Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, June 5, 1990 TAG: 9006050596
SECTION: VIRGINIA PAGE: B-1 EDITION: EVENING
SOURCE: Associated Press
DATELINE: RICHMOND LENGTH: Medium
The ruling Monday in a Florida case involving liquor taxes was hailed by refund-seeking federal retirees and by Virginia state officials who insist that no refunds are due. The justices ruled unanimously that tax refunds can be ordered if a state had reason to believe that its tax was unconstitutional but imposed and collected it anyway.
The court, however, ducked the refund issue in a companion Arkansas case involving a trucking company, voting 5-4 to send the issue back to courts there for further study.
Last year, the Supreme Court said Virginia could not continue taxing federal pensions while exempting pensions paid to state and local government retirees. The decision touched off two waves of state-tax reform, bringing tax relief to thousands of public and private pensioners. But the state insists - and a state court judge in Alexandria ruled this year - that it owes no refunds of past taxes.
The Virginia case involved taxes paid by 200,000 federal retirees from 1985 through 1988.
Officials and spokesmen for the retirees' groups estimated this year that refunds would cost the state up to $400 million.
"As I see it, it was a good day for the federal retirees," said Michael Kator, a Washington, D.C., attorney hired by several pensioner groups. He said the Florida ruling backs up his contention that refunds can be ordered if the state had reason to believe its tax policies were unconstitutional.
He said Virginia should have known by the early 1980s that taxing federal pensions while exempting benefits paid to state and local government retirees would not pass constitutional muster.
A deputy state attorney general insisted that the Florida case is a boon for Virginia, reinforcing the state's position that it owes the retirees nothing.
"We feel real good about it," said Gail Starling Marshall, who argued the state's case before Alexandria Circuit Judge Donald Kent last February. The Florida case has "no application in Virginia," she said, because the state could not possibly have known that its pension taxation system was unconstitutional.
Marshall argued that last year's Supreme Court ruling was "a new and unforeseen principle of law. No one had challenged" the state's income tax policy before last year, she said.
A Richmond lawyer whose work on tax law has been published by the University of Virginia's Center for Public Service viewed the day's rulings as a plus for the retirees. He suggested the state rethink its vow to fight the pensioners in court.
Douglas Sbertoli said the state should have known that its tax policies were constitutionally questionable. "This was not a sleeper," he said. "[The 1989 case] was out there and had been for a number of years." State officials acknowledged that they were caught off guard by the case, which stemmed from a lawsuit in Michigan.
The decisions also got mixed reviews from spokesmen for federal retirees' organizations.
"It looks like it left something for the lawyers to argue about. That's about all I know," said Oscar Honeycutt, first vice president of the Virginia chapter of the National Association of Retired Federal Employees.
But a spokesman for military pensioners pronounced himself "quite happy about [the Florida case]."
"I think the judge in Alexandria made a political decision not based on law," said John Chapman, president of the Military Retirees Taxpayers Association.
The battle now shifts to the Virginia Supreme Court. Kator said he would file briefs within the next few days asking the court to reverse the Alexandria court's ruling and order the refunds.
by CNB