Missouri’s governor has signed legislation raising state taxes by $160 million to finance income-tax refunds owed to federal retirees.
Missouri is one of an estimated 27 states affected by a U.S. Supreme Court ruling last March that states must tax the pensions of federal, state, and local retirees on an equal basis. Tax experts have estimated that the ruling could potentially drain billions of dollars from state treasuries, threatening education and other state services.
Arizona, Virginia, and West Virginia have already taken steps to equalize taxes between federal and state pensioners. In Georgia, lawmakers are planning a special session to consider a proposal to begin taxing the pensions of retired state workers and teachers.
The Supreme Court decision did not specify whether federal retirees who paid income taxes on their pensions are entitled to refunds. The Court could clarify the issue after it hears arguments this fall in two cases involving state highway and beverage taxes.
Suits Filed
Meanwhile, federal retirees in nearly all of the affected states have filed suits seeking such refunds, ac4cording to Corina Eckl, senior staff associate with the National Conference of State Legislatures.
Thus far, Missouri is the only state that has been required to provide refunds. Rulings by the state attorney general and supreme court to that effect forced Gov. John Ashcroft to call the special session to raise taxes.
The increase in Missouri’s sales and corporate-income taxes will stave off budget cuts that could have reduced funding for education and other agencies, state officials said.
The state may soon face a new lawsuit, however, by private-sector retirees who argue that the High Court ruling also entitles them to income-tax refunds.
Shortly after the Missouri Supreme Court’s ruling on federal retirees, members of the International Brotherhood of Teamsters filed a request for refunds from the state. Duane Benton, Missouri’s revenue director, said the request was denied and that the state expects to be sued by the union.
“It’s our position there is no legal basis for the claim by private pensioners,” said Mr. Benton, who estimated that the cost of refunds for private-sector retirees could range between $210 million and $350 million.--nm
