More People Working from Home Means Less Earnings Tax Revenue
The earnings tax in Kansas City and St. Louis is a one percent tax on income not just for city residents, but also for those who live outside the respective cities but work within them. Earnings taxes are often defended as a way for cities to raise funds by taxing people who commute in and use city services (this also means that many people paying the tax can’t vote it down). With many people working from home and not entering each city for several weeks (or possibly months) due to COVID-19, those revenues may be reduced significantly.
Certainly, the vast numbers of people simply out of work will hit cities’ earning tax bottom line. But even those who are still working—and doing from homes outside Kansas City and St. Louis—may present a secondary hit to revenue. Chapter 68-383 of the Kansas City Code of Ordinances, “Allocation of earnings of nonresident individuals,” includes this:
Working days. If the amount of such earnings depends primarily upon the amount of time devoted by such individual, then the portion of such earnings subject to tax shall be that portion of such earnings which the total number of days worked within the city bears to the total number of days worked within and outside the city.
St. Louis’s ordinances are similar. The section on non-resident taxation reads:
If the amount of the earnings depends on the volume of business transacted by the individual, then the portion of the earnings subject to tax shall be the portion of the earnings which the volume of business transacted by the individual in the City bears to the volume of business transacted by him within and without the City.
The hit to these cities’ earnings tax revenues may be severe in 2020, but there may be a long-term impact. The experience of adapting to COVID-19 is demonstrating to many that working from home is a viable option at least a few days a week. If it also offers the opportunity to cut one’s own taxes, it may become much more common.