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Mo. Bill Would Bar Imposing City Earnings Tax On Teleworkers

By Daniel Tay · 2021-03-25 14:08:43 -0400

Missouri would specify that cities with an earnings tax cannot impose it on workers who previously worked in the city but are currently telecommuting from outside the city, under a bill heard by a state Senate panel Thursday.

Under S.B. 604, heard by the Senate Ways and Means Committee, the state would provide that for the purpose of city earnings taxes, "work done or services performed or rendered" in the city excludes work or services performed through telecommuting unless the telecommuting occurs within the city.

The bill, which comes when telecommuting is in the spotlight due to the coronavirus pandemic, would also provide that taxpayers who telecommute and are denied refunds of tax paid on that work can sue for the disputed amount and that they can recover attorney fees from the taxing jurisdiction.

The bill was introduced by Ways and Means Chairman Andrew Koenig, R-Manchester. Koenig said the bill was in response to guidance by the collector of revenue for the city of St. Louis, Gregory F.X. Daly. The collector said the city would continue to impose the earnings tax on employees whose employers allow them to telecommute from outside the city due to the pandemic, if their employers continue to operate within the city.

"We've seen a situation that's pretty egregious, where my constituents are being taxed — the earnings tax — even though they never stepped foot in the city of St. Louis," Koenig said in the committee session. Koenig added that he believes the state's current law already bars cities from taxing teleworkers.

Besides St. Louis, Kansas City also imposes an earnings tax; both cities' taxes are imposed at a 1% rate. Kansas City has indicated that it will not impose its tax on workers telecommuting from outside the city, Koenig said.

St. Louis is within its rights to tax teleworkers if their companies still operate within the city because those workers are still generating revenue for a company in the city, the St. Louis deputy collector of revenue, Tom Vollmer, told the committee. Vollmer testified in opposition to the bill.

"The statute was written 60 years ago, no one even thought that one day we would be virtually working from a different location," Vollmer said.

The St. Louis Fire Department also voiced a concern that the bill's provisions would result in revenue being taken away from the city budget and local services being underfunded.

The St. Louis earnings tax represents about 36% of the city's budget. It brought in about $186 million in fiscal year 2019 and is estimated to bring in about $176 million for fiscal year 2021, according to a 2020 revenue estimate by the city's budget division.

Both the St. Louis and Kansas City taxes will be on the ballot in April, when voters will be asked to decide whether to renew the taxes for another five years.

Koenig and Vollmer did not respond to requests for comment.

The Kansas City Revenue Division did not respond to requests for comment.

The taxation of remote workers has become a hotly debated topic as the pandemic compelled droves of businesses, employers and employees to adapt to long-term telework.

Most notably, New Hampshire has sued Massachusetts in the U.S. Supreme Court over its rule that sources compensation of nonresidents who work for Massachusetts companies to the state for personal income and withholding taxes. The justices have asked the U.S. solicitor general to weigh in on the case before deciding whether to take it up.

--Editing by Neil Cohen.

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