The notice was sent to Bryan Cave Leighton Paisner, one of the few white-shoe law firms remaining in downtown St. Louis. Most of its competitors have decamped to Clayton, where the lawyers aren't subject to the city's 1 percent earnings tax. Now the city was saying Bryan Cave owed $370,000 in past-due taxes, interest and penalties.
The firm paid the sum under protest. And then, last week, it filed a lawsuit over the city's demands.
In its suit, Bryan Cave alleges the the city's Collector of Revenue changed the equation it uses to calculate the earnings tax for law firms with no notice or explanation. And that, its suit says, makes its collection of the $370,000 "unconstitutional, illegal, unenforceable and otherwise unlawful." It's demanding a refund.
The lawsuit is only the latest problem facing the city's earnings tax, a 1 percent surcharge assessed on the incomes of anyone who lives or works in the city. St. Louis Mayor Tishaura Jones cited threats to the earnings tax as among the reasons she ordered a hiring freeze for non-essential city workers last month. The tax faces the prospect of abolition from conservative lawmakers in Jefferson City, along with legal threats from workers who say that while their offices are in St. Louis, they're actually working from their couches in Chesterfield (or Boise, Idaho). Lawyers have also sought class-action status for workers seeking to recoup the money they paid for the pleasure of working in the city even at a time that they were stuck working from home during the pandemic, although those efforts have thus far ended in frustration.
The Bryan Cave suit is a bit more complicated. Filed by Bryan Cave attorney Mark Leadlove, it says the city arbitrarily changed the way it handles law firm revenue last November, and that led to an outsized bill for the firm.
As Bryan Cave notes in its filing, it now has offices in 31 cities. For the past 10 years, with the city's blessing, it's filed composite earnings tax returns on behalf of itself and its partners. Since each partner gets a unique share of the firm's net profit, the firm historically listed each person's total, and then taxed it at one of two rates: 14.3704 percent for non-city residents and 100 percent for city residents.
That changed with no notice last fall, the lawsuit says. "On November 17, 2023, the City notified the Firm that it had adjusted its 2022 Earnings Tax Return by changing the allocation percentage of nonresident Partners who were 'assigned' to the St. Louis office from 14.370 percent to 100 percent," the suit says. After several communications, the firm now understands that the city considers partnership income like any normal salary.
And that, the firm says, is unprecedented — and wrongly suggested the partners had earned their income solely within the city "even though such partners perform legal services in other Firm offices, at client locations and at their residences outside the City." Now the firm is asking for a refund and a declaratory judgment in its favor.
In a statement, the office of Gregory F.X. Daly, the city's collector of revenue, said this: "The Collector of Revenue’s Office is required to collect earnings taxes as stated by law. It is common for the office to work with businesses and individuals to resolve potential differences of opinions over earnings taxes, real estate taxes, and other fees and taxes the office is required to collect.
"The issue with Bryan Cave resulted after the office conducted an audit of the firm’s earnings tax filings, as we do with many individuals and businesses on a regular basis. Given the pending litigation, we can’t discuss the details of this matter. We will continue to work to resolve this issue as required."
Some conservative critics of the city applauded the suit — and predicted dire consequences.
Bryan Cave is suing the City over improperly imposed earnings taxes and is seeking a refund of taxes paid under protest. This is a very big deal and a VERY, VERY bad development for St. Louis City government. 🧵 pic.twitter.com/qShRpdO1zN
— Gregg Keller (@RGreggKeller) May 14, 2024
"Trust me," wrote political operative Gregg Keller on X, "other large employers will follow Bryan Cave’s lead. They really have to if they are to look their shareholders in the eye next time they report quarterly results."
And while it's not clear — yet — whether Keller is correct (the facts of the case only apply to law firms), it's hard to argue that it won't be an expensive case to fight. After all, Bryan Cave has some serious expertise on matters of tax law — and every incentive to try to win this one.
Editor's note: This story was updated soon after publication to include a statement from the city's collector of revenue.
Subscribe to Riverfront Times newsletters.
Follow us: Apple News | Google News | NewsBreak | Reddit | Instagram | Facebook | Twitter | Or sign up for our RSS Feed
