ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, April 15, 1996 TAG: 9604160013
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
Refugees from high-tax states who retire to Virginia no longer have to feel the long arm of tax collectors from their former homes.
Some of these retirees have been paying income taxes to Virginia as well as to states such as New York and California. But that situation has come to an end this year.
That's because Congress has passed a law, which President Clinton signed, barring California and other states from taxing pension incomes of former residents.
A few states had levied what they called a "source tax" on people who move to different states in retirement and other states were considering such a move.
Their rationale was that people had earned the pension, and probably received a tax deferral, while living in the levying states. Therefore, the reasoning went, they should pay a state tax on their retirement money.
Congressmen who supported the tax, on the other hand, contended that the retirees were unable to benefit from the first state's public services and were no longer able to vote there, so they should not be subject to its taxes.
The new legislation barring the practice was signed as law in January and will go into effect for the 1996 tax year. Retirees who have made Virginia their home and are covered by the bill must pay taxes due this month, but they will not have to pay taxes on pension income received in 1996 and beyond.
Bill White, a tax policy analyst with the Virginia Department of Taxation in Richmond, said this state had never tried to levy such a tax on people moving away from Virginia in retirement.
But he said retirees who moved here from other states often were taxed by both Virginia and by the former state. They were doubly taxed.
As current residents of Virginia, he said, these people owe tax on their income just as all other residents do.
Virginia has many retirees from New York, White said, and these people have paid taxes to both states. Effective with this year's income, according to White, such people will escape the New York taxation.
People who were doubly taxed might - or might not - receive a Virginia credit for taxes paid to New York. The possibility of a credit, he said, applies to earned or business income. But it does not apply to retirement income.
Mary Ann McElmurray, a certified public accountant with the Roanoke firm of Brown, Edwards & Co., said the double taxation "has always been a sore spot.
Her firm, she said, had a client who moved from New York to Florida as a tax-planning ploy. Florida has no state income tax, which was the reason for the move. But she said New York claimed taxes on the retirement income.
States are always "hungry for even more revenue," McElmurray said.
She said New York, for instance, will claim that people are legal residents of that state even if they move away. They would thus be subject to taxation.
People establish residency through such evidence as car registrations, driver's licenses and voter registrations.
But McElmurray said she has seen New York claim that people with burial plots in that state are its legal residents, saying they have moved away only temporarily. New York will, therefore, contend these people left New York only for tax purposes.
In another move for tax freedom, McElmurray said, the U.S. Supreme Court recently struck down a North Carolina law that taxed intangibles - that is, investments. The court, she explained, ruled that a state could not tax out-of-state residents on their investments in that state.
The new law governing the source tax on retirees also is expected to trigger legal assaults on other types of source taxes that are levied by California. That state taxes income earned within the state even though the same income is fully taxed in the person's home state.
A professional athlete, for instance, might play a schedule of 50 games, two of them on the road in California. In such a case, California demands taxes on two-fifthieths of the athlete's income even though the same income is taxed in his home state.
The same is true of a performer who gives a concert in California or an actor who appears in one film in Hollywood.
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