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June 11, 2024

Missouri Appeals Court Upholds Lower Court Ruling on St. Louis City Earnings Tax Refund

Non-St. Louis City residents working for St. Louis city employers may be eligible for earnings tax refunds when working remotely from home. A January trial court decision said non-city residents should receive a refund for earning taxes paid while working remotely for city-based businesses. During the COVID-19 pandemic, some non-residents who worked in the City of St. Louis worked remotely but were still charged the city’s 1% earnings tax. Six plaintiffs filed a lawsuit against the City of St. Louis and the Collector of Revenue for a refund, which was granted by the trial court.

In prior years, the City of St. Louis allowed refunds for remote hours worked outside the city, but those requests were denied for those who worked remotely during the pandemic. According to state law and a city ordinance, the city’s 1% earnings tax covers “work done or services performed or rendered in the City.” Although the City argued that “rendered” should be defined as “to transmit, to deliver,” and therefore covered by the earnings tax, the appeals court disagreed.

Remote Work Impacts Earnings Tax Liability, Appeals Court Rules

“This court holds the Earnings Tax Ordinance’s language is clear and the remote work and/or services at issue were not performed or rendered in the city,” came the unanimous decision from the state appeals court. “Thus, Employees were not liable for the earnings tax for the days they worked remotely outside of the City and are entitled to refunds.”

A spokesperson for Gregory Daly, the city Collector of Revenue, told the St. Louis Business Journal, “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. 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.”

Next Steps for Non-City Residents Working for City Employers

The Missouri Court of Appeals for the Eastern District didn’t accept the plaintiffs’ argument that the lawsuit should be considered a class action. This means that fellow non-St. Louis residents who worked remotely during the period in question will have to file individually for refunds from the Collector of Revenue. Forms for individuals to apply for refunds are available on the Collector of Revenue website. The language describing these forms has not yet been updated to reflect the court ruling. As of publication time, the website still hosted a statement regarding employee remote work which claims non-residents aren’t eligible for a refund based on remote work.

At trial court, the city Collector of Revenue was ordered to refund the six plaintiffs $8,361 plus interest. In March, the Missouri House of Representatives approved a bill that said non-city residents working remotely for companies in the City of St. Louis should receive refunds, but it died in the Senate before it could come to a vote.  

It is not clear if the City will allow refund claims to be filed for the each of the past four years for all nonresidents, as there is a one year statute of limitations on refunds and they must be filed by April 15.

Kansas City Earnings Tax Faced Similar Challenge from Non-Residents

In 2023, Kansas City approved an ordinance to make it easier for non-resident remote employees to collect refunds of the 1% earnings tax. This reversed a year-old policy requiring remote workers to file multiple court challenges to get refunds. The City Council’s response was in reaction to complaints, not a lawsuit.

Anders State and Local Tax advisors monitor local and state-level legislation and court decisions that impact businesses operating in the region.

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