Saturday, July 7, 2012

Missouri Supreme Court Upholds Ballot Initiative Repealing Local Earnings Tax

A unanimous Supreme Court of Missouri last week ruled in Dujakovich v. Carnahan that a ballot proposition designed to repeal state law authorizing Kansas City to levy an earnings tax did not violate the state constitution.  

The ruling means that the repeal stays on the books, thus making it more difficult and costly--though not impossible--for cities to continue to levy an earnings tax.  Under the repeal, any city that enacted an earnings tax (under its previous statutory authority) could continue to levy the tax, but they'd have to put it to the city voters every five years.  (Any city that did not levy an earnings tax is now entirely prohibited from doing so.)  The practical effect may be to eliminate certain city earnings taxes.

The case started way back in 1963, when the Missouri General Assembly enacted enabling legislation that authorized Kansas City to levy an earnings tax for general revenue purposes.  More recently, in 2009, Secretary of State Carnahan certified a voter ballot initiative to repeal that authority, but to allow cities that levied earnings taxes under it to continue to do so, so long as city voters approved the levy by ballot every five years.  Here's the text of the initiative:

Shall Missouri law be amended to:

  • repeal the authority of certain cities to use earnings taxes to fund their budgets;
  • require voters in cities that currently have an earnings tax to approve continuation of such tax at the next general municipal election and at an election held every 5 years thereafter;
  • require any current earnings tax that is not approved by the voters to be phased out over a period of 10 years; and
  • prohibit any city from adding a new earnings tax to fund their budget?

After Missouri voters approved the question, appellants sued, arguing that it violated three provisions of the Missouri constitution.  First, they argued that the initiative was a de facto appropriation in violation of Article III, Section 51, because it required cities to run an election to continue an earnings tax without providing a new source of revenue for the cost of those elections.  (Section 51 says that an "initiative shall not be used for the appropriation of money other than of new revenues created and provided for thereby.")  The court rejected this claim, stating that nothing in the initiative required cities to run an election: cities could simply decline to put the earnings tax to their voters (and thus necessarily forego the tax).

Next, appellants claimed that the initiative violated the Hancock Amendment to the Missouri constitution.  That Amendment prohibits the state from imposing any new activity or service on any political subdivision of the state, or from reducing the state financed proportion of the costs of any existing activity.  The court ruled that nothing in the Hancock Amendment restricts the power of the people to govern themselves by intiative--itself a state constitutional right under Article III, Section 49.

Finally, appellants argued that the initiative impermissibly amended the city's charter in violation of Article VI, Section 20.  But the court said that any conflict between a city charter--authorized by the general assembly, after all--and state law must be resolved in favor of the state law.

Next step for the appellants: Get the cities to put the earnings tax to city voters, and get out the vote.


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