Tax Type
Individual Income Tax
Description
Protective Claim; Request for Refund
Topic
Basis of Tax
Persons Subject to Tax
Taxpayers' Remedies
Date Issued
09-11-2001
September 11, 2001
Re: Protective Claim: Individual income tax
Dear *****
This will reply to your letter concerning a protective claim for the refund of your Virginia individual income tax for the taxable year 1990. The protective claim was based on the court case of William Stepka et al. v. Commonwealth of Virginia. I apologize for the delayed response.
FACTS
You and your wife filed an original Virginia return for the taxable year 1990 that included income from federal civil service annuities. Subsequently, you filed a protective claim by amending your Virginia return and claiming subtractions for these federal civil service annuities. You are requesting that the additional refund calculated on the amended return be issued once the court case has been concluded.
DETERMINATION
Code of Virginia § 58.1-1824, copy enclosed, provides that when a protective claim is filed:
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- The Tax Commissioner may decide such claim on the merits in the manner provided in § 58.1-1822 for appeals under § 58.1-1821, or may, in his discretion, hold such claim without decision pending the conclusion of litigation affecting such claim. (Emphasis added.)
As a result, the Tax Commissioner can, based on the merits of the protective claim, make a determination independent of the litigation. There is sufficient information available in your case to make a final determination without considering the outcome of the Stepka case.
At issue is whether the facts and issues of your case were comparable with the facts and issues of the Stepka case. First, the plaintiffs of the Stepka case were officers or employees of the Commonwealth of Virginia, its subdivisions, and its agencies. You were employees of the federal government. Second, prior to 1989, Code of Virginia § 58.1-322(C)(3), copy enclosed, specifically exempted from Virginia taxation the pension and retirement income of officers and employees of the Commonwealth of Virginia, its subdivisions, and its agencies. There was, however, no federal or Virginia statute that specifically exempted the federal civil service annuities of federal employees from taxation by the Commonwealth of Virginia. Third, the plaintiffs alleged that the former tax exemption for state and local government pensions was a term of their contract with the Commonwealth of Virginia.
When Code of Virginia § 58.1-322(C)(3) was repealed by the 1989 Session of the General Assembly, the plaintiffs alleged that a breach of their contract with the Commonwealth of Virginia occurred. The plaintiffs, therefore, entered into litigation against the Commonwealth of Virginia to request a refund for taxes paid as a result of repealing this statute. In your case, the federal civil service annuities were not exempt from Virginia taxation and you were not employees of the Commonwealth of Virginia. Consequently, there is no basis to conclude that there was a breach of the terms of your employment contract since you were never an employee of the Commonwealth of Virginia.
Based on this information, the facts and issues of your case were significantly different from those of the Stepka case. The federal civil service annuities received by you and your wife, therefore, were subject to Virginia taxation, and the subtraction of such income on your amended return for the taxable year 1990 must be disallowed. Accordingly, your protective claim for refund for the taxable year 1990 must now be denied. If you wish to pursue this matter further, there may be judicial remedy under Code of Virginia § 58.1-1825. The application, however, must be filed before one year from the date of this letter. Should you have any questions, please contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13655N
Rulings of the Tax Commissioner