ST. LOUIS • A circuit judge has dismissed a lawsuit challenging the constitutionality of the city’s payroll tax paid by employers.
The summary judgment is a huge win for the city, which expects to collect about $32.8 million in revenue from employers this year.
The lawsuit, filed earlier this year, challenges the 0.5 percent tax that city employers pay on their payrolls.
In the suit, plaintiffs General Marine Services and Thomas Joseph Neuner, an attorney and financial adviser, argue that the Missouri Constitution prohibits cities from imposing taxes that aren’t authorized either by the constitution or state law.
More specifically, the plaintiffs argued the city is allowed only to impose taxes expressly authorized by the Legislature and cannot “make up†new taxes on its own.
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In her judgment, Circuit Court Judge Joan L. Moriarty cited the city’s home rule charter. The Missouri Constitution that has adopted a charter as its form of government “all the powers†the state Legislature can grant.
Therefore, “the Court finds that payroll tax is not unconstitutional or invalid,†Moriarty wrote.
The lawsuit also takes aim at the city’s practice of granting payroll tax refunds to companies that make certain improvements on their properties.
In 2009 and 2010, the city enacted “refund ordinances†as a response to a trend from the early 2000s where a number of employers left downtown and moved to the county.
Two companies that benefited from the refund ordinances were health insurer Anthem and the Polsinelli law firm. Both were named as defendants in the suit.
Anthem benefited from the refund ordinances after the company agreed to keep its headquarters downtown, move 300 employees from Creve Coeur to the city and spend $4.5 million to improve its building on Chestnut Street.
As a result, the city allowed the company to keep half the payroll taxes from those 300 workers while also granting Anthem a 10-year tax abatement.
The plaintiffs in the lawsuit argued that the refund ordinances violate two sections of the state constitution — one requiring taxes to be levied uniformly and another mandating that taxes are collected only for public purposes.
Giving refunds to certain companies was not uniform, the plaintiffs argued. And using public money to benefit private companies violated the “public purpose†clause, they said.
The judge, however, ruled the city levied and collected the taxes the same way for every company in the city.
“The Refund Ordinances only operate to reimburse a portion of those taxes after they are uniformly levied and collected, and therefore does not violate the uniformity requirement,†the judge said.
Moriarty also agreed with the city on the issue of whether the tax was levied for a public purpose.
The lawsuit did not challenge the 1 percent tax that workers pay on their earnings in the city. That tax provides $164 million of the city’s $493 million in revenue.