IN THE MAGISTRATE DIVISION OF THE OREGON TAX COURT Income Tax ) ) ) ) ) ) ) ) ) ) )

Transcription

1 IN THE MAGISTRATE DIVISION OF THE OREGON TAX COURT Income Tax PHILIP SHERMAN AND VIVIAN SHERMAN, v. Plaintiffs, DEPARTMENT OF REVENUE, STATE OF OREGON, Defendant. No D DECISION ON CROSS MOTIONS FOR SUMMARY JUDGMENT Plaintiffs appeal defendant s denial of their claim for refunds for tax years 1997, 1998, 1999 and The matter is before the court on the parties Cross Motions for Summary Judgment. The court has considered the stipulated facts and memorandums submitted by the parties. STATEMENT OF FACTS The stipulated facts are as follows: Plaintiffs annually receive pension income from the New York State and Local Retirement Systems after having retired in October 1992 from employment with New York State. (Stip Fact at 1, 2. Since 1997, plaintiffs have been full-time residents of Oregon, filing Oregon state income tax returns. (Stip Fact at 3. Plaintiffs reported their New York state pension income as Oregon taxable income and paid taxes to Oregon on the pension income. (Stip Fact at Plaintiffs have filed claims for refunds for tax years 1997, 1998, 1999 and (Stip Facts at Defendant issued Notices of Refund 1 Plaintiffs amended their original Complaint on May 14, 2001, to include tax year On June 14, 2001, defendant denied plaintiffs claim of refund in its Amended Answer. DECISION 1

2 Denial on October 18, 2000, October 19, 2000, and November 15, (Stip Facts at In addition, defendant denied plaintiffs claim for refund for tax year 2000 on June 14, (Def s Amended Answer. Plaintiffs allege that the State of Oregon is violating their constitutional rights to equal protection of the law, when it mandates rebates of Oregon income taxes only to that class of PERS 2 taxpayers who are members of Oregon PERS. (Ptfs Notice of Motion Civil Action at 2. Plaintiffs allege that they are members of the class of PERS by virtue of their New York State employment and receipt of retirement benefits from the New York State Public Employees Retirement System. Defendant disagrees that it is violating plaintiffs right to equal protection of the law. Relying on prior tax court cases and an Attorney General s Opinion, defendant concludes that Oregon is not prevented from classifying taxpayers so long as the classification is reasonable and the basis for the classification is fair with similarly situated persons treated alike. COURT'S ANALYSIS This court begins its analysis with the review of a prior holding in Simpson v. Dept. of Rev., 12 OTR 455 (1993. In Simpson, Oregon resident taxpayers received pension benefits from the State of Alaska and these out-of-state pension benefits were taxed by Oregon. Plaintiffs in Simpson alleged that was unconstitutional for Oregon to tax pension benefits paid by the State of Alaska when it exempted retirement benefits paid by the State of Oregon. The court held that the taxation of out-of-state pension plan benefits is 2 PERS stands for Public Employees Retirement System. DECISION 2

3 constitutional under both the Oregon and United States Constitution. See Simpson at In this case, plaintiffs allege that even though the court has previously held that it can tax out-of-state pension benefits when it exempts its own state pension benefits, Oregon no longer exempts its own pension benefits from taxation. Under the tax laws in place for tax years 1997, 1998, 1999 and 2000, Oregon PERS pension benefits similar to out-ofstate pension benefits were taxed along with other income. In response to litigation, the Oregon Legislature enacted PERS benefit increases to compensate PERS members for the loss of the tax exemption both in the present and the future for their benefits attributable to service performed before September 29, ORS Laws 1995, ch 569; Or Laws 1997, ch 175. Plaintiffs challenge the 1995 benefit increase, alleging that it is a tax rebate that illegally favors Oregon state and local government retirees over out-of-state government retirees. In addition, plaintiffs allege that federal retirees receive a benefit similar to that given to Oregon PERS retirees. See Vogl v. Dept. of Rev., 327 Or 193, 960 P2d 373 (1998. Federal retirees received a stipulated judgment, requiring the state to refund personal income taxes paid by members of the class on federal pension income based on services performed before September 29, In addition, the state must allow class members to exclude from their taxable income in future tax years all federal pension income attributable to services performed before September 29, Plaintiffs allege that providing a tax rebate to PERS members and an equivalent tax rebate to federal retirees while giving out-of-state PERS retirees nothing is a disparity in treatment which violates Oregon s constitutional guarantee of equal privileges and immunities. (Ptfs DECISION 3

4 Reply Brief at 3. Plaintiffs attempts to distinguish this case from Simpson and the court s prior decisions 3 on the premise that the PERS recipients rebate is not equivalent to a tax exemption and Oregon s denial of a comparable tax rebate to plaintiffs is unconstitutional fails. The Oregon Supreme Court in Vogl held that the 1995 increase purports to give PERS retirees what they were promised, viz., tax-free retirement benefits. 327 Or at 208. As a result of the 1995 increase, out-of-state retirees are in no different position than they were when the court decided Simpson. Now, as then, out-of-state retirees are taxed on their pension benefits. In contrast, Oregon PERS retirees while taxed on their benefits have received an increase in benefits equivalent to the amount of additional income tax assessed on their benefits. The net result to Oregon PERS retirees is exactly what they expected, tax-free retirement benefits. Therefore, just like at the time of the Simpson case, there is no real difference between how the state taxes out-of-state retirees and Oregon PERS retirees. Even though plaintiffs argue that a tax exemption is an entirely different issue than a rebate, this court and the Oregon Supreme Court do not agree that this is a fatal distinction. (Ptfs Reply Brief at 5. In Vogl, the Supreme Court concludes that [t]he relationship between the lost exemption and the 1995 increase, therefore, is not merely one of logical causation * * *, but of purported legal equivalence. 327 Or at 208 (emphasis added. Because there is no legal difference, plaintiffs constitutional challenge 3 Kissner v. Dept. of Rev., OTC-MD Case No B (March 9, 2000; Hilands v. Dept. of Rev., OTC-MD Case No C (November 3, 2000, aff d OTC-RD No. 4512, (May 25, DECISION 4

5 to the tax rebate vis a vis a tax exemption does not raise a new basis for review by the court. The court must follow its prior holding in Simpson. Plaintiffs attempt to equate their situation to federal retirees also fails. Plaintiffs agree that out-of state PERS retirees are a class. (Ptfs Reply Brief at 3. As members of a class, plaintiffs allege that Oregon must tax their PERS income similar to the pension benefits received by federal retirees residing in Oregon. (Id. The court in Simpson held that [w]hile one state cannot impose a tax or burden on another, it may impose a tax on its own residents income received from another state. 12 OTR at 459. The state can tax plaintiffs pension income received from New York. Further, the court held that under the U.S. Supreme Court s holding in Davis v. Michigan Dept. Of Treasury, 489 US 803, 109 S Ct 1500, 59 L Ed 2d 416 (1989, a state may not impose an unequal tax treatment between its state retirees and federal retirees located in its state. Simpson, 12 OTR at 459. The state may not provide a favorable tax benefit (i.e., exemption to its own state retirees without giving the same tax benefit to federal retirees paying state tax income taxes. Combining these two holdings in Simpson, Oregon may tax its out-of-state retirees while exempting a portion of federal retirees pension benefits and providing an equivalent tax exemption for its own state retirees pension benefits. Plaintiffs requested the court to award them costs and disbursements and reasonable attorney fees. The court declines to award plaintiffs costs and disbursements. Plaintiff, Mr. Philip Sherman, states that he is licensed to practice law in the State of New York and before the Eastern Federal District County (duly admitted to the New York Bar c (Ptfs Notice of Motion Civil Action at last page. Plaintiff does not allege that he is licensed to practice in Oregon. Because only duly qualified persons licensed to practice DECISION 5

6 law in Oregon can appear before the court to represent a taxpayer, plaintiff, Mr. Sherman, is appearing pro se. See ORS In appearing pro se, plaintiffs did not incur attorneys fees. Now, therefore; IT IS THE DECISION OF THE COURT that plaintiffs Cross Motion for Summary Judgment is denied. FURTHER IT IS THE DECISION OF THE COURT that defendant s Cross Motion for Summary Judgment is granted. Dated this day of August, JILL A. TANNER MAGISTRATE IF YOU WANT TO APPEAL THIS DECISION, FILE A COMPLAINT IN THE REGULAR DIVISION OF THE OREGON TAX COURT, FOURTH FLOOR, 1241 STATE ST., SALEM, OR YOUR COMPLAINT MUST BE SUBMITTED WITHIN 60 DAYS AFTER THE DATE OF THE DECISION OR THIS DECISION BECOMES FINAL AND CANNOT BE CHANGED. THIS DOCUMENT WAS SIGNED BY MAGISTRATE JILL A. TANNER ON AUGUST 21, THE COURT FILED THIS DOCUMENT ON AUGUST 21, DECISION 6