THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Wednesday, December 7, 1994 TAG: 9412070474
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: ASSOCIATED PRESS
LENGTH: Medium: 79 lines
The U.S. Supreme Court ruled Tuesday that Georgia must refund money illegally taxed from federal retirees. That could force Virginia to sweeten its $351 million settlement with federal pensioners, their lawyer said.
``I think it will have an impact in Virginia,'' Michael Kator said. ``It's going to require us to go back to square one and to put more money into this settlement.''
But Gov. George F. Allen urged retirees to stick with the agreement that the General Assembly approved in a special session last summer.
``It's a very fair deal, not only for Virginia taxpayers but also for retirees,'' Allen told reporters. The state would owe about $700 million if it had to give the pensioners full refunds plus interest.
In Tuesday's ruling, the Supreme Court unanimously favored a military retiree in Georgia. It said the state owes ``meaningful backward-looking relief'' to federal retirees who paid an unlawful state income tax.
The court ruled in 1989 that states cannot tax federal pensions if state and local workers' retirement pay is exempt. Most of the 23 states affected by the ruling have settled with those who were taxed illegally.
Virginia faced the largest liability because it is home to many retired military and federal employees.
Attorney General James S. Gilmore III said the issues in the Georgia case differ from those in Virginia. ``Settling our case is the best course for all Virginians,'' he said.
Sen. Joseph V. Gartlan Jr., D-Fairfax, one of the few legislators to oppose the settlement, said the Supreme Court ruling is ``a very, very significant development, and it's one that could undermine the whole proposition.''
The decision came a week before the state will mail notices to 159,000 federal retirees telling them how much they would get under the settlement offer. The pensioners must decide individually by Feb. 1 whether to take the money, which would amount to about 87 percent of the taxes they paid. No interest would be paid.
The settlement will collapse if the offer is rejected by retirees who collectively are owed more than $20 million.
``This decision greatly increases the likelihood that there will be $20 million in rejections,'' Kator said.
He said retirees could ask for more money when the Assembly meets in January and pursue their lawsuit still pending before the Virginia Supreme Court.
The Assembly already will be grappling with Allen's proposed $2 billion tax cut and the costs of a massive prison-building program.
Retirees who take the settlement would get their first check next spring. Those who are owed the least would get all their money in about a year. Others would get checks spread over five years.
``It's not a good deal as far as I'm concerned because I'd have to wait five years,'' said Henry Harper of Arlington, a retired veterinarian who is the lead plaintiff in the lawsuit. He said he is owed about $4,500.
But Harper said he'd recommend that retirees who can get their money sooner accept the settlement.
The pensioners ``still have a very tough choice,'' Gartlan said. ILLUSTRATION: Graphic
VIRGINIA'S PLAN
Virginia is offering a $351 million settlement to federal retirees
on illegally taxed pensions. The state would owe about $700 million
if it had to give the pensioners full refunds plus interest.
Next week, Virginia will mail notices to 159,000 federal retirees
telling them how much they would get under a settlement offer.
The pensioners must decide individually by Feb. 1 whether to take
the money, which would amount to about 87 percent of the taxes they
paid. No interest would be paid.
The settlement will collapse if the offer is rejected by retirees
who collectively are owed more than $20 million.
by CNB