Lett v. City of St. Louis

• Decision Date: 27 February 1996
• Docket Number: Nos. 67990,67999,s. 67990
• Citation: 948 S.W.2d 614
• Parties: Cynthia LETT, et al., Appellants/Cross-Respondents, v. CITY OF ST. LOUIS, Missouri, et al., Respondents/Cross-Appellants.
• Court: Missouri Court of Appeals

Page 614

948 S.W.2d 614

Cynthia LETT, et al., Appellants/Cross-Respondents, v. CITY OF ST. LOUIS, Missouri, et al., Respondents/Cross-Appellants.

Nos. 67990, 67999.

Missouri Court of Appeals,

Eastern District,

Division Six.

Feb. 27, 1996.

Application to Transfer Denied Aug. 19, 1997.

Roger G. Brown, Keith W. Brunstrom, Roger G. Brown & Associates, Jefferson City, Daniel C. Aubuchon, Daniel E. Raniere, Aubuchon, Raniere & Lally, P.C., St. Louis, Thomas J. Casey, Stephen F. Meyerkord, Casey & Meyerkord, St. Louis, for appellants.

Edward J. Hanlon, St. Louis, for respondents.

Before JAMES M. SMART, Jr. and ELLIS, Special Judges, and TURNAGE, Senior Judge.

JAMES M. SMART, Jr., Special Judge.

This case presents the issue of whether the earnings tax ordinances of the City of St. Louis authorize the collection of earnings tax on amounts earned by employees which are placed in deferred compensation plans not currently taxable under federal and state income tax laws. Cynthia M. Lett, Robert P. Fortman, William Kelleher, Thomas W. McDonough and James E. Hanselman ("taxpayers") are class representatives of a plaintiff class challenging the imposition of an earnings tax by the City of St. Louis ("City") upon amounts placed by the taxpayers in various deferred compensation plans. The court below found the tax had been collected improperly and enjoined the City from continuing to impose an earning tax on deferred compensation plans. The trial court also ordered that the amounts paid by the taxpayers to the City be refunded with interest from December 12, 1989. The taxpayers appeal, claiming that the trial court erred in determining that refunds should not be allowed for tax payments made prior to December 12, 1989. The City also appeals, claiming that: (1) the trial court erred in holding that the City did not have the authority to impose the earnings tax; and (2) the trial court erred in ordering that the City refund the monies collected as earnings tax on deferred compensation accounts since December 12, 1989. The judgment of the trial court is reversed.

On November 28, 1990, the taxpayers filed an action in the Circuit Court of the City of St. Louis seeking a declaratory judgment that the City had exceeded its taxing authority by taxing amounts that the taxpayers had contributed to various deferred compensation plans. Specifically, the taxpayers challenged the action of the City in taking 1% of their deferred compensation payments since they began deferred compensation programs. The taxpayers asked for injunctive relief to prohibit the City from continuing to impose the tax. They also asked that the unlawfully collected taxes be refunded to them, with interest.

On October 15, 1993, the circuit court granted the taxpayers' motion for partial summary judgment, finding:

The City's taxing power cannot exceed the state's power, thus the City has exceeded its authority by imposing its earnings tax on amounts allocated to deferred compensation plans and exempt from state taxation by reason of § 105.900.2 R.S.Mo. Any sum deferred under the deferred compensation plans set out above is exempt from the City's earning tax to the same extent as it is exempt from income tax imposed by the State of Missouri.

The trial court found that the City unconstitutionally imposed a 1% earnings tax on funds placed in the following programs: (1) deferred compensation plans adopted under Internal Revenue Code (I.R.C.) § 457; (2) I.R.C. § 401(k) Plans; (3) salary reduction plans (SEP) adopted under I.R.C. § 408(k); (4) cafeteria plans adopted under I.R.C. § 125; (5) Individual Retirement Accounts (IRAs) adopted under I.R.C. § 408; (6) Thrift Savings Plans adopted under I.R.C. § 7701(j); (7) Employee Stock Option Plans adopted under I.R.C. § 401 and I.R.C. § 409; and (8) defined benefits and defined contribution plans (Keoughs, profit sharing, target benefit plans) adopted under I.R.C. § 401. The court ordered the City to cease and desist in imposing, assessing and collecting the tax.

On December 14, 1993, the trial court also granted summary judgment to the taxpayers on the issue of whether the taxpayers were entitled to tax refunds. The court ordered that a refund be made of monies paid after December 12, 1989, the date that the decision became final in Whipple v. City of Kansas City, 779 S.W.2d 610 (Mo.App.1989), a case which held that the City of Kansas City cannot tax contributions to a deferred compensation fund for city police officers because § 105.900.2 provides that governmental deferred compensation plans established pursuant to that statute are exempt from taxation. The trial court designated its order as final for the purposes of appeal pursuant to Rule 74.01(b). Both the taxpayer plaintiffs and the City appeal.

Imposition of the Tax

The City claims that the trial court erred in holding that the City of St. Louis did not have the authority to impose an earnings tax on monies placed in deferred compensation accounts. The City asserts that the basis of the trial court's decision has been considered and held to be incorrect by the recent decision of the Missouri Supreme Court, Hopkins v. City of Kansas City, 894 S.W.2d 156 (Mo. banc 1995). In Hopkins, taxpayers sought a declaratory judgment that Kansas City may not impose an earnings tax on monies contributed by employees to deferred compensation plans. The trial court granted declaratory judgment in favor of the taxpayers. In reversing the decision of the trial court in Hopkins, the Supreme Court considered arguments similar to those put forward by the taxpayers in the instant case. The court rejected such arguments, finding that, as to non-governmental plans, the power of Kansas City to impose such a tax was not limited by any statute. Id. at 158-59.

Hopkins did not overrule Whipple. In Whipple, this court held that the state has, in § 105.900.2, RSMo 1986, exempted from state taxation the deferred compensation plans established pursuant to that statute by the state and by political subdivisions of the state. Whipple, 779 S.W.2d at 613. It is the deferred compensation plans which are not established under § 105.900 which are at issue in this case. The taxpayers concede that Hopkins is dispositive of the issue of the City's authority to tax. ¹ Nevertheless, the taxpayers contend that the trial court's decision should be upheld. They argue that a City's power to tax is necessarily limited by the language of its enabling ordinances and, in this case, the language in the preamble of the earning's tax ordinance precludes taxation of the deferred compensation plans.

The City dismisses the taxpayers' argument, contending that the preamble to the ordinance is not a part of the substantive law. We believe that an isolated focus on that portion of the preamble may tend to obscure proper analysis. Preambles must be viewed in their context as part of an overall legislative intendment. In Doemker v. City of Richmond Heights, 322 Mo. 1024, 18 S.W.2d 394 (1929), the court noted that where the enacting part of the statute is clear, the preamble will not be considered for the purpose of contradicting the enacting portion of the statute. The court also noted, however, that in other cases where the application of the statute may be doubtful, a preamble may be helpful in determining legislative intent.

The court in City of Rolla v. Studley, 120 S.W.2d 185, 187 (Mo.App.1938) considered the preamble a part of a City resolution and stated that the preamble may be considered in determining whether that resolution was in sufficient compliance with the law. In Phillips Pipe Line Co. v. Brandstetter, 241 Mo.App. 1138, 263 S.W.2d 880 (1954), the court distinguished between section headings and preambles. The former are "usually the work of revision committees, and are not truly parts of the statute." Id. 263 S.W.2d at 884. They were held to be "of less importance than is the preamble of an amending act, in disclosing legislative intent." Id.

The preamble is to be interpreted in a common sense way in light of the legislative purpose and its plain wording. Our task, similarly, is to attempt to discern, from the language of the entire set of ordinances, in the context of history, the legislative intent. Mediq PRN Life Support Servs., Inc. v. Abrams, 899 S.W.2d 101, 110 (Mo.App.1994). The entire set of applicable provisions as well as the purpose of the legislation, are to be considered. Id. We know that the City has the lawful authority to tax deferred compensation plans. Hopkins, 894 S.W.2d at 159. The only question now is whether the City has in fact chosen to do so in its earnings tax ordinances.

In 1948, the City adopted Ordinance 44678. The preamble to the ordinance recites that it is an ordinance levying and imposing an earnings tax for general revenue purposes of one-half of one percent ² of salaries, wages, commissions, and other compensation earned after August 31, 1948.... The preamble also recites many other aspects of the ordinance, including the fact that the ordinance provides "that income exempt from the state income tax laws shall be exempt from taxation under the provisions of this ordinance." A relatively quick perusal of the preamble indicates that the preamble is merely a summary description of the enacting portions of the ordinance, much like an editorial summary, and is not intended to have an independent substantive effect. It is not difficult to see that the language referring to the "income exempt from the state income tax law" is simply a summary description of Section Eight of the ordinance, which was a precursor to the language adopted in 1952 which is now codified as Section 5.22.090 and states as follows:

The income referred to in Sections 143.120 to 143.150 RSMo 1949, as not being subject to the state income tax shall not be taxable under this chapter.

Ordinance 46222, adopted in 1952, revised Section Eight to update the statutory citations. ³ Ordinance 47063,...