The RCGA
Board has voted unanimously to formally support and join with
Ralston Purina Company and others in court action challenging
the Missouri Court of Appeals’ recent decision allowing a tax
by the City of St. Louis on stock options. In its amicus brief
filed in the Missouri Supreme Court, the RCGA notes, “Under
any reasonable definition, appreciation in the value of stock
options cannot be considered “earnings,” and the Court of Appeals
was wrong when it so held.”
The RCGA brief further notes, “Additional taxation by expansive
judicial interpretation is the last thing Missouri’s urban areas
need. They are in a highly-competitive battle to attract and
retain major technology, “dot.com,” and large to medium-size
headquarters companies that provide stock options to their employees.
Taxation of unearned income like stock option appreciation (and
whatever other unearned income the tax collector may choose
to pursue in light of the Court of Appeals’ decision) provides
a powerful disincentive for those companies to relocate or stay.
Most cities against which St. Louis competes do not have an
earnings tax at all.”
Furthermore, the options tax not only would discourage existing
business expansion and current development, but perhaps more
importantly, could create an undesirable reputation for the
City as a community that is not compatible with “New Economy”
industries. A City that is working so hard to sustain economic
development would certainly not want to create a reputation
for itself as the one place in America that is a tax island
in the New Economy.
The marginal cost of the options tax would be severely damaging
in attracting any firm that ties portions of compensation to
stock options, but is especially damaging to the City in its
efforts to promote St. Louis as an entrepreneurial growth area
in information technology and life sciences. One such growing
high-tech company with a projected near-term growth of up to
1,000 employees recently left the City because of even the prospect
of the application of the City tax on options.
Bottomline: The City of St. Louis needs a tax policy that encourages
economic development and job creation. Applying the tax to
stock options does just the opposite. In addition to the RCGA’s
amicus brief, we are also working with City officials encouraging
them to take this revenue option off the table, in light of
its prospective counterproductive impact on the City’s bottomline.
