Judge orders city to refund earnings tax to 6 during pandemic. Lawyer eyes class-action suit.

st. LOUIS — A judge on Thursday ordered the city to refund earnings tax payments to six nonresidents who worked from home during the pandemic in a ruling that could open the door to a costly rush of additional claims on the treasury.

Circuit Judge Jason Sengheiser said Collector of Revenue Gregory FX Daly broke the rules and years of precedent when he barred refunds to remote workers in the early days of the pandemic, and dismissed his attorneys’ arguments to the contrary.

The decision, if it stands, only requires the city to pay out about $8,100 in pending refunds, plus interest. But Mark Milton, an attorney for the plaintiffs, said he plans to use the decision to revive a larger class-action push rejected by a different judge last year. He said tens of thousands of people — maybe as many as 100,000 — might be eligible for relief under the decision. And if even a fraction of those people were granted refunds, it could be a problem for city officials.

More than one-third of the city’s general-purpose money comes from the 1% earnings tax charged to city residents and also to nonresidents who work in the city — about $197 million in fiscal year 2021 alone. And the lawsuit estimates that 75% of earnings tax revenue comes from nonresidents.

Susan Ryan, a spokeswoman for the Collector’s Office, said in a statement that the office still sees its position as sound. “We are reviewing our options,” she said.

The lawsuit was filed in 2021, after the plaintiffs, Mark Boles, of St. Louis County, and Kos Semonski, of St. Charles County, were denied earnings tax refunds for 2020. In previous years, the city had issued them and thousands of others rebates for days they traveled and worked outside city limits. It paid out $2.9 million to an estimated 4,000 people in the year before the pandemic hit.

But that changed when thousands of people started working from home to slow the spread of the coronavirus, including many white-collar office workers who have been concentrated in business districts like downtown.

Daly said in 2020 that the shift amounted to a “whole different set of circumstances.” People working from home, he added, were still using software provided from their companies’ bases in the city.

Later, attorneys for his office argued that because the companies that benefited from their workers’ services were still in the city, the tax was still being applied.

Sengheiser disagreed. He said that the earnings tax legislation covers work “rendered in” the city, not “rendered into” it.

“That language is very clear and unambiguous,” he wrote.

He went on to say that it appeared the collector changed the policy because he feared there was a high demand for refunds and a hit on the city budget.