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Mo. Teleworkers Take St. Louis Tax Refund Row To State Court

By Abraham Gross · Apr 14, 2021, 7:29 PM EDT

A group of non-city residents of St. Louis refiled their proposed class action challenge against the city's rules on nonresident tax refunds in state court after a federal judge declined their request to undo those rules amid jurisdictional questions.

In filings Tuesday, the individuals withdrew a federal challenge against St. Louis and its revenue collector, Gregory Daly, and reiterated their claims to a state circuit court that the rules violated the state and U.S. constitutions by limiting nonresident refunds of the city's 1% earnings tax.

The transfer follows the district court's decision on April 5 declining the individuals' request to issue a temporary restraining order to undo the limits after Daly told the court that it lacked subject matter jurisdiction to reach the merits of a dispute involving state taxes.

The case stems from a complaint filed March 29 by Mark Boles, Nicholas Oar and Kos Semonski, who say they were denied tax refunds for 2020 after Daly issued new guidance and required additional documentation that effectively denied refunds to individuals teleworking outside the city.

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 a petition filed with the circuit court, the nonresidents and another individual, Ross Henry, reiterate that the city violated their due process rights under the 14th Amendment of the U.S. Constitution by abusing executive power and acting arbitrarily or, alternately, by acting with deliberate indifference.

The city also breached the individuals' Fourth Amendment right of protection against unreasonable search and seizure, the individuals argue, adding that it was unreasonable for the city to retain earnings tax for days they did not work there.

Additionally, the individuals say the city's actions violated the Missouri Constitution's Hancock Amendment, which requires voters to approve any additional taxes from political subdivisions. The policy change is both an unapproved new tax and an expansion of the tax base, they claim, because work outside the city by nonresidents was previously untaxed and the tax base did not include days worked outside city bounds.

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. Henry is also seeking to represent a separate class of similar nonresidents who have either not yet submitted a request or not sought a refund for days teleworking.

The individuals are seeking damages equal to the tax paid for days worked out of the city and attorney fees. They are also asking the court to preliminarily enjoin the city to reinstate the old requirements for seeking a refund.

The city's guidance has raised concerns for state lawmakers. On Wednesday, a state House panel approved H.B. 688, which would specify that cities with an earnings tax cannot impose it on nonresident workers for telecommuting work or otherwise remote work and would submit earnings tax changes to voters in neighboring counties for approval. A Senate panel passed similar legislation on April 1.

Mark Milton, who represents the individuals, said in an email to Law360 that refiling in state court avoids arguments related to subject matter jurisdiction.

The new filing also adds a proposed class for those nonresidents whose employers won't certify the number of days teleworking outside the city as they had done in prior years due to the tax form change by the collector, Milton said.

"With our new plaintiff, and those similarly situated, the irreparable harm is clearer in that they may never be able to apply for valid refunds if the collector is not required to change the new and unlawful forms," Milton said.

In an email to Law360, Daly spokesperson Susan Ryan rejected the suggestion that the request for preliminary injunction would be granted now that there is no subject matter jurisdiction issue.

A spokesperson for St. Louis Mayor Lyda Krewson did not immediately respond to requests for comment on Wednesday.

Boles, Oar, Semonski and Henry 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 2122-CC00713, in the Missouri Circuit Court for the City of St. Louis.

--Additional reporting by Daniel Tay and Paul Williams. Editing by Neil Cohen.

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