St. Louis’s Half-Hearted Remote Work Amends Shouldn’t Preclude State Action

A few weeks ago, St. Louis received another judicial rebuke for its scheme to grab at the tax revenue of remote workers, despite lacking the legal basis to do so. Seeing the writing on the wall in the form of court decisions and efforts in the state legislature, St. Louis has reached a settlement under which it will allow wrongly-taxed remote workers to file for refunds during a limited three-month period. But what may appear at first glance to be a long-overdue attempt to right past wrongs is really nothing more than a last-gasp effort to keep as much of the city’s ill-gotten gains as it possibly can.

During the COVID-19 pandemic, many workers who previously commuted into St. Louis switched to working from home outside the city as required by state health ordinances. St. Louis, fearing the potential budget implications of losing all these remote workers’ tax revenue, pretended that it still had the power to continue applying its 1 percent earnings tax to these remote workers.

The problem with this neat solution was that the plain language of the city’s earnings tax did not allow St. Louis to do anything of the kind. The earnings tax applies to “work done or services performed or rendered in the city” — and remote workers were not “in the city.” Even after 2020, St. Louis did not attempt to revise the underlying language, insisting that it was sufficient basis for its tax grab.

Others disagreed. A legal challenge by six remote workers succeeded at the trial court level in early 2023, and then again before the state appeals court in late May of this year. Meanwhile, the Missouri state House passed legislation by a wide margin that would have forced St. Louis to halt its illegal tax assessments on remote workers and issue refunds. The state Senate did not take up the bill in time due to disagreements over other, unrelated debates, but the odds were in favor of the state legislature taking action next session.

Seeing which way the winds were blowing, St. Louis just announced that it reached a settlement to offer refunds for 2021-2023 taxes paid. The city has budgeted $26 million for the refunds.

But that’s not the capitulation it may appear to be. The settlement does not allow refunds for tax year 2020, does not issue the refunds automatically, and offers an unnecessarily short three-month period for taxpayers to file for returns between July 1 and October 1, a time when most taxpayers are not thinking about income taxes.

The fact that St. Louis views this as a way to hold onto a good chunk of the revenue is evident from the amount the city has budgeted for refunds. The city argued in the wake of the trial court decision that a ruling against St. Louis could cost the city around $150 million, while Missouri’s legislative research arm estimated that the state preemption bill could cost St. Louis up to $98.4 million. The fact that St. Louis thinks $26 million will be enough to refund taxpayers is clear evidence that the city expects that this settlement will only cost it a fraction of what a more comprehensive solution would.

Missouri legislators should therefore not view this settlement as a reason to consider the problem taken care of. Action that requires St. Louis to automatically issue refunds for every year that St. Louis sought to illegally tax the income of remote workers, including tax year 2020, is still needed. 

In the meantime, however, taxpayers wrongly targeted by these tax obligations should be sure to file a refund for the taxes they are owed. An updated form for these refund claims will be available on the city Collector of Revenue’s website starting July 1.