Tax Type
Individual Income Tax
Description
Retirement income from federal government
Topic
Taxable Income
Date Issued
04-12-1990
April 12, 1990
Re: §58.1-1821 Application: Individual Income Tax
Dear ****
This will refer to your letter of February 12, 1990. 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 discriminate against federal government retirees in favor of state and local government retirees for purposes of taxation. The Supreme Court did not mandate refunds to federal government retirees on a retroactive basis, in effect leaving this decision up to the states.
The application of Davis to Virginia's income tax for taxable years 1985 - 1988 is an issue that is currently in litigation in the state courts. on February 13, 1990, the Circuit Court for the City of Alexandria ruled against the federal retirees on this issue; however, the appeal of this decision to the Virginia Supreme Court is expected.
As the issue is still in litigation, the department must continue to enforce the law as it existed prior to the Davis decision. As such, the assessment issued to you for 1988 is due and payable in full.
It should be noted, however, that in the event an appeal ultimately results in a refund order by the courts, the General Assembly enacted legislation during its 1989 special session to extend the statute of limitations for the filing of amended 1985 - 1988 income tax returns. Under this legislation, federal retirees will 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 and interest paid on federal pension income for 1988 would be refunded in full with accrued interest.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner