No 1 Percent Earnings Tax for Remote Employees Working For St. Louis Businesses

Remote employees
Photo by Kawshar Ahmed on Unsplash

Remote employees at St. Louis-based businesses will not be subject to a 1% earnings tax, according to proposed legislation.

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 were through telecommuting or remote work, unless their physical location is in the city, according to House Bill 1740, sponsored by Rep. Shamed Dogan, R-Ballwin.

During the pandemic last year, Kansas Municipal began refunding earnings taxes paid from people who started working remotely outside the city limits. Lawyers launched a class-action lawsuit against the city of St. Louis to collect profits taxes taken from remote workers’ paychecks, but the claim was dismissed by a circuit court judge in January. In addition to the 1 percent employee earnings tax, the city collects a 0.5 percent payroll tax from firms located in the city borders. The tax must be paid by employees who operate remotely from within the municipal limits.

“It’s just the right thing to do to give those taxpayers that money back because these are working folks. 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.”

Rep Shamed Dogan

Dogan stressed that the law has no bearing on whether or not St. Louis or Kansas City can impose an earnings tax. According to the city’s 2022 revenue forecasts document, St. Louis collected $177 million in earnings taxes in fiscal year 2020. Earnings taxes are expected to be $191 million in 2021, with $180 million anticipated for fiscal year 2022, accounting for around 35% of the city’s $511 million yearly budget.

Members of the House Workforce Development Committee, both of whom represent districts in the St. Louis area, questioned the bill’s motivations. Rep. Dogan claimed that comments from his constituents and those from the surrounding districts, as well as media attention, claimed that workers were unfairly taxed for city services they didn’t receive 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. People who aren’t working in the city shouldn’t be paying the earnings tax for the city.”

Rep. Dogan

Rep. Bridget Walsh Moore, D-St. Louis, argued that comparing the state’s only two cities with earnings taxes was unfair.

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

Rep. Walsh Moore

The law, according to Chuck Pierce of the Associated Industries of Missouri, will bring stability.

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

Chuck Pierce, Associated Industries of Missouri

The earnings tax was established 60 years ago and is now collected in 39 communities around the country, according to Tom Vollmer, deputy collector for the City of St. Louis.

“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%.”

Tom Vollmer, Deputy Collector, St. Louis

The city, according to Vollmer, will follow any court rulings on the profits tax. Vollmer, when questioned if demand for city services decreased during the pandemic, responded that basic 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. It’s an ongoing expense and you guys know that.”

Tom Vollmer, Deputy Collector, St. Louis

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