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STATE TAXATION OF NONRESIDENTS'
PENSION INCOME
HEARING
BEFORE THE
SUBCOMMITTEE ON
ECONOMIC AND COMMERICAL LAW
OF THE
COMMITTEE ON THE JUDICIAKY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
JULY 22, 1993
Serial No. 10
HAa^POtlv LAW
LIBRARY
Printed for the use of the Committee on the Judiciary
U.S. CX)VERNMENT PRINTING OFFICE
WASHINGTON : 1993
ForsalebytheU.S.GovernmentPrintingOffice
intendentofDocuments,CongressionalSalesOffice,Washington,DC 20402
ISBN 0-16-041737-6
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STATE TAXATION OF NONRESIDENTS'
PENSION INCOME
HEARING
BEFORE THE
SUBCOMMITTEE ON
ECONOMIC AND COMMERICAL LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
JULY 22, 1993
erial No. 10
RECEIVED
STO.TPUBLicn^::? ^7
"NIVIF^'Tdocument:
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON 1993
:
ForsalebytheU.S.GovernmentPrintingOffice
intendentofDocuments,CongressionalSalesOffice,Washington,DC 20402
ISBN 0-16-041737-6
COMMITTEE ON THE JUDICIARY
JACK BROOKS, Texas, Chairman
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RICK BOUCHER, V
JOHN BRYANT, T KF 5425 .A2 S91 1993
CGREAOIRGGEA.EW.ASSAHNL( United States. Ccaigress.
JACK REED, Rho< House. Canmdttee on the
JERROLD NADLE
ROBERT C. SCOT State taxation of
DAVID MANN, Oh nonresidents' pension
MELVIN WATT
L.
XAVIER BECERRy
Sl
JOHN CONYERS,
.
MIKE SYNAR, Okh
PATRICIA SCHROE
DAN GLICKMAN,
HOWARD BERMI
L.
RICK BOUCHER, V
ROBERT C. SCOTT
DAVID MANN, Ohi.
MELVIN L. WATT.
HAMPDEN LAW LIBRARY
50 STATE ST, BOX 559
SPRINGFIELD, MA. 01102-0559
OEMCO
CONTENTS
HEARING DATE
Page
July 22, 1993 1
OPENING STATEMENT
Brooks, Hon. Jack, a Representative in Congress from the State of Texas,
andchairman. Subcommittee onEconomic and Commercial Law 1
WITNESSES
Duncan, Harley T., executive director. Federation ofTaxAdministrators 56
Farrell, Chris, legislative representative. National Association of Retired
FederalEmployees 62
Hoffman, William C, president, RESISTofAmerica, Carson City, NV 21
Perkins, Joseph, member, board ofdirectors, American Association ofRetired
Persons 43
Reid, Hon. Harry, a Senatorin Congress fromtheStateofNevada 4
Smith,James C, professor. School ofLaw, UniversityofGeorgia 68
Unsoeld, Hon. Jolene, a Representative in Congress from the State of
Washington 13
Vucanovicn, Hon. Barbara F., a Representative in Congress from the State
ofNevada 16
STATEMENTS SUBMITTED FOR THE HEARING
Duncan, Harley T., executive director, Federation of Tax Administrators:
Prepared statement 58
Farrell, Chris, legislative representative, National Association of Retired
Federal Employees: Prepared statement 64
Hoffman, William C, president, RESIST of America, Carson City, NV:
Prepared statement 23
Perkins, Joseph, member, board ofdirectors, American Association ofRetired
Persons: Prepared statement 45
Reid, Hon. Harry, a Senator in Congress from the State ofNevada: Prepared
statement 6
Smith, James C, professor. School of Law, University of Georgia: Prepared
statement 70
Unsoeld, Hon. Jolene, a Representative in Congress from the State of
Washington: Preparedstatement 14
Vucanovicn, Hon. Barbara F., a Representative in Congress from the State
ofNevada: Preparedstatement 17
APPENDDGES
—
Appendix 1. Material submitted fortherecordbyhearingparticipant 99
Chairman Brooks:
July 14, 1993, memorandum from Johnny H. Killian, American Law
Division, Congressional Research Service, Library of Congress, on
"Congressional Powerto Proscribe CertainState Taxes" 99
July 16, 1993, memorandum from Robert B. Burdette, American
Law Division, Congressional Research Service, LibraryofCongress,
on "Relevant Federal Judicial Decisions ConcerningState Taxation
ofNonresidents'Retirement Income" 107
Mr. Duncan: Response toquestions forthe record 116
(III)
IV
Page
— —
Appendix 1. Material submitted forthe recordby hearing pari,icipant Con-
tinued
Mr. Farrell: Responseto questions forthe record 127
Mr. Hoffman:
Responseto questions forthe record 130
"Tax Down!"SouthwestAirlines (Spirit),July 1993 134
Mr. Pericins: Responseto questions fortherecord 136
Mr. Smith:
Article by Walter Hellerstein and James Charles Smith: "State Tax-
ation of Nonresidents' Pension Income," Tax Notes, July 13,
1992 146
Article by James Charles Smith and Walter Hellerstein: "State Tax-
ation of Federally Deferred Income: The Interstate Dimension,"
New York University School of Law Tax Law Review, volume
forty-four, numberthree 156
Res—ponseto Questions forthe record 139
Appendix 2. Textoflegislation introducedduringthe 103d Congress 208
S. 235 208
H.R. 411 212
H.R. 546 214
H.R. 702 218
H.R. 221—6 222
Appendix 3. Statements for the record from sponsors and cosponsors of
legislation 224
Bilbray, Hon. James H., a Representative in Congress from the State
ofNevada 224
Bryan, Hon. RichardH., aSenatorin Congress from the State ofNevada 225
Dicks, Hon. Norman D., a Representative in Congress from the State
ofWashington 228
Herger, Hon. Wally, a Representative in Congress from the State of
California 230
Swift, Hon. Al, a Representative in Congress from the State of
Washington 236
—
Appendix4. Other material submitted forthehearingrecord 238
Arcari, Paul W., Colonel, U.S.A.F. (Ret.), the Retired Officers Association,
and Michael Ouellette, Sgt. Major, U.SA. (Ret.), Non Commissioned
Officers Association; co-chairmen, the Military Coalition: July 21, 1993,
letter and statement 238
Berry, Gregory L.:July22, 1993, statement 242
Crisalli, LCDR DonnaM.,JAGC, U.S.N., tax attorney 243
Gibson, C.G.: August 11, 1993, letterto Chairman Brooks 245
Horcher, Paul v., member, California State Assembly, 60th District:
August 17, 1993, letterto Chairman Brooks 246
Klehs, Johan, chair. Assembly Committee on Revenue and Taxation,
California Legislature: September 10, 1993, statement 248
Lyons, Kenneth T., national president, National Association of
Government Employees:July 22, 1993, letter 255
Lyons, Kenneth T., national president, International Brotherhood of
Police Officers: July 22, 1993, letter 256
Miller, Chief Master Sergeant Bob, USAF (Ret.), legislative affairs
manager. AirForce SergeantsAssociation: July 22, 1993, statement 257
Pearson, Norman E., national executive secretary, Fleet Reserve
Association: statement 261
Pennington, Major General James C, USA (Ret.), president. National
Association forUniformServices:July 22, 1993, statement 265
Scully, Robert T., executive director, National Association of Police
Organizations:July 22, 1993, statement 268
Tobias, Robert M., national president. National Treasury Employees
Union: Julv 22, 1993, statement 271
Wray, David L., president, Profit Sharing Council of America: August
9, 1993, letter andstatement 276
STATE TAXATION OF NONRESIDENTS'
PENSION INCOME
THURSDAY, JULY 22, 1993
House of Representatives,
Subcommittee on Economic and Commercial Law,
Committee on the Judiciary,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:19 a.m., in room
2141, Raybum House Office Building, Hon. Jack Brooks (chairman
ofthe subcommittee) presiding.
Present: Representatives Jack Brooks, Rick Boucher, Robert C.
Scott, David Mann, Melvin L. Watt, Hamilton Fish, Jr., Elton
Gallegly, Charles T. Canady, Bob Inglis, Bob Goodlatte, and Carlos
J. Moorhead.
Subcommittee staff present: Cynthia W. Meadow, counsel;
George P. Slover, assistant counsel; Perry Apelbaum, assistant
counsel; Carrie Bedwell, assistant counsel; Catherine S. Cash, re-
search assistant; Deloris L. Cole, office manager; full committee:
Jonathan R. Yarowsky, general counsel; Alan F. Coffey, minority
chief counsel; Roger T. Fleming, minority counsel; and Mary
Margaret Adams, Ed Robertson, and Brandon West, interns.
OPENING STATEMENT OF CHAIRMAN BROOKS
Mr. Brooks. The subcommittee will come to order.
Today, the subject of t—he hearing is "State Taxation of Non-
residents' Pension Income" a matter about which retirees and cer-
tain taxing States have become increasingly vocal in recent years.
State taxation of nonresident pension income presents a number
of important public policy issues. The States have long chosen to
defer taxation of pension contributions and earnings until retire-
ment distributions are made. To the extent the retiree remains a
resident of the State where the pension was earned, no problems
are presented. If the retiree chooses to relocate to another State,
however, a number ofcomplications can arise.
For instance, in cases where States have pursued a policy of
seeking to collect pension taxes from retirees who have moved to
other States, this practice has been challenged on fairness grounds
and raises a number of logistical and administrative concerns.
These problems are only compounded, some would say to a crisis
level, when more than one State seeks to tax the same pension in-
come.
Many retirees have labeled State efforts to tax pensions earned
by out-of-State retirees no less than taxation without representa-
tion. States, in turn, have answered these charges by asserting
(1)
that they are merely upholding the principle of "tax neutrality,"
since the same taxes are levied on pensioners who do not choose
to relocate.
Today's hearing offers the subcommittee its first opportunity to
move beyond the rhetoric and to scrutinize closely the facts, includ-
ing State pension tax procedures, potential legal restrictions, and
alternative sources ofrevenue available to the States.
The subcommittee will hear from a broad range ofwitnesses, rep-
resenting different perspectives on this important, yet volatile, pol-
icy debate. We welcome all of you and look forward to your testi-
mony.
This morning we welcome Senator Harry Reid and Congress-
women Jolene Unsoeld and Barbara Vucanovich, who have spoken
with eloquence on the need to protect retirees from undue taxation
on pensions and have sponsored legislation that would limit States'
ability to assess taxes on nonresidents' pension income.
Senator Reid, U.S. Senator from the State of Nevada, has served
in the Senate with distinction since his election in 1986. He spon-
sored S. 235.
Congresswoman Jolene Unsoeld ofOlympia represents the Third
District of Washington with what we should fairly call persistence
and vigor since her election, and she is here to testify on her bill,
H.R. 546.
Barbara Vucanovich represents the Second District of Nevada.
She has been here for some yea—rs now and has spent most of her
time working on this legislation and part ofit working on me and
Ham Fish. Her bill is H.R. 702.
It is a pleasure to have you all. In the int—erest of time, I am get-
ting everybody's position put in the record the professional wit-
nesses and you and other members. We ask you to limit your re-
marks to 2 or 3 minutes, so we can proceed. Prior to that, Senator,
I would like to recognize Congressman Ham Fish.
Mr. Fish, Very briefly, Mr. Chairman. I welcome our witnesses
here this morning and thank them for being with us today.
Although the issue of State taxation of nonresident pension in-
come is not a new one to the Congress, it is the first time that this
subcommittee has convened a hearing on the subject, and that is
a very welcome development. All three of our witnesses, as you
mentioned, Mr. Chairman, have sponsored legislation in this area,
and I know that for 6 consecutive years our colleague from Nevada
has sponsored legislation on this important issue. Beginning with
H.R. 5276 in the 100th Congress, Mrs. Vucanovich has led the fight
on source tEixation and I am pleased that she could join us this
morning.
I believe that the element offairness is fundamental to any dis-
cussion of source taxation as it is being carried out in this country
today, and I certainly understand the anger and the frustration felt
by citizens who are subject to this tax. Clearly, Congress has the
constitutional authority to legislate in the area of interstate tax-
ation as H.R. 702 and 546 contemplate. Further, it may be advis-
able for Congress to provide some policy guidance in this area,
since the issue affects so many citizens and is one which is becom-
ing the subject ofa dispute between several States.
So I look forward as you do to the testimony ofthe witnesses and
will have questions later. Thank you.
Mr. Brooks. Well, I thank you very much.
Mr. Moorhead, do you have an opening statement?
Mr. Moorhead. I have an opening statement, Mr. Chairman.
Mr. Chairman, I have long advocated the repeal of a source tax
that some States impose on retirees who no longer live within their
boundaries, and I am pleased that you have called this hearing to
air this issue thoroughly.
California is one of the three States that have specific tax rules
providing for the taxation of retirement income of nonresidents. If
an individual works and produces income within the State of Cali-
fornia for several years, and then retires and moves to another
State, like Nevada or Florida, California the State will attempt to
collect the tax on the retiree's pension despite the fact that he or
she is no longer a resident of the State. While I recognize the se-
vere state ofCalifornia's budget, I do not believe in all fairness that
this additional tax is justified.
Retirees on fixed incomes should be allowed to live comfortably
without worries of being unfairly taxed by a State where they no
longer live, vote, or receive benefits. It is obvious that the State
that they live in is going to try to collect the tax on that very same
income too, so they may end up paying two State income taxes on
the same income.
Recently, a police retiree from my district, who now lives in the
State of Washington, notified me that he had his pension check
stopped by the California Franchise Tax Board and that subse-
quent pension checks were to have 25 percent withheld until a
back tax bill in the amount ofapproximately $33,000 was satisfied.
I don't think that this practice should be allowed to continue.
I am currently a cosponsor of H.R. 702, Congresswoman Vucano-
vich's legislation, providing that no State may impose an income
tax on the qualified pension income of any individual who is not
a resident or domiciliary of the State. I cosponsored similar legisla-
tion in the last Congress, and I am pleased that this subcommittee
is finally moving forward on this issue.
The number of senior citizens affected by this unfair tax contin-
ues to grow rapidly. If this tax is not prohibited, or at least re-
stricted in its scope, the economic impact on our retirees will be
catastrophic. There is no question but the Congress has the con-
stitutional authority to legislate in this area. It is a matter ofinter-
state commerce and the issue is becoming a source of dispute be-
tween several States.
I hope this hearing will provide us an ample record to pass legis-
lation on to the full House for consideration.
Thank you, Mr. Chairman.
Mr. Brooks. You are welcome very much.
Mr. Scott, the gentleman from Virginia.
Mr. Scott. Thank you, Mr. Chairman. I will just make a brief
remark. I think it is obvious that source taxation is legal, according
to all the cases that have been decided. The question is whether
or not it is fair and whether or not you can apply the tax in any
kind ofequitable fashion.
I did a little research in Virginia and everybody I talked to gave
a different answer. I think the final answer we got is that some
Virginia retirees are taxed once in Virginia; some are taxed twice,
once in Virginia and once in a source State; some are taxed once
and maybe a little, once in Virginia, once in the source State, but
protected by a tax credit, depending on whether or not there is
some reciprocity.
I would imagine that most people are in a situation where they
only pay if they get caught, and then you have got the back taxes,
penalties, interest, and everything else, where they are put into fi-
nancial ruin by getting caught and everybody else is getting away
with it.
I would hope that we could do something in this area, and I am
delighted to participate in the hearing.
Thank you very much.
Mr. Brooks. Mr. Canady, the gentleman from Florida.
Mr. Canady. Thank you, Mr. Chairman. I am very pleased we
are conducting this hearing today. This is, of course, a very impor-
tant issue to us in Florida because of the large number of retirees
who live in our State. I believe that this tax burden is a burden
that they should not have to bear. I am very pleased with these
legislative proposals, and I hope that this hearing will serve as the
prelude to some positive legislative action to address this unfair
burden that is placed on retirees in Florida and other States.
Thank you.
Mr. Brooks. Senator Reid. The gentleman is recognized.
STATEMENT OF HON. HARRY REID,A SENATOR IN CONGRESS
FROM THE STATE OF NEVADA
Mr. Reid. Thank you, Mr. Chairman. I appreciate very much
your holding this hearing. And, even though I don't often com-
pliment Republicans, I would like to extend my public appreciation
to Congressman Moorhead for his statement. Those of us in the
West receive most of our heartburn on this issue from the State of
California, and I think it shows a lot of courage for you to come
out so openly in support ofthis fairness, and I appreciate it.
But it also raises another point. Last year a majority of the
Members of the House of Representatives supported this legisla-
tion, and a large number of Members from California were among
those supporters. I think it speaks well ofthis body.
We know that retirees in every State may be forced to pay taxes
on pensions drawn in States where they spent their working years,
despite the fact they no longer are present to participate in the pro-
grams which their taxes are Amding. The vast majority of people
affected by these unfair practices, this unfair practice in particular,
are on fixed incomes. Yet they are paying taxes on their pension
incomes to States where they don't benefit from the public infra-
structure and services their taxes fund.
For example, they don't benefit from roads, bridges, public parks,
medical programs, senior citizen centers, and other such things.
They don't even vote in the State that is taxing them. As indicated
by Mr. Moorhead and the chairman, it is basically a situation of
taxation without representation. You will likely hear from many
