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.

The post St. Louis Is Finally Taking the Right Steps on the Earnings Tax appeared first on Show-Me Institute.

On May 29, David Stokes joined Mike Ferguson in the Morning on NewsTalkSTL to discuss a Missouri appeals court decision exempting remote workers from St. Louis’ 1% earnings tax, ruling that the tax doesn’t apply to work performed outside the city.

The post Missouri Court Rules in Favor of Remote Workers Against St. Louis Earnings Tax appeared first on Show-Me Institute.

Salaries, wages, commissions and other compensation earned by nonresidents of the city for  work done or services performed or rendered in the city.

It says, “in the city.” Not “near the city.” Not “connected to the city by a phone line.” Not “in the city unless the city’s budget really needs the money in which case outside the city is fine.” In the city. For the record, a judge also ruled that what the city is doing violates the law.

Both columns admit to this to various degrees. Tony Messenger describes the city’s legal argument in the court case as “. . . probably a specious argument.” Members of the editorial board admit in their piece that the city’s legal argument “isn’t strong.”

But both pieces conclude that the state legislature should not be doing what it is now doing—further clarifying the law—because the city needs the money. The city’s budget problems, however, do not justify the city breaking the law in its tax collections.

That leads me to another point. The evidence from Kansas City is clear that if you refund earnings taxes for remote work, the sky won’t fall. Kansas City officials have stated this in hearings that I have attended. The amount of money refunded was not as large as they had feared it would be. In 2019 (all of these are fiscal years), Kansas City collected $272 million in earnings taxes. That fell to $245 million during the pandemic. It quickly rose to $289 million in 2021. And this happened while Kansas City was still refunding earnings taxes for remote work when requested.

There is no evidence the legislation passed by the House would “have a devastating effect on the city” as Tony Messenger says in his column. Even if the bill did have that effect, that wouldn’t justify city government ignoring the law.

We can all agree that getting rid of the earnings tax is harder than ever in St. Louis, with skyscrapers that sold for $200 million just over 20 years ago now selling for $3 million. It’s hard to depend on property taxes—like most cities in America do—in this scenario.

Decades and decades of bad policies combined with new, fiscally irresponsible “progressive” changes are making St. Louis look more and more like the new Detroit. It’s probably time to revisit the optimistic work from Institute analysts a decade ago.

The post Collecting the Earnings Tax on Remote Work is Illegal. ‘Nuff Said appeared first on Show-Me Institute.

The post Collection of the Earnings Tax on Remote Work by St. Louis appeared first on Show-Me Institute.

This is a good time to remind people that the City of St. Louis is the opposite case—city government continues to do everything wrong when it comes to the earnings tax. Efforts are underway in Jefferson City to clarify that St. Louis and (presumably) Kansas City cannot tax remote work—as St. Louis continues to do unapologetically—and instead must institute a reasonable process to refund earnings taxes withheld for work nonresidents perform outside of the cities.

What should such a process entail? First, I think employer statements indicating the percentage of time a nonresident has worked outside city limits during a year should be treated as prima facia evidence of that fact. Obviously, there should be penalties for fraudulent filings. Beyond that, if a refund is denied there should be an impartial hearing process by the collector of revenue available at the city level if taxpayers request one. If after such an administrative hearing, the refund is still denied, then taxpayers should have the right (but not the requirement) to file a lawsuit in circuit court. In court, the judge should not be required to assume the city’s prior denial is correct. In other words, taxpayers should have the right to a trial de novo on the merits of their refund claims. Finally, people making claims should be able to recoup court costs and lawyer fees if they are victorious. Since the average amount of a refund claim for any one person would be relatively small, I think few cases would go this far, but cities should be financially responsible if they improperly deny people their legitimate refunds.

Kansas City was not, then was, and now is not again denying legitimate refunds. Kansas City has a fair process posted online. The government of the City of St. Louis has been abusing the process all along and is finally being told by courts it needs to give refunds. Because of the city’s obstinance, it is also necessary to clarify that class action suits are authorized in these instances, as filing a suit against St. Louis for a few hundred dollars is not something most people are going to do, which is exactly what city officials appear to be counting on. The abuse of taxpayers in the City of St. Louis needs to stop, and it needs to stop now.

The post The Earnings Tax Changes We Need appeared first on Show-Me Institute.

Even though all Kansas City did was follow the law, I still praised the city multiple times for its policy when compared to St. Louis. But now it appears that Kansas City may have a trick up its sleeve. Instead of denying taxpayers their proper refunds for remote work—which would be illegal—perhaps you just try to make it really, really hard to claim the refund in the first place. Instead of “you can’t have your refund,” it is now, “you can have your refund after you jump through this flaming hoop with a leg of mutton in your mouth.” Kansas City’s new ordinance now applies the state rules for property tax appeals and refunds to the earnings tax. There was no need for Kansas City (or St. Louis) to do that; city leaders simply want to keep more of the money.

There are important differences between property tax and earnings tax appeals. With property tax protests, the government must put the money aside and can’t spend it. For earnings tax refunds, the city government already has the money (from withholding) and people are seeking to get some of it back. Most disturbingly, based on my reading of the Kansas City ordinance (68.393),  it seems that taxpayers will have to file a lawsuit if they want to get their lawful refund (correct me if I’m wrong). If Kansas City law says you must follow the state procedure, and state procedure requires a lawsuit, then you must file a lawsuit.

From RSMo 139.031(2):

Every taxpayer protesting the payment of current taxes under subsection 1 of this section shall, within ninety days after filing his protest, commence an action against the collector by filing a petition for the recovery of the amount protested in the circuit court of the county in which the collector maintains his office.  If any taxpayer so protesting his taxes under subsection 1 of this section shall fail to commence an action in the circuit court for the recovery of the taxes protested within the time prescribed in this subsection, such protest shall become null and void and of no effect.

There is nothing wrong with Kansas City clarifying its refund procedure considering the dramatic increase in remote work. But the old process worked just fine. If refunds took a little longer in 2021 and 2022, that is understandable. Hopefully Kansas City will create rules like the informal property tax appeal system in St. Louis County to simplify the overall process for everyone’s benefit.

But if Kansas City really is trying to dissuade taxpayers from applying for a refund by making it so difficult and expensive to go through the process for what would usually be a modest amount of money, that is unconscionable. The St. Louis rabbit got trapped in a court case and appears to be losing. I guess the Kansas City tortoise is trying a different strategy.

It just goes to show that you should never say anything complimentary about local government in Missouri. They always prove you wrong in the end.

The post The Kansas City Earnings Tax Tortoise Versus the St. Louis Earnings Tax Hare appeared first on Show-Me Institute.

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The post State of the State, School Spending and the STL Earnings Tax appeared first on Show-Me Institute.

[A]lternatives need to be examined because the tax totals a third of the city’s general revenue. “That is just unsustainable,” she said. “We need to see how we can diversify our sources of funds to make us not so dependent on the earnings tax should the voters ever decide that they don’t want to pay it anymore.”

She is absolutely right. The City of St. Louis needs to get serious about leaning less on the earnings tax, for a variety of reasons. The newest reason, resulting from the pandemic, is the increase in working from home. The city is, unfortunately, attempting to claim that people working from home in the suburbs still have to pay the tax. Through legislation or litigation, I hope that this new and intentionally improper implementation of the law is prohibited. Nevertheless, the long-term impacts from increased working from home on the earnings tax in St. Louis will likely be substantial.

And yes, voters may one day (Tuesday was clearly not that day) decide they want to phase it out, and the city should move in a direction to encourage that, not discourage it. The single most important thing the City of St. Louis can do is reduce the enormous tax subsidies it gives out each year. As stated in our recent op-ed in the St. Louis Business Journal, the city gives out about $70 million per year in subsidies. Expanding the tax base by letting those subsidies expire and not granting new ones is the single best way to phase out the earnings tax without large tax increases elsewhere.

Even if one thinks that the City of St. Louis (and Kansas City) should maintain the earnings tax, not depending on it so much would be a smart thing to do.

The post More on the Earnings Tax appeared first on Show-Me Institute.

I firmly believe that for Missouri to thrive, we need to be a place where parents want to raise their children, and that is fundamentally about the quality of public education available. Contrary to much of the rhetoric in Jefferson City, it’s also about the number and quality of options available to parents. Just 41 percent of parents surveyed in February said they would prefer fully in-person instruction for their children next fall, which is probably particularly true for remote work migrators.

Missouri has a lot of wonderful small towns that could be attractive to these families According to a recent McKinsey study, the remote-work families are likely to be highly educated. They could bring energy and civic engagement to our rural areas.

This is the time to broaden the educational options available in rural areas of Missouri, not block them.  This is the time to make education savings accounts (ESAs) available to all parents so that they can continue to create customized learning experiences, regardless of their address. This is the time to put Missouri on the map as a place that families want to move to for both the affordable cost of living and the innovative education programs. Will Missouri take advantage of this unique opportunity? Or will we dig in our heels and insist that rural education never be more than the brick-and-mortar schools of yesteryear and let other states continue to pass us by?

The post An Opportunity Taken or Missed? appeared first on Show-Me Institute.

A subsequent piece in The Kansas City Star backed up my post. The Star reported:

City councilwoman Katheryn Shields, chair of the finance, governance and public safety committee, said the city didn’t have any plans to curb its longstanding refund process.

“The money is collected as usual, but then it’s upon the taxpayer to then reach out to the city and ask for a refund,” she said.

But this is apparently not the case in St. Louis. According to a piece in the St. Louis Post-Dispatch:

If you’ve worked from home in the suburbs during the recent coronavirus shutdown instead of driving to your office in the city, don’t expect a break from paying the St. Louis earnings tax.

City officials say telecommuters staying home due to the pandemic won’t be eligible to file for refunds of the 1% earnings tax for days they’re not at their desks inside the city limits.

The story suggests there may be court challenges to this position from members of the Associated Industries of Missouri, and Clayton attorney Bevis Schock is quoted as saying he strongly expects to file a class action suit next year if the city does not issue refunds. (Disclosure: Schock is a member of the Show-Me Institute’s Board of Directors.)

Researchers at the Show-Me Institute have argued for years that the earnings tax harms cities. But since both cities have chosen to keep the tax in place, they both ought to honor their policy of issuing refunds for days spent working outside city limits.

The post Update: St. Louis May Not Honor Earnings Tax Refund Requests appeared first on Show-Me Institute.

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.

Each city has created forms for non-resident wage earners to claim a refund for days worked outside the city. St. Louis’s is here, Kansas City’s is here.

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.

The post More People Working from Home Means Less Earnings Tax Revenue appeared first on Show-Me Institute.

The map above shows the second most used transportation mode for commuting to work in the Saint Louis area census tracts, after cars. As the map demonstrates, for much of Saint Louis County and a few parts of the city, working from home (or telecommuting) is the most used mode for commuting after cars. In much of the city and North Saint Louis County, transit is the second most used. However, in the city’s central corridor, where transit is most abundant, the dominant mode of getting to work (after cars) is actually walking, not transit. Read more from the Show-Me Institute on transit and commuting in Saint Louis here.

The post Map Series: VII. Second Most Used Transportation Mode for Commuting in Saint Louis, After Cars appeared first on Show-Me Institute.

The map above shows the second most used transportation mode for commuting to work in the Kansas City area census tracts, after cars. As the map demonstrates, for much of the city and surrounding counties, working from home (or telecommuting) is the most used mode for commuting after cars. In much of the center west of the city and southern Clay County, transit is second most used. However, in the city’s downtown area, where transit is most abundant (and the streetcar is opening), the dominant mode of getting to work (after cars) is actually walking, not transit. Read more from the Show-Me Institute on transit and commuting in Kansas City here.

The post Map Series: VI. Second Most Used Transportation Mode for Commuting in Kansas City, After Cars appeared first on Show-Me Institute.