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Neuner v. City of St. Louis

Court of Appeals of Missouri, Eastern District, Second Division

September 19, 2017

THOMAS J. NEUNER, et al., Appellants,
v.
CITY OF ST. LOUIS, et al., Respondents.

         Appeal from the Circuit Court of The City of St. Louis Honorable Joan L. Moriarty.

          PHILIP M. HESS, JUDGE.

         Introduction

         This case is about the constitutionality of three City of St. Louis ordinances: Ordinance 60737 imposes a payroll tax on employers in the City and Ordinances 68432 and 68642 authorized the City to sign "cooperation agreements" with two employers to reimburse their costs in redeveloping their City offices and relocating approximately 380 employees from outside of the City to those offices. Thomas J. Neuner and General Marine Services, Inc. (collectively "Appellants") filed a petition for declaratory judgment against the City and the City's Collector of Revenue (collectively the "City") challenging the constitutionality of the payroll tax and the ordinances authorizing reimbursement. The trial court found them constitutional.

         On appeal, Appellants raise two points. In point I, Appellants contend the trial court erred in finding the City's payroll tax constitutional because the City may only assess taxes authorized by the general assembly and the payroll tax is not authorized by the general assembly. In point II, Appellants assert the trial court erred in upholding the ordinances authorizing the "cooperation agreements" because: (1) the ordinances serve a private and not a public purpose in violation of Article X, Section 3 and Article VI, Section 25;[1] (2) the ordinances are "special laws" lacking open-ended classifications in violation of Article III, Section 40(30); (3) the ordinances are not uniform among all taxpayers in the class of "for-profit businesses" in violation of Article X, Section 3; and (4) the ordinances violate the prohibition on refunding tax receipts to taxpayers in violation of Article III, Section 40(7). We affirm.

         Facts and Procedural History

         In 1988, the City enacted Ordinance 60737, now codified in Title V, Chapter 5.23 of the St. Louis City Revised Code (the "Payroll Tax Ordinance"). The Payroll Tax Ordinance imposes a one-half of one percent tax on employers who perform work or render services in whole or in part within the City based on the employers' "payroll expense" which generally means the total compensation earned by the employers' employees. The payroll tax is separate from the one percent "earnings tax" the City imposes on the salaries, wages, commissions, and other compensation of people who live or work in the City and on the net profits of businesses conducted in the City or by City residents.

         In 2009 and 2010, the City enacted Ordinances 68432 and 68642 that authorized the City to sign "cooperation agreements" with Wellpoint Companies, Inc. ("Wellpoint") and Polsinelli Shughart, PC ("Polsinelli"). Ordinance 68432 provided that Wellpoint would redevelop a commercial building at 1831 Chestnut which was substandard and obsolete, and would hurt the tax base in the City if left in its condition. Wellpoint agreed to spend between $2.7 and $4.5 million on improvements to 1831 Chestnut and on expenses associated with the relocation of approximately 300 employees from outside of the City to 1831 Chestnut. In return, the City agreed, subject to annual appropriation, to use certain tax revenues set forth in the cooperation agreement between the City and Wellpoint for implementing the project.

         The cooperation agreement established an account for Wellpoint to be held by the City designated and named the "Earnings and Payroll Tax Reimbursement Account - 1831 Chestnut Development, St. Louis Missouri." The City agreed to deposit "an amount equal to fifty percent" of the "Incremental Increase" when received by the City. "Incremental Increase" was defined to mean the combined amount of Wellpoint's earnings and payroll tax for the tax year in excess of a combined base tax established by the payroll and earnings tax Wellpoint paid during the period October 1, 2008, through September 30, 2009.

         The City agreed, subject to annual appropriation, to reimburse Wellpoint for its "project costs, " which were defined to mean the costs and expenses incurred by Wellpoint in the renovation and rehabilitation of the project area and the improvements thereon, including but not limited to the costs of designing, improving, fixturing, equipping and otherwise readying the improvements in the project area for use and occupancy by Wellpoint and its affiliates and their respective employees, and moving and relocation expenses. The City is obligated to only make payments from funds budgeted and appropriated or otherwise legally available during each fiscal year. The agreement ends December 31, 2019, or when the project costs are reimbursed, whichever occurs first.

         Similarly, Ordinance 68642 provided that Polsinelli would redevelop all or part of five floors of 100 South Fourth Street at a cost of between $3.2 and $3.6 million and Polsinelli would relocate approximately 80 employees to the City. The project area at 100 South Fourth Street was found to be substandard and obsolete, and if left in its condition, to hurt the tax base in the City. The cooperation agreement established an account for Polsinelli to be held by the City designated and named the "Earnings and Payroll Tax Reimbursement Account - 100 South Fourth Street Development, St. Louis Missouri." The agreement provided that the City deposit "an amount equal to fifty percent" of the "Incremental Increase" when received by the City. "Incremental Increase" was defined to mean the combined amount of Polsinelli's earnings and payroll tax for the tax year over a combined adjusted base tax established by the payroll and earnings tax Polsinelli paid during the period January 1, 2009, through December 31, 2009. The City agreed, subject to annual appropriation, to reimburse Polsinelli for its "project costs, " which were defined substantially similar to those in the Wellpoint agreement. Like with the Wellpoint agreement, the City is obligated to only make payments from funds budgeted and appropriated or otherwise legally available during each fiscal year. The agreement ends December 31, 2022, or when the project costs are reimbursed, whichever occurs first.

         In 2016, Neuner, a resident of the City who operates a sole proprietorship in St. Louis County, and General Marine Services, Inc., a corporation in the City with five employees, filed a five-count petition against the City. The petition sought a declaratory judgment that the payroll tax and the ordinances authorizing reimbursement to Wellpoint and Polsinelli were unconstitutional and injunctive relief as to their enforcement. The City filed a counterclaim seeking a declaratory judgment finding the payroll tax and the reimbursement ordinances constitutional. On cross-motions for summary judgment, the trial court found the payroll tax and the ordinances authorizing reimbursement constitutional. This appeal follows.

         Jurisdiction

         In every case it is incumbent on the court to determine its jurisdiction before reaching the merits of an appeal. Alumax Foils, Inc. v. City of St. Louis, 939 S.W.2d 907, 910 (Mo. banc 1997). Article V, Section 3 of the Missouri Constitution provides that the Missouri Supreme Court shall have exclusive jurisdiction in all cases involving the construction of the revenue laws of this State, and while the Payroll Tax Ordinance is a revenue law, it is not a revenue law of this State. Accordingly, the Missouri Supreme Court does not have exclusive appellate jurisdiction to hear this case. Id. at 911. Moreover, the claims that the ordinances authorizing reimbursement to Wellpoint and Polsinelli are unconstitutional are also not within the exclusive appellate jurisdiction of the Missouri Supreme Court. Id. at 912 ("Claims that municipal ordinances are constitutionally invalid are not within the exclusive appellate jurisdiction of this Court."). Thus, we have jurisdiction over this case. Id.

         Standard of Review

         The propriety of summary judgment is solely an issue of law. City of DeSoto v. Nixon, 476 S.W.3d 282, 286 (Mo. banc 2016). Appellate courts review a grant of summary judgment de novo. Id. We review the record in the light most favorable to the party against whom judgment was entered. Id. Summary judgment is appropriate where the moving party has demonstrated a right to judgment as a matter of law and there are no genuine issues of material fact.[2] Levinson v. City of Kansas City, 43 S.W.3d 312, 316 (Mo. App. W.D. 2001).

         The constitutional validity of an ordinance is a question of law reviewed de novo. City of Sullivan v. Sites, 329 S.W.3d 691, 693 (Mo. banc 2010). Ordinances are presumed to be valid and lawful. Coop. Home Care, Inc. v. City of St. Louis, 514 S.W.3d 571, 578 (Mo. Banc 2017) (citing McCollum v. Dir. of Revenue, 906 S.W.2d 368, 369 (Mo. banc 1995)). The party challenging the validity of the ordinance carries the burden of proving the municipality exceeded its constitutional or statutory authority. Coop. Home Care, Inc., 514 S.W.3d at 578 (citing Parking Sys., Inc. v. Kansas City Downtown Redevelopment Corp., 518 S.W.2d 11, 16 (Mo. 1974)). The words in the statute or ordinance should be given their plain and ordinary meaning and should be interpreted to avoid absurd results. Coop. Home Care, Inc., 514 S.W.3d at 578 (citing McCollum, 906 S.W.2d at 369).

         Discussion

         I. The City's Payroll Tax is Constitutional.

         In point I, Appellants contend the trial court erred in finding the City's Payroll Tax Ordinance constitutional because the City may only assess taxes authorized by the general assembly and the payroll tax is not authorized by the general assembly. Specifically, Appellants aver that the broad grant of authority given to charter cities, like the City, pursuant to Article VI, Section 19(a), is limited by Article X, Section 1, which sets forth that the taxing power may be exercised by political subdivisions "under power granted to them by the general assembly, " and no such power has been granted to the City.[3] Respondents assert that the payroll tax is constitutional because Article VI, Section 19(a) gives the City the power to impose the payroll tax. Missouri's constitutional history and the City's unique treatment in that history is needed to consider this matter.

         A. The Constitution of 1875 and the Broad Powers of the City of St. Louis

         Missouri's third constitution was adopted in 1875. The Constitution of 1875 added Article X, Section 1, related to the taxing power of the general assembly, counties, and other municipal corporations, and added Article IX, Sections 20 to 25, related to the City and its separation from St. Louis County and the City's adoption of a charter to govern itself.

         In 1879, the Missouri Supreme Court in City of St. Louis v. Sternberg, 69 Mo. 289 (Mo. 1879), addressed how the taxing power provided in Article X, Section 1, applied to the City, given its unique status in the Constitution. Specifically, the plaintiff challenged a City ordinance that imposed a license tax on lawyers who practiced in the City. The plaintiff argued that because the taxing power of the State had never been delegated or conferred upon the City, the ordinance was void. The Court acknowledged that the general assembly had not delegated the power to tax to the City but found that the City derived the authority to tax from the constitution itself. Id. at 297. The Court noted that St. Louis had been singled out from all other cities and towns in the State and Article IX, Sections 20 through 25 related exclusively to the City. Id. The Court found that the general purpose of those sections was for the City to "have the power to enlarge its limits and separate itself in a governmental point of view from the county, and have the right as a municipality to govern itself, provided its government should be in subordination to and consistent with the constitution and laws of the State . . . ." Id.

         The Court stated "that it was the intention of the framers of the constitution that the [C]ity of St. Louis might adopt as its organic law a charter containing any or all of the provisions then in its charter, and such other provisions as would not be inconsistent with the constitution and laws of the State"; that "the framers of the constitution had in their minds the fact that it was wholly impossible to conduct a city government in a city like St. Louis without the power of taxation being vested in those charged with conducting such government"; and that "[t]he right to adopt a charter necessarily implied the right to put in it such provisions as would enable the city to maintain its government." Id. at 298-99.

         The plaintiff in Sternberg also argued that the City charter provision granting the City the power to license, tax, and regulate lawyers contradicted Article X, Section 1, which provided that "[t]he taxing power may be exercised by the [g]eneral [a]ssembly for State purposes, and by counties and other municipal corporations, under authority granted to them by the [g]eneral [a]ssembly, for county and other corporate purposes, " and Article X, Section 10, which declared that the general assembly may, by general laws, vest in the corporate authorities of any county, city, or town the power to assess and collect taxes for county, town, or municipal purposes. The plaintiff averred that "municipal corporations can only exercise the power of taxation when such power is conferred by the Legislature by general law, and inasmuch as no general law giving the power to St. Louis had been passed, . . . the charter is void." Id. at 300. The Court rejected this argument, stating:

This argument, we think, is unsound in ignoring the fact that the constitution containing the provisions on which the argument is based also contains a provision which expressly designates a particular corporation, viz: the [C]ity of St. Louis, and declares that it may adopt a charter, an act of incorporation for its own government. We perceive no inconsistency between the section which authorizes St. Louis to make its own charter and by necessary implication also authorizes it by virtue of such charter to exercise the taxing power for municipal purposes and sections 1 and 10, supra. A constitutional provision delegating such power to a particular municipality, either expressly or by necessary implication, may well harmonize with another provision which requires the power to be delegated to all other municipalities in the State by general law. If the power to tax, as we have attempted to show, has been conferred on the city of St. Louis by the constitution no additional force could be given to it by an enactment of a general law giving it a power it already possessed.

Id. at 300-01. The Court summarized its reasoning:

Under the constitution the imposition of a license tax on lawyers has been held, as we have shown, to be a legitimate exercise of the taxing power on the part of the State, and the charter provision does not, therefore, conflict with it, nor does the mere fact that the General Assembly has not exercised such power by passing a general law requiring all lawyers to pay a license tax, and imposing a fine on every one practicing as such without a license, create a conflict between the charter provision and the ordinance passed in virtue of it and any law of the State. If the General Assembly should pass a law declaring that no license should be required of lawyers by any municipal corporation in the State, then such conflict would exist between the charter provision and the law; and section 25, article 9, of the constitution would apply, and the argument of defendant that the charter provision, not being in harmony with the law of the State, was, therefore, obnoxious to that section, would have force.

Id. at 303-04.

         While neither party cited to the Sternberg decision in their briefs, it squarely rejects Appellants' argument that the City may only assess taxes authorized by the general assembly. However, we must consider Sternberg it in its historical context and in conjunction with the changes that have occurred in the law since that time.

         The early case law following Sternberg reaffirmed that Article X, Section 1 did not limit the City's ability to tax. In 1882, in City of St. Louis v. Bircher, 76 Mo. 431 (Mo. 1882), the Missouri Supreme Court again considered whether a City of St. Louis ordinance was void under Article X, Section 1 because no legislative authority had been given to pass it. In rejecting this argument, the Missouri Supreme said:

Provision is made in the constitution for the separation of the city from the county of St. Louis, and it even contemplates that, by the charter which the city was authorized to frame, the legislative authority of the city might be invested with the power to levy taxes for the support of the city government. Section 23, which declares that: "Such charter and amendments shall always be in harmony with and subject to the constitution and laws of Missouri, " expressly excepts, in that connection, provisions for the graduation of the rate of taxation for city purposes, in the portions which are added thereto by the proposed enlargement of its boundaries." This is a distinct recognition of the city to make provision in its charter for levying and collecting city taxes for the maintenance of the city government. Section 20 authorizes the city to separate from the county and to adopt a charter for its government. Section 23 requires it to take upon itself the entire park tax, and to assume the whole of the then existing county debt, and from the right to adopt a charter for its government, and the obligation to assume said pecuniary ...

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