Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, April 23, 1990 TAG: 9004210204
SECTION: BUSINESS PAGE: A5 EDITION: METRO
SOURCE: MAG POFF BUSINESS WRITER
DATELINE: LENGTH: Long
Retirees who draw Social Security, a pension, or a combination thereof are, in essence, being blind-sided by actions of the General Assembly and the state Tax Department.
Recently, the commonwealth sent out a 1990 estimated income tax booklet, which guides calculations of 1990 estimated taxes.
This booklet is grossly in error! It describes calculation methods based on 1989 legislation. This was completely changed by the 1990 General Assembly. However, I have seen nothing official - just newspaper items that a change had been made.
This booklet was sent out after the Assembly had changed the laws. To me, this is grossly unfair to the taxpayer. It's entrapment.
After receiving my tax booklet, I began to wonder if I had misread news accounts. I called the county commissioner of revenue's office and was told the booklet was in error. Should anyone follow booklet instructions and underfile estimated tax, they would be subject to a penalty as prescribed by law.
A: The situation for retired Virginians this year is exactly as you have described it.
The example you took the trouble to calculate shows the potential impact. For a couple with income of $48,000, the 1990 state tax liability comes to $541 under the rules listed in the outdated forms and $1,441 under the correct rules. That's a difference of $900, which wouldn't be included in quarterly payments.
Alice Wells, spokeswoman for the state Department of Taxation in Richmond, said the booklet for estimating income tax was printed prior to the action by the General Assembly. It was sent out because that was the only information available.
The state sent corrected information to Virginia's 2,500 tax practitioners and to local commissioners of revenue. A news release was the only attempt to reach taxpayers who prepare their own forms. Wells said the state plans to reach some organizations of retired persons.
Retired taxpayers are supposed to use the new law, Wells said. She said they can amend their 1990 estimates at any time during the year. No decision has been made about imposing penalties for underpayments, she said, although the law as it stands would impose them.
Under the new law, taxpayers age 62 through 64 get a subtraction for the first $6,000 of their income. Those 65 and over get a subtraction for the first $12,000 of income. The subtraction must be reduced by Social Security or first-tier railroad retirement benefits.
The state has a phone line for questions at 1-804-367-8031. There is a charge for calls to this number. The best bet is to contact the local commissioner of revenue for help.
Q: On April 2 you quoted someone as saying "all [mutual] funds devoted to Virginia bonds have a front-end load."
Not true. GIT Tax Free Trust Virginia Portfolio is a no-load fund.
A: You are right. GIT Investment Funds, based in Arlington, has offered a Virginia Portfolio since October 1987. It had assets of nearly $20 million at the end of the last fiscal year Sept. 30.
Dividends are exempt from both state and federal taxes for Virginia residents, but any capital gain is taxed. The annual report said the yield on Sept. 30 was 6.16 percent. When both federal and state tax ramifications are considered, that would equal a fully taxable investment of 9.76 percent.
The report said GIT holds bond issues of municipalities, state agencies and industrial development authorities. It can hold issues rated as low as triple B.
As a no-load fund, it has no commission or sales charges. Its expenses are 1.22 percent of assets, according to the 1990 prospectus.
GIT's toll-free number is 1-800-336-3063. Minimum investment is $1,000, with additional contributions of $50.
Q: A broker is trying to sell me some bonds rated AAA by Stanger. Who is Stanger and are his ratings reliable?
A: Four companies rate bonds, and Stanger isn't one of them.
Richard Wertz, assistant manager of the Roanoke office of A.G. Edwards & Sons, said the bond-rating firms are Standard & Poor's, Moody's, Fitch and Duff & Phelps.
Stanger, he said, is a rating service for limited partnerships.
The broker is almost certainly trying to sell you a limited partnership, not a bond. The partnerships are high-risk programs for sophisticated investors. Unless you fall in that category, avoid the partnership - and the broker.
Q: What constitutes "non-profit" for a business? Blue Cross-Blue Shield ran two full-page ads in the Roanoke Times & World-News on April 9. On April 10, they were on television. They are also a sponsor of the Virginia State Games while health insurance goes up and up. Non-profit?
A: A non-profit business is one without owners or stockholders who would be in a position to receive income. Profits, if any, go back into the business itself.
Non-profit businesses may or may not be profitable, just like businesses created in the hope of earning money for someone.
Michael McRaney, advertising director, said Blue Cross-Blue Shield made money last year after three consecutive years of losses. The money was used to build its reserve for paying claims.
Trying to boost its business, and thus its reserves, the company decided to undertake its first organized advertising program in recent years. You saw the kick-off ads for newspapers and television. McRaney said ads also will appear in Virginia Business and the state editions of Time and Newsweek.
McRaney said the campaign is financed from the administrative budget which, overall, is less than 10 percent of revenues.
by CNB