Tax Type
Individual Income Tax
Description
Federal government retirement
Topic
Taxable Income
Date Issued
11-01-1989
November 1, 1989
Re: §58.1-1821 Application: Individual Income Tax
Dear*****************
This will refer to your letter of October 22, 1989 to the office of the Attorney General. As you protest the assessment of additional tax, I am treating your letter as an appeal under the provisions of Va. Code §58.1-1821.
FACTS
The taxpayer is a retiree of the United States government. Subsequent to the opinion of the U. S. Supreme Court in Davis v. Michigan, the taxpayer filed a 1988 Virginia individual income tax return claiming a subtraction from federal adjusted gross income for his federal retirement benefits.
The taxpayer's return was reviewed by the department and the subtraction was disallowed. The taxpayer contests the resulting assessment on the basis of the Davis opinion.
DETERMINATION
The U. S. Supreme Court mandated in Davis v. Michigan that states may not tax federal government retirees any differently than state and local government retirees. The Supreme Court did not mandate refunds to federal government retirees on a retroactive basis, in effect leaving this decision up to the states. Five court cases seeking such refunds are currently pending before the Circuit Courts in Alexandria, Fairfax County, and Richmond. Three cases previously filed in the U. S. District Court for the Eastern District of Virginia on this issue have been dismissed.
Similarly, the Supreme Court's opinion had no impact upon 1988 tax returns. In addition, the retirement income subtraction enacted by the General Assembly in response to Davis is effective for taxable year 1989. Because of this, the Department of Taxation expects all federal retirees to file their 1988 returns based on the law as it existed prior to the Davis opinion.
The department's position that 1988 returns should be filed in accordance with pre-Davis law was communicated to the public through the press immediately after the Supreme Court's decision. As such, I do not find basis for the waiver of the assessment issued in this case.
In the event that refunds to federal retirees are ordered by the courts, the General Assembly enacted legislation during its recent special session to extend the statute of limitations for the filing of amended 1985 - 1988 income tax returns. Under this legislation, federal retirees would have one year from the final court decision on the refund issue in which to file refund claims with the Department of Taxation. In the present case, any tax paid on federal pension income for 1988 would be refunded in full with accrued interest.
Therefore, based upon the foregoing, the assessment issued to the taxpayer is due and payable in full.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner