commissions, and other compensation earned by nonresidents of the city will not be taxed after Jan. 1, 2021, if the work or services performed or rendered was through telecommuting or remote work, unless their physical location is in the city.

Last year, Kansas City began refunding earnings taxes collected from taxpayers who began working remotely outside the city limits during the pandemic. Lawyers filed a class-action suit against the City of St. Louis to recover earnings taxes deducted from the paychecks of remote workers, but a circuit court judge dismissed the lawsuit in January. In addition to the 1% employee earnings tax, the city collects a .5% payroll tax from businesses located in the city limits. Employees working remotely from inside the city limits must pay the tax.

“It’s just the right thing to do to give those taxpayers that money back because these are working folks,” said Dogan, who is serving his last year in the House due to term limits and is a candidate for St. Louis County Executive. “These aren’t just rich people we’re talking about. These are people doing day-to-day work at companies. Every little pinch that any government is taking out of their pocketbook hurts them. We ought to try and get our cities to do the right thing and tax them where they are actually using those services.”

Dogan emphasized the bill doesn’t affect whether St. Louis or Kansas City can have an earnings tax. In fiscal year 2020, St. Louis collected $177 million in earnings taxes, according to the city’s 2022 revenue estimates document. The city estimated 2021 earnings taxes to be $191 million and budgeted $180 million for fiscal year 2022, approximately 35% of the city’s $511 million annual budget.

Democrat members on the House Workforce Development Committee, both serving districts in the St. Louis region, questioned the motives for the bill.

“It seems like a lot of money to me,” Rep. Gretchen Bangert, D-Florissant. “Did people come to you saying that they were unhappy paying the earnings tax?”

Rep. Dogan said comments from his constituents and those from surrounding areas, including those made in media coverage, stated workers were unfairly taxed for city services they weren’t receiving since they worked remotely.

“And one of the interesting things about the earnings tax is that close to a majority of the people who pay it don’t reside in the city,” Rep. Dogan said. “… People who aren’t working in the city shouldn’t be paying the earnings tax for the city.”

Rep. Bridget Walsh Moore, D-St. Louis, said it was unfair to compare the only two cities with earnings taxes in the state.

“The city limits of Kanas City are not the same as St. Louis,” Rep. Walsh Moore said. “So when we’re talking about adding in the folks in the county, that’s the majority of the population of St. Louis.”

Chuck Pierce, speaking for the Associated Industries of Missouri, said the bill would provide consistency.

“The City of St. Louis redefined the definition of (tax) nexus to specifically exclude the telecommuters,” Pierce said. “So now we have an inconsistent definition of the same statute.”

Tom Vollmer, deputy collector for the City of St. Louis, testified the earnings tax started 60 years ago and is collected in 39 cities throughout the country.

“We copied this tax from Philadelphia,” Vollmer said. “They were the first ones and they charged 4%. We only charge 1% and New York charges 5%.”

Vollmer stated the city would abide by any court rulings regarding the earnings tax. When asked if demand for city services declined during the pandemic, Vollmer said essential services had to be maintained.

“You have to provide for the streets for the businesses that still exist and the police and fire… you just can’t say, ‘OK, today people aren’t coming to work so we don’t have to pave the streets,’” Vollmer said. “It’s an ongoing expense and you guys know that.”

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