The Virginia legislature is slated
to vote today on a settlement
that lawmakers reached in late May
with federal retirees to repay $340
million of taxes illegally imposed by
the state.
The settlement represents about
80% of claims for refunds, excluding
interest, by about 185,000 federal
retirees. Passage of the legislation is
expected to end five years of litigation
brought by the retirees that exposed
the state to more than $700 million
of total liability, including interest.
Virginia taxed federal retiree
income in the 1980s, but the Supreme
Court ruled in 1989 in Davis v.
Michigan that such taxes are illegal if state
and local retiree income is not
similarly taxed.
Last Thursday, Rep. Leslie Byrne,
D-Va., and Sen. Charles Robb,
D-Va., introduced legislation that
would exempt from federal taxation
any refunds the Virginia retirees
receive.
Byrne and Robb said the retirees
may face having their settlement
taxed by the federal government,
which would cause double taxation
for most of the retirees who do not
itemize their tax returns.
"Now that a settlement has been
reached in the lawsuit, the time is
right for this legislation," Robb said
in a statement.
The Supreme Court in its 1994-95
term, which begins Oct. 3, will
review the state refund process in light
of its 1989 decision in a Georgia
case, Reich v. Collins.
