Recently, the Missouri Circuit Court ruled that remote workers were allowed refunds of St. Louis earnings tax paid on wages earned while working from home outside the city. In Boles v. City of St. Louis,1 an employee who worked for a St. Louis-based company worked from home about 245 days out of 260 days each year at issue. For tax years 2018 through 2020, when he requested refunds for days worked outside of St. Louis, he was granted refunds routinely. When he requested a similar refund for remotely worked days in 2021, his request was refused, even though there was no change in the statute authorizing the tax.
The statute reads in part:
A tax for general revenue purpose of one percent is imposed on:
B. Salaries, wages, commissions and other compensation earned after July 31, 1959, by nonresident individuals of the City for work done or services performed or rendered in the City…
The City interpreted “rendered” in the context of working remotely to mean “services transmitted, delivered, given, or provided to an employer or customer in the City.” Mr. Boles, on the other hand, sought to invoke the clear meaning of the statute in that “rendered IN the City” required the work to be performed physically in the city. The Court agreed with Mr. Boles that remote work was performed outside the city, and the refunds should be allowed for the days that work was performed remotely, in line with the treatment received prior to 2021.
The publication of this ruling comes at an interesting time when courts are being asked to determine if city income taxes apply to remote workers. Earlier this month, the Ohio Supreme Court provided notice in the case of Schaad v. Alder2 that oral hearings will be held on March 1, 2023. This case involves a similar situation in which Josh Schaad worked from his home in Blue Ash, Ohio for his Cincinnati-based employer. Both the trial and appellate courts dismissed Mr. Schaad’s assertion that the Cincinnati municipal tax on his wages while he worked from home was unconstitutional.
The issue of taxing remote workers based on office location first arose during the pandemic when the state of New Hampshire tried to quash Massachusetts’ attempt to tax its residents who worked in Massachusetts prior to the crisis. Unfortunately, the U.S. Supreme Court did not hear this case.3 The states of New Jersey and Connecticut also believe they are losing revenue to New York based on New York’s convenience of the employer rule, which directs New York-based employees to pay income tax in New York on their wages unless they are working elsewhere for the convenience of their employer. Both New Jersey and Connecticut are looking for ways to enable them to keep the revenues associated with their individual income tax on residents that work in the state.
The Ryan income tax professionals will continue to monitor these cases. Please contact your Ryan tax professional to review your company’s tax obligations related to remote work.
1 Cause No. 2122-CC00713.
3 New Hampshire v. Massachusetts, Motion for leave to file a bill of complaint denied on June 28, 2021 (Docket No. 22O154).
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Mark L. Nachbar
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- Mark L. Nachbar