Hundreds of amended tax returns from 1985 are piling up at the Utah State Tax Commission as federal government retirees attempt to protect their claims for possible refunds based on a recent U.S. Supreme Court decision.
It will be up to the Utah Legislature to decide whether the thousands of retired federal government employees living in Utah will get a refund of the state income taxes they've paid on their pensions.Still, several organizations representing the federal retirees have advised their members to submit the amended tax returns for 1985 before April 17 because the state statute of limitations on tax issues is three years.
The Tax Commission, already sorting through this year's tax returns, is less than thrilled to be getting the amended returns. "We're not encouraging people," said Tax Commission spokesman Lee Shaw.
Those former federal employees who want to submit the amended returns anyway should write across the top of their tax form, "Federal Retirement Amendment," Shaw said, so the documents don't get lost in the shuffle.
The Supreme Court ruled last month that the state of Michigan had to refund taxes paid between 1979 and 1984 by a federal retiree living there because a Michigan law exempted only state and local retirement pensions from tax.
Because Utah law also requires federal retirees to pay state income taxes on their pensions while exempting state and local retirees, the Tax Commission has been deluged with calls from retirees wanting to know how they are affected.
The answer? It's up to the Legislature. After being briefed during last week's special session on funding the University of Utah fusion research, lawmakers may be meeting again soon to figure out what to do.
They'll need to choose between requiring state and local government retirees to pay state income taxes on pensions or exempting the pensions of federal government retirees.
The key will be treating all government employee pensions the same. "The court didn't say we were wrong," Shaw said. "The court said we had to treat them equally."
The Tax Commission has calculated the cost of exempting the pensions of federal retirees at between $14 million and $18 million annually. Taxing the pensions of state and local retirees would add $4 million to state coffers.
Whichever way lawmakers go, they also will have to decide whether to make their choice retroactive. And conceivably, the Legislature could also lift the three-year statute of limitations currently in place.
That could boost the cost to the state considerably. Federal employee pensions have always been taxed in Utah while state and local employees have been exempted since the end of World War II, Shaw said.