The Earnings Tax Changes We Need
Kansas City officials have repealed the changes to the earnings tax refund system they made last year. Last year’s changes made it much more complicated and expensive to claim a refund for work done by nonresidents outside of Kansas City, such as people working from home part of the time. Kudos to the mayor and city council for approving these changes and going back to the old system, which had been working well.
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.
