Walters v. City of St. Louis

Background

A group of wage earners sued to stop their employer from withholding a new city earnings tax and to stop the City of St. Louis from collecting it. The city ordinance taxed gross salaries and wages of employees but allowed businesses, corporations, and the self-employed to deduct “necessary expenses” and be taxed on net profits. The plaintiffs argued that this difference in treatment violated the Fourteenth Amendment (the Constitution’s guarantee of equal treatment and fair legal process). State courts rejected their facial challenge to the ordinance, and questions about the city’s administrative regulations were not decided below.

Reasoning

The Supreme Court considered only whether the statute and ordinance on their face violated the Fourteenth Amendment. The Court held that distinguishing wage income from business profits is not automatically unconstitutional. It noted that wages are often seen as more fixed and predictable while business profits can fluctuate, and that equal treatment does not require identical tax rules for different kinds of income. Because the case was brought before the tax was widely applied and the record lacked proof of how the tax would be administered, the Court would not strike down the ordinance based on possible future administration. The Court therefore affirmed the judgment upholding the law and ordinance.

Real world impact

Cities may adopt similar income-tax schemes taxing employees’ gross pay while taxing businesses on net profits. The decision rejects a broad facial attack on the ordinance but leaves open later challenges to particular regulations or to how the tax is administered in practice. Taxpayers may still contest specific administrative rules or applications.

Dissents or concurrances

Justice Douglas, joined by Justice Black, agreed with the result but cautioned that municipal regulations allowing deductions to employers but not to employees could raise serious equal protection concerns.