ST. LOUIS — As state lawmakers consider carving out new exemptions to the city’s earnings tax, a city alderwoman is renewing her push to eliminate an old one.
Alderwoman Sharon Tyus has to repeal a 24-year-old exception for stock options and dividends, calling it a needless giveaway to the rich.
And it creates a problem, she said, as city officials try to defend the tax, the city’s largest single source of revenue, against lawmakers in Jefferson City who want to eliminate it.
People are also reading…
“It’s awfully hard to be fighting the state on that and giving wealthy people an exception,†said Tyus, of Kingsway East, a neighborhood near Interstate 70.
The provision, like the rest of the tax, would apply to city residents and non-residents who work in the city. It was not immediately clear how much new revenue it would generate.
Tyus has filed similar bills in at least five previous sessions, to no avail.
But she said Tuesday that mayors Francis Slay and Lyda Krewson, who supported the exemption as aldermen, were in power then, and they’re not now.
And while Jared Boyd, a top aide to Mayor Tishaura O. Jones, was noncommittal on Tuesday, Aldermanic President Megan Green said she’s glad to see the idea return.
“We definitely support her in having a hearing on it and making the case for it,†Green said.
But the plan is sure to draw concern among businesspeople, and not just from established executives.
Patty Hagen, CEO of the T-Rex startup incubator downtown, worried about some of her organization’s clients.
“They pay their employees quite a bit in stock,†she said. “This could be very detrimental.â€
The back-and-forth recalls a debate that began in the late 1990s, a precarious time for the city. Its once-robust roster of corporate headquarters was reeling from losses like Southwestern Bell and Boatmen’s Bancshares.
And in 1997, venerable Ralston Purina, the company founded by the Danforths that had once owned the Blues, made it known it might leave, too.
At the same time, companies were increasingly paying executives with stock options. The options gave them the right to buy company shares at a fixed price, thus encouraging them to work to increase the price so they could make a quick profit.
And they were cashing in: August A. Busch III, chief executive of Anheuser-Busch Cos., notched a gain of $10.8 million on shares he bought with options and sold one year.
But when city officials moved to start taking their 1% cut of the windfall, Ralston objected.
In a lawsuit against the city, lawyers for Ralston’s executives said the yields on stock options didn’t count as earned income because they were dependent on numerous market factors, and separate from wages for everyday work done in the city.
Courts disagreed. Ralston lost at trial in spring 1999 and on appeal in summer 2000, and was denied review by the Missouri Supreme Court that fall.
Then City Hall had a change of heart.
Just days after securing victory in court, Mayor Clarence Harmon said he worried that taxing stock options would discourage businesses from moving to or staying in the city. He said nixing the idea could help attract startups in the then-booming tech sector, which offer equity to entice workers to take a chance on a new business.
Then-Alderman Krewson, of the old 28th Ward, introduced a bill to end the practice, and attracted a long list of co-sponsors, including then-Aldermanic President Slay. The bill passed overwhelmingly.
A year later, Ralston sold to Nestlé S.A., and six top executives were set to cash in $118 million of stock options and restricted stock, earnings tax-free.
Tyus was one of four votes against that then, and hopes to have the final word now.
She noted that in recent months, city officials have spoken against state lawmakers’ plans to exempt remote workers and low-income workers. She said bonuses for well-off businessmen should follow the same rule.
“I support the earnings tax,†she said. “But it should be fair.â€