This article has been saved to your Favorites!

Mo. Court Won't Undo St. Louis Teleworker Tax Refund Rules

By Abraham Gross · April 5, 2021, 8:19 PM EDT

A Missouri federal judge on Monday declined a request to undo St. Louis' rules on noncity resident tax refunds for days worked outside of the city, rejecting the claim of individuals that they would suffer irreparable harm over denied refunds.

Following a hearing, Judge Catherine D. Perry issued a bench ruling rejecting the motion by a proposed class of nonresidents for a temporary restraining order against the city and its revenue collector, Gregory Daly, to undo the limits on nonresident refunds of the city's 1% earnings tax.

Mark Boles, Nicholas Oar and Kos Semonski filed a memorandum Friday, urging Judge Perry to undo Daly's guidance and additional documentation requirements for refund requests, which they say effectively limited tax refunds to nonresidents traveling for work, violating the state and U.S. Constitutions.

However, Daly told Judge Perry on Monday that the motion could not be granted because the court lacked jurisdiction to reach the merits of the case, citing the federal Tax Injunction Act's prohibition on federal courts from hearing state and local tax claims when there's a state court remedy.

"It is axiomatic that if this court lacks subject matter jurisdiction, plaintiffs are unlikely to succeed on the merits, because the court cannot reach the merits," Daly said.

The case stems from a complaint filed March 29 by the individuals, who say they were denied tax refunds for 2020 after Daly issued new guidance and document requirements. They argue that distinguishing between nonresidents working outside the city and those traveling outside the city for business purposes was an arbitrary distinction without rational basis and that the city continues to violate their individual rights by denying refunds for tax already paid through withholdings by their employers.

In their memorandum, the individuals urged Judge Perry to order that the city remove new document requirements for refund requests that effectively excluded individuals teleworking outside the city, arguing that the unconstitutional treatment would irreparably harm them and did not serve any public interest.

"In this case, the court should balance the equities in plaintiffs' favor, because justice requires the court's immediate intervention to preserve the status quo, which would mean the collector accepting as valid claims for refund a form that includes days spent working remotely from home," the individuals said.

They also argued that immediate action was necessary to prevent irreparable harm to themselves and other nonresidents as they approached the May 17 refund deadline, saying that the current guidance would cause confusion and have "a chilling effect" on nonresident refund requests.

Daly, however, told the court that such action was unnecessary because the court would likely dismiss the case for lack of jurisdiction under both the TIA and the comity doctrine, which prevents federal courts from entertaining claims that could potentially disrupt the administration of state law.

The individuals failed to show that they would suffer irreparable harm absent an order, Daly said, because the injury was monetary and could be compensated by state courts. It was also unclear how revoking guidance or issuing new forms would alleviate the harms the individuals claimed their constitutional rights would suffer, Daly said.

"Plaintiffs admit that they have all already filed for a refund, so it is unclear how restricting the collector from publishing that refunds will not be paid does anything to alleviate any harm to plaintiffs," Daly said.

Daly also told the court that the harms his office would suffer from an order greatly outweigh the harms claimed by the individuals. Failing to fulfill the statutory obligation to collect tax could open the office up to liability and restricting the guidance it could issue would infringe on his rights under the First Amendment of the U.S. Constitution, Daly said.

Daly also said that the individuals appear to be seeking an order for the collector to grant their refunds before a decision on the merits, and since the earnings tax provides up to 30% of city revenue, such an order would injure the city's ability to operate.

The individual's memorandum in support of a temporary restraining order states that they "do not seek a preliminary injunction ordering the issuance of refunds, but only seek to return the substance of the refund form to reflect the law and prior custom and practice."

Boles, Oar and Semonski seek to represent a class of nonresidents of St. Louis whose employers withheld the tax and paid it from Jan. 1, 2020, onward and who have been denied similar refund requests. They are seeking damages equal to the tax paid for days worked out of the city and attorney fees and asking the court to reinstate the old requirements for seeking a refund.

The city's guidance has raised concerns for state lawmakers. A state Senate panel approved legislation Thursday that 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.

The ultimate fate of the tax is also in question, with city voters set to vote on Tuesday to either renew the tax for another five years or let it expire Jan. 1, 2022.

"We're disappointed in the court's decision," Mark Milton, who is representing the individuals, told Law360. "However, we are confident regarding our ability to proceed on the merits, even without a temporary restraining order."

Daly's office said in a statement to Law360 that it believes the current legal action is without merit and that its duty is to collect taxes based on city and state legislation by elected officials.

"As we have in the past, each taxpayer assessment will be evaluated based upon the facts of the individual's situation, and we encourage people to follow the filing process currently in place," Daly said.

Jacob Long, communications director for St. Louis Mayor Lyda Krewson, said in a message to Law360 that "the administration is extremely confident voters will again decide to retain the earnings tax just as they have overwhelmingly two times before," adding that voters understand its significance in providing essential municipal services.

Boles, Oar and Semonski are represented by Mark Milton of the Milton Law Group and by Bevis Schock.

Gregory Daly is represented by David H. Luce and Zachary R. McMichael of Capes Sokol Goodman & Sarachan PC.

The city of St. Louis is represented by Michael A. Garvin and Robert H. Dierker of the city counselor's office.

The case is Mark Boles et al. v City of St. Louis et al., case number 4:21-cv-00378, in the U.S. District Court of the Eastern District of Missouri.

--Additional reporting by Daniel Tay. Editing by Neil Cohen.

For a reprint of this article, please contact