Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, March 2, 1991 TAG: 9103020141
SECTION: VIRGINIA PAGE: A3 EDITION: STATE
SOURCE: WARREN FISKE LANDMARK NEWS SERVICE
DATELINE: RICHMOND LENGTH: Medium
While top state officials were relieved with the decision, several spokesmen for federal retirees vowed to appeal to the U.S. Supreme Court.
"We never did expect too much out of the state courts," said Oscar J. Honeycutt, first vice president of the Virginia chapter of the National Association of Retired Federal Employees.
"Frankly, it seems to me that the state Supreme Court may have made more of a political decision than a legal decision."
At issue is whether 210,000 federal and military retirees in Virginia are entitled to refunds of state income taxes they were charged from 1985-88.
For decades, the state taxed the pensions of federal and military retirees, but had no levy on the retirement pay of state and local government workers.
In March 1989, the U.S. Supreme Court ruled in a Michigan case that all states must tax federal and state pensions equally. Weeks later, the Virginia General Assembly passed laws that eliminated the disparity.
Federal and military retirees were not satisfied, however, and filed suit seeking full reimbursement of back taxes paid to the state.
Friday's decision unanimously upheld Alexandria Circuit Judge Donald H. Kent's ruling last year that the refund would create "inequity, injustice and hardship."
The state Supreme Court noted that Virginia had been taxing federal and state pensions unequally for almost 50 years. It said state officials had no way of knowing the assessments were illegal until the landmark Michigan decision in 1989.
"Nothing in the record suggests that the commonwealth acted other than in good-faith reliance on a presumptively valid taxing statute," the court said in an opinion by Justice Roscoe Stephenson.
"As far as the record shows, the federal pensioners paid the tax without protest" prior to 1989, the opinion said.
The justices also said that a rebate would have a disastrous effect on the state budget, which already has been cut deeply to overcome a $2.2 billion revenue shortfall.
A refund "would have a potentially disruptive and destructive impact on the commonwealth's planning, budgeting and delivering of essential state services," the court said.
"We are pleased by the decision," said Laura Dillard, spokeswoman for Gov. Douglas Wilder.
"I'm obviously very gratified with the court's decision," Attorney General Mary Sue Terry said in a statement. "Not only was it unanimous, it reaffirmed what we have been saying all along, and that is that you ought to be able to rely upon a statute that has been on the books and gone unchallenged for almost 50 years."
But Michael Kator, an attorney for the federal and military retirees, predicted the ruling would be reversed by the U.S. Supreme Court.
"In a case like this, where it is a question of whether something is constitutional or not, the answer is simply yes or no," Kator told The Associated Press. "Whether you meant to violate the Constitution or not doesn't matter. There is no dispute that they violated the Constitution."
The U.S. Supreme Court ruling against Michigan in 1989 prompted lawsuits in 17 of the 23 states that taxed federal pensions at a higher rate than state retirement pay. The high court is considering whether to hear an appeal by federal retirees in South Carolina who are seeking reimbursement of state taxes.
Dennis Harrington, a national spokesman for the federal retirees group, said the U.S. Supreme Court may decide the issue in another case it is scheduled to hear this spring. In that suit, the Jim Beam distillery is seeking a $2.4 million refund for taxes paid to Georgia under a law that later was found unconstitutional.
by CNB