Did St. Louis City Improperly Collect the Payroll Expense Tax During the Pandemic?

Show-Me Institute analysts have written extensively about the St. Louis and Kansas City earnings taxes, but not quite as much about St. Louis’s payroll tax. You all know that the earnings tax is a 1 percent tax on employee earnings and business profits, but the payroll tax is a 0.5 percent tax on payrolls in the City of St. Louis. It does not get as much attention because it brings in far less revenue than the earnings tax for several reasons: it’s half the rate, it’s not collected on city residents who work outside the city, non-profits such as SLU, Barnes Hospital, and Show-Me Institute are exempt, and the city gives away exemptions as a tax subsidy with frequency.

The payroll tax is also legally questionable. It is not authorized by any state statute, unlike the earnings tax and every other general tax in the state. However, it was upheld in court a few years ago as legal.

It is also in the news now, as AT&T is suing St. Louis City over the payroll tax collections during the pandemic. The city decided that it is going to still collect earnings and payroll taxes for people who had worked in the city but now work remotely outside of the city, despite the fact that the governing law clearly states that these people should not be taxed. Individuals have sued to overturn that decision—but leaving the lawsuits aside, the decision by the city to insist on collecting these taxes is highly questionable. Kansas City has not done this, to its credit. The City of St. Louis is overflowing with COVID relief, federal stimulus, and NFL lawsuit funds. While tax revenues may have declined during the pandemic, the above funds dramatically outweigh any pandemic tax losses.

Decades ago, someone said that rooting for the New York Yankees was like rooting for U.S. Steel. I am sure rooting for AT&T fell into that same category, as this Bloom County cartoon from the 1980s captures.

But I’m rooting for AT&T here (and yes, I’m aware the current AT&T is a very different company now). It is terrible that St. Louis is collecting payroll taxes on employees who worked remotely during this pandemic. They aren’t working in the city. The tax should not be owed. The exact same goes for the earnings taxes for remote workers, but that’s another blog post.

Kudos to Ma Bell for this effort to fight back against the City of St. Louis’s overreach.