County lawmaker takes on St. Louis earnings tax ‘money grab’ for certain remote work

Republican state Rep. Jim Murphy’s legislation would exempt remote work performed outside the city by nonresidents from the earnings tax.

The 1% levy currently applies to city residents and nonresidents whose employer is based or operating in the city.

“You can’t charge people that don’t come to the city, work in the city, or live in the city, taxes in your city,” Murphy told the House Economic Development Committee on Wednesday.

Murphy’s plan is tied to ongoing litigation involving workers who sued after the city denied their earnings tax refunds for 2020.

The Missouri Court of Appeals in St. Louis is scheduled to hear the city’s appeal on Feb. 14 of a St. Louis circuit judge’s ruling that ordered the city to pay back six plaintiffs.

Prior to the pandemic, the city issued refunds to thousands of taxpayers for days traveled and worked outside St. Louis.

But as more employees began working remotely during the COVID-19 pandemic, Collector of Revenue Gregory F.X. Daly in 2020 began refusing refunds. He said employees were still using remote work software provided by companies based in the city.

“It’s just a money grab that’s just not even fathomable,” Murphy said Wednesday.

Murphy’s legislation states that by Sept. 30, the city would be required to establish a process for requesting earnings tax refunds for remote work performed outside the city.

If the city refuses to refund taxes for covered work, the employee would be able to file a lawsuit to recover money owed, along with attorney’s fees.

Murphy said if a remote worker living outside the city is paying the tax, they would need to file for a refund.

“That’s the system now. I’m not trying to change their system. I’m just trying to make them follow the system they have,” Murphy said.

A nonpartisan fiscal analysis said Kansas City already exempts nonresident remote workers from that city’s earnings tax.

The analysis said the state wasn’t able to determine how much remote work was performed by nonresidents. But it said that if all nonresidents worked entirely remote, the city could lose up to $98.3 million each year.

The city reported nearly $219 million in net earnings tax collections last fiscal year, according to the analysis.

Jacqueline Bardgett, lobbyist for the city of St. Louis, said the lawsuit would be heard before the appeals court in a couple weeks.

“Whatever decision is made there the city is very willing and able to deal with that and implement things moving forward,” she said.

The House is considering additional earnings tax carve-outs, including a bipartisan effort to exempt workers earning less than 150% of the federal poverty level from the tax. That effort could cost the city $2.5 million annually, according to a nonpartisan estimate.

A hearing on both plans had been scheduled for Wednesday, but it was later canceled.

A third plan in the House Economic Development Committee would exempt residents of St. Charles County and Jefferson County from the St. Louis earnings tax. It would not exempt St. Louis County residents.

The committee also held a hearing on that plan Wednesday. A nonpartisan analysis estimated the possible cost of that measure to the city to be $17 million annually.

The remote worker legislation is House Bill 1516.