ST. LOUIS - Mayor Freeman Bosley Jr. is backing away from a controversial tax on the deferred compensation plans, including 401(k)s, of employees who work in St. Louis.
Mr. Bosley's announcement that he will seek to cancel the tax follows a firestorm of taxpayer anger and lawsuits.
St. Louis began collecting a 1% tax on all deferred compensation plans about a decade ago. In 1993, city employees sued over the tax and successfully blocked it.
But the city appealed the decision, and last month a Missouri state appellate court gave the city the authority to reinstate the tax.
"The tax is driving people out of town," said Daniel C. Aubuchon, an attorney for the employees' group that sued the city. "I know some people who won't accept transfers downtown because of this tax."
On Tuesday, St. Louis Revenue Collector Ron Legget announced he would start collecting the tax again for the city. A flood of angry calls made him reconsider his collection efforts; he finally called it off.
"Our office was swamped with calls," he said. "Some people feel it's the straw that broke the camel's back. They want to know what the money's for and I tell them my job is just to collect."
St. Louis Board of Aldermen President Francis Slay was not pleased Mr. Legget had stopped his collection drive. "The law is on the books, he ought to be collecting the tax," Mr. Slay said.
Mr. Aubuchon said he would ask for another hearing in Missouri state court on the tax ruling.
While Mr. Slay was angry the tax was not being collected, he recognized the political opposition to it and said he would introduce legislation to repeal it.
Kansas City, Mo., and St. Louis are the only cities in the nation with ordinances that tax the deferred-compensation plans of workers in their cities, according to Mr. Bosley's office. St. Louis estimates it will lose $2 million a year in revenue without the tax.
Local business organizations are uniformly opposed to the tax. "This tax sends a very non-productive message to the business community at a time when the city should be doing all it can to attract business, industry and employees," said William Maritz, president of Civic Progress, a powerful St. Louis business group.
"Our employees are not at all happy," said Alyce Meadors, vice president of benefits at St. Louis-based Boatmen's Bank. "It's one more thing that is diminishing the value of their retirement funding. It is a wise move for the mayor to repeal this tax, which makes it more difficult for the city to attract new businesses."
Boatmen's has 1,000 employees in St. Louis that are affected by the tax. The bank has 14,000 employees enrolled in its $200 million 401(k) plan.
Not all aldermen are against the tax. Alderman Dan Gruen still wants to collect the tax, saying the city needs the money. But he said the tax shouldn't be collected retroactively to Jan. 1, as was the city's intention.
"The law is clear. It says the 1% earnings tax shall be deducted before all other deductions," said Mr. Gruen.
Mr. Legget said he would abide by the mayor's request to stop collecting the tax until changes can be made to the 1983 ordinance imposing the tax.
City Comptroller Darlene Green said she always has opposed the tax, adding it goes completely against the pro-growth philosophy she espouses. The city should be encouraging middle-class residents and work to be good partners with the St. Louis business community, she said.