Tax Type
Individual Income Tax
Description
Subtractions from federal adjusted gross income; Federal retirees
Topic
Taxable Income
Date Issued
01-25-1993
January 25, 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear****:
This will reply to your letter of June 17, 1992 in which you seek correction of an individual income tax assessment against you and your wife (the "Taxpayers') for failure to include your federal retiree income in the income you reported to Virginia.
FACTS
During taxable year 1988 you and your wife resided in Virginia. In April of 1989 you filed a resident return with the department. You excluded the U.S. Army retirement benefits you received during 1988 from your Virginia return, although you did disclose such omission in the return.
You based your exclusion of your retirement income from the income you reported to Virginia upon the United States Supreme Court's decision in Davis v. Michigan Dept. of Treasury, 489 U.S. 803 (1989). You assert that since the Court declared Michigan's taxation of federal retirees retirement benefits unconstitutional, the same would apply to Virginia.
Additionally, your taxable year 1989 Virginia return indicated that you were due a refund. This refund has been applied against your tax liability arising from taxable year 1988. You have asked the department to refund your 1989 overpayment with interest.
DETERMINATION
Although you are correct in asserting that Davis did directly impact Virginia's tax structure, the exclusion of your federal retirement income from your 1988 tax return was incorrect. The U.S. Supreme Court decided Davis in early 1989. The Court's opinion only discussed the substantive tax issue. The Court was silent as to whether its decision was to be retroactively applied to taxable years prior to 1989 since that issue was not before it.
The department, along with several other states, has taken the position that the Davis decision was not to be retroactively applied to taxable years prior to 1989. This issue is currently before the U.S. Supreme Court. Until such time as Virginia's position is determined to be incorrect, I must enforce the tax laws as they were in effect for taxable year 1988. Since there was no subtraction for federal retirement income, none may be allowed. Therefore, the assessment is valid.
In regards to your 1989 Virginia refund, pursuant to Va. Code § 58.1-499 (copy enclosed), the overpayment was properly applied against your 1988 tax liability.
When the Court decides the issues before it, Virginia will notify affected taxpayers on how to proceed, if necessary.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner