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E-tax ‘unconstitutional’ according to former solicitor general


JEFFERSON CITY, Mo. – In a memorandum addressed to Sen. Kurt Schaefer, R-Columbia, and distributed throughout the General Assembly Thursday morning in advance of a hearing on a bill repealing the earnings tax, former Acting Solicitor General of the United States Neal Katyal called Kansas City and St. Louis’ earnings tax “unconstitutional under the U.S. Constitution’s Dormant Commerce Clause.”

Schaefer filed SB 575, which would repeals the earnings tax in the cities of Kansas City and St. Louis on December 31, 2017. The bill comes after Schaefer and the cities conflicted last summer over raising minimum wage within the cities.

SB 575 was heard in the the Senate Ways and Means Committee Thursday morning.

Katyal’s memo reads:

“The Constitution’s dormant Commerce Clause guarantees that Missourians can sell their goods and services as part of a ‘national common market.’ Hunt v. Washington State Apple Advertising Comm’n, 432 U.S. 333, 350 (1977). But when a Missourian works or does business in another State—such as an Illinois commuter or a partner at a national law firm—he runs the risk of being taxed twice on the same dollar of income. That is because Missouri will want to tax its resident’s entire income, while the State where the worker is employed or does business will want to tax the part of his income earned in the State. Without some accommodation, the Missouri resident will pay more in taxes simply because he does business across state lines, a result that impedes the national free trade zone envisioned by the dormant Commerce Clause.


“In the recent case of Comptroller of the Treasury of Maryland v. Wynne, 135 S. Ct. 1787, 1792 (2015), the U.S. Supreme Court held that the State where a worker lives cannot levy a tax on all of the resident’s income without some mechanism to ensure that the worker’s income is not double taxed. Without such a mechanism, the Court explained, the State’s tax scheme effectively acts as a tariff on interstate commerce—’the quintessential evil targeted by the dormant Commerce Clause.’ Id. at 1792. Generally, States comply with this obligation by giving resident taxpayers a credit for taxes paid to other States and localities. Indeed, that is what Missouri does at the state level. Mo. Rev. Stat. § 143.081.

“But the St. Louis and Kansas City earnings taxes do not follow the State’s sensible lead. St. Louis does not give any credit for taxes paid to other jurisdictions. And although Kansas City gives a credit for taxes paid to other cities, it does not provide a credit for taxes paid to political subdivisions other than cities, such as counties or school districts. That is important because States like Indiana, Ohio, and Pennsylvania levy non-city local income taxes for which a taxpayer earning income in those States would not receive a credit in Kansas City. See Joseph Missouri Senator Kurt Schaefer – 2 – January 14, 2016 Henchman & Jason Sepia, Tax Foundation Fiscal Fact No. 280 (2011) (collecting local taxes imposed by other States), available at

“St. Louis and Kansas City’s failure to give taxpayers a full credit for taxes paid to other States makes those taxes unconstitutional. For St. Louis, the local earnings tax flunks what the Supreme Court has termed the ‘internal consistency’ test. Wynne, 135 S. Ct. at 1802-03. We explain the math in the attached addendum, but the test boils down to this: A St. Louis resident who works at Scott Air Force Base in Illinois will pay more taxes than a neighbor who is identical in every way except that he earns his income is earned at the Jefferson Barracks Military Post in Missouri. The dormant Commerce Clause was intended to prevent precisely this discriminatory result.

“Kansas City’s earnings tax fails the Supreme Court’s separate ‘external consistency’ test, which asks whether a resident has been subject to ‘[t]he threat of real multiple taxation.’ Oklahoma Tax Comm’n v. Jefferson Lines, Inc., 514 U.S. 175, 185 (1995). Consider a law firm partner in Kansas City whose firm has offices in in Indianapolis, where Marion County imposes a 1.62% local income tax. Because Kansas City does not give a credit for taxes paid to non-city localities, the partner will pay taxes on that portion of his income twice—once to Marion County and again to Kansas City. The dormant Commerce Clause, again, forbids that result. These rules are more than abstract legal principles. They have real effects for cities whose taxes are successfully challenged. In the wake of Wynne, for instance, Maryland’s counties will have to pay $200 million in refunds to taxpayers who were illegally taxed. Erin Cox & Michael Dresser, Hogan Urges People To Collect Tax Refunds, The Baltimore Sun, Sept. 28, 2015, available at Repealing St. Louis’s and Kansas City’s earnings taxes now will avoid a similarly painful result if and when they are struck down.”

Download the meo here.