St. Louis Is Finally Taking the Right Steps on the Earnings Tax

There was good news out of St. Louis on the earnings tax front earlier this week.

First of all, the city has finally agreed to allow earnings tax refunds to remote workers. The decision made by the city at the start of the pandemic to improperly apply the earnings tax to remote work was a terrible one. After losing two rounds in court, the city has finally done the right thing and started to once again do what the law requires—it will not collect the earnings tax for work done outside of the city.

Secondly, the mayor has created a new commission to study the long-term tax revenue situation for the City of St. Louis. That’s a fine idea. Hopefully, it will do a better job than a similar committee did for Kansas City over a decade ago. In Kansas City, the Citizens’ Commission on Municipal Revenue recommended repealing the city’s land tax—which was the best tax the city had from an economic perspective—in favor of higher sales taxes. In my opinion, that commission served more as a pretext for the politicians to do what they wanted to do. Hopefully, the process will be different here in St. Louis, but filling 6 out of the 12 commission positions with city employees isn’t a great look.

The PFM Group out of Philadelphia has given the city commission a detailed head start on revenue options. There are many options, but in the simplest terms the long-range plans for the city need to involve more reliance on property taxes combined with ending the tax incentives and subsidies the city so generously gives out. It’s easy, of course, to be generous with other people’s money.

The first true test for the city on the earnings tax is coming soon. When the city passed its senior property tax freeze last year, it only applied the freeze to city taxes and no other taxing districts, such as the school district. (The city deserves credit for that.) Now the legislature has made limiting the freeze like that illegal (assuming the governor signs the bill). So, the city has to choose between scrapping the senior property tax freeze entirely (which it should do), or applying it to all property taxes. Ending the senior property tax freeze would move the city in the right direction of less dependency on the earnings tax and more reliance on property taxes.

What the city does with the senior property tax freeze will likely be a good indication of how it will move forward with the entire commission process.