Tax Type
Individual Income Tax
Description
Pension income; Refund request
Topic
Payment and Refund
Returns/Payments/Records
Date Issued
12-09-1991
December 9, 1991
Re: §58.1-1821 Application: Individual Income Tax
Dear**********************
This will reply to your letter dated October 8, 1991, in which you (the "Taxpayer") request refunds for taxes paid attributable to pension income received for taxable years 1985 through 1987.
FACTS
Based upon the opinion of the U.S. Supreme Court in Davis v. Michigan, the Taxpayer filed his 1988 Virginia individual income tax return claiming a subtraction from federal adjusted gross income for federal retirement benefits. The Taxpayer's return was reviewed by the Department of Taxation and the subtraction was disallowed, resulting in an assessment of additional tax for that year.
The Taxpayer also filed amended returns for taxable years 1985 through 1987, computing refunds due, for each of these years, of the tax that was attributable to pension income received. The cumulative total of these computed refunds have been claimed as "tax credits" used by the Taxpayer to offset his tax liabilities for taxable years 1989 and 1990, respectively. The Department has disallowed the "credits" for both years 1989 and 1990, and has issued assessments, accordingly.
DETERMINATION
The department's position that taxable year 1988 returns should be filed in accordance with the law in effect for taxable year 1988 was communicated to the public through the press immediately after the Supreme Court's decision. As the issue is still in litigation, the department must continue to enforce the law as it existed prior to the Davis decision. Accordingly, the subtractions claimed for federal retirement benefits for taxable years 1985 through 1988 were properly disallowed by the department.
On November 8, 1991, the Virginia Supreme Court reaffirmed its previous ruling of March 1, 1991, stating that refunds to federal retirees are not mandated under federal or Virginia law as the result of the U.S. Supreme Court's 1989 decision in Davis v. Michigan.
As such, I do not find basis for the waiver of the assessments issued in this case, which have been paid 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. If the courts rule favorably for the pensioners, any tax attributable to federal pension income which has been paid for those years will be refunded in full, with accrued interest.
Sincerely,
W. H. Forst
Tax Commissioner
TPD/5687M
Rulings of the Tax Commissioner