St. Louis Has ‘Refused’ to Pay 1% Earnings Tax Refunds to Nonresidents for Work Performed Outside of City, Class Action Alleges

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A proposed class action alleges St. Louis, Missouri and its collector of revenue have unlawfully refused to pay earnings tax refunds owed to nonresidents who’ve worked any number of days outside of the city, including those working from home due to the COVID-19 pandemic, despite doing so in years past. 

While St. Louis and its revenue collector, prior to the 2020 tax year, paid refunds to nonresidents—who are subject to a one-percent earnings tax on salaries, wages, commissions and other compensation and/or profits for work done or services performed or rendered “in the city”— based on the number of days they worked outside the city, the defendants have now refused to do so, the 30-page lawsuit alleges. 

“In doing so, Defendants are brazenly and unlawfully keeping Plaintiffs’ money,” the complaint charges. “This shocks the conscience and violates Plaintiffs’ Fourteenth Amendment right to substantive due process. This further violates their Fourth Amendment right to be free of unreasonable seizures.”

The plaintiffs allege the defendants’ actions and statements with regard to earnings tax refunds for the 2020 tax year are rooted in the “looming revenue problem” borne as a result of the number of individuals forced to work from their homes outside of St. Louis for extended periods of time due to the COVID-19 pandemic. 

The case further alleges that for the 2020 tax year, the defendants, in “a change of policy without any change to the earnings tax ordinance itself,” and with the plaintiffs’ money already in hand, refused to pay refunds to non-St. Louis residents aside from those who traveled outside the city for business. According to the suit, the grounds on which the defendants have decided to withhold earnings tax refunds amounts to “an arbitrary distinction without rational basis” and the essential creation of a new tax or expansion of the city’s tax base in violation of Missouri’s Handcock Amendment, which imposes restrictions on the amount of personal tax income used to fund the state government and the amount by which fees and taxes can be increased. 

The lawsuit avers that the language of St. Louis’s earnings tax law is “plain and unambiguous” and that any ambiguity in the ordinance “must be construed in favor of the taxpayer.” Per the complaint, the ordinance thus “creates tax liability for nonresidents only for work done when the taxpayer is physically present in the City”; otherwise, the suit says, the taxpayer “would not be doing the work or performing the service in the City.” 

According to the lawsuit, the revenue derived from the St. Louis earnings tax makes up in a typical year “approximately one-third of the City’s revenue.” The suit says that some have estimated that “as much as 75%” of the earnings tax the city collects each year comes from nonresidents, though only a portion of that money comes from nonresidents who’ve worked from home during the COVID-19 pandemic.

Prior to the 2020 tax year, the form nonresidents are required to fill out to request their earnings tax refunds, Form E-1R, did not require the taxpayer or their employer to provide a reason as to why the individual worked the stated number of days outside of St. Louis, the case says. A wrinkle to this arrangement began in March 2020 with the onset of the COVID-19 pandemic, during which many St. Louis employers required or allowed their employees to work remotely, the suit relays. Per the case, a number of employees began working at their residences outside of the city. 

What followed was what the lawsuit calls “a looming revenue problem for the City” in that it was set to lose earnings tax revenue from nonresidents if it continued its practice of issuing refunds to those not working in St. Louis, the case says. 

Per the suit, the St. Louis revenue collector issued in December for the 2020 tax year a new Form E-1R that now contained a new verification statement requiring employees and employers to attest to the following, as well as provide the address of their work location and substantiating documentation: 

“I understand that a regular workday does not include holidays, vacation, working remotely from home or other work absences (attach a separate sheet if additional space is needed).  

Substantiating documentation such as travel and mileage logs, airline or train tickets, lodging receipts, etc., must be included when filing this form.” 

The proposed class action alleges that public statements from the St. Louis revenue collector and the new Form E-1R were designed to intimidate city-based employers from discontinuing their withholding of the earnings tax from nonresidents who were and/or are working remotely outside the city and/or from filling out the tax form in a manner consistent with the earnings tax ordinance. Broadly, the collector’s statements and actions “violated the Equal Protection Clause of the Fourteenth Amendment because they are discriminatory against nonresidents who worked remotely from home but were not traveling while working remotely,” the case alleges. 

“Before tax year 2020 the City did not impose tax on non-city residents for days spent working outside the City, regardless of reason, presumably because the law does not allow imposition of the tax for such workdays,” the suit reads. “The Collector’s statement and actions appear to be designed to intimidate non-city residents from seeking refunds they are otherwise lawfully entitled to receive.” 

The lawsuit looks to represent: 

“All nonresidents of the City of St. Louis whose employers withheld earnings tax and paid it to the Collector of Revenue during the period January 1, 2020 until class certification, who have submitted a refund request on a properly completed Form E-1R and/or Form E-1RV, and for whom the City has not refunded to such persons an amount withheld equal to the proportion of days of the total work days [sic] year during which the person’s work was done or the services were performed or rendered outside the City of St. Louis.”

The complaint can be found below.

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