Congress Blocks States From Taxing Out-Of-State Retirees

Thousands of retirees from California and other states who flocked to Washington, Idaho, Montana and Oregon in the first half of this decade will receive a tax break.

Congress passed and the president has signed a law forbidding states to pursue pensioners across state lines to collect tax on retirement income.

It is a form of double taxation without representation known in revenue lingo as a source tax. And states from California to New York have been engaging in this unfair practice.

Federal law permitted states to tax the income of non-resident retirees not just from state retirement programs but from company pension plans and individual programs as well.

A retired attorney who moved to Spokane writes that he still owns a piece of a California shopping center on which he pays that state personal income taxes. “I also pay them state taxes on my individual retirement account and my (law firm’s) profit sharing trust, of which I am the trustee,” adds the barrister, who wishes to remain anonymous but whose initials are J.G.B.

Jim Dawes of Sequim, state chairman of Retirees to Eliminate the State Income Source Taxes (RESIST), says he doesn’t know how many Washington or regional residents will benefit from the tax change.

“But I do know that over 3,000 retirees of the California public employees system alone now reside in Washington,” says Dawes, a retired letter carrier from California. “And this one pension fund in one state is just the tip of the iceberg.”

Among those affected locally is Berthalee Smith, a retired California school teacher and mother of Spokane tax accountant Anson Avery.

“My mother paid state taxes all the years she was working in California and putting money into a retirement program,” says the owner of Avery & Co., CPAs. “Then, after she came here to retire, they followed her and continued to tax her.”

But no more - not after 1995.

The new law says flat out: “No state may impose an income tax on any retirement income of an individual who is not a resident or domiciliary of such state.”

Tax adviser Avery estimates he has 30 clients from California and several other states who are getting taxed a double whammy. “It was a national disgrace,” he says of the outlawed tax.

“The American Institute of Certified Public Accountants has been trying for years to get this sort of reform passed,” Avery says.

“This is watershed tax legislation,” says Avery. “It is legislation by the federal government that levels the playing field across state lines. You have to go back to the 1980s for something as sweeping and as fair.”

The new law is an especially big windfall to those who saved toward retirement in states that tax individual incomes but defer taxes on pensions and retirement plans - states like California, Minnesota and New York - then retire to a state that doesn’t tax personal income.

In the Pacific Northwest, that’s one state - Washington.

Both Idaho and Montana have income taxes, Dawes says. But neither pursued pensioners across state lines, which reportedly cost each of these neighboring states millions a year in lost tax revenues.

A reciprocal agreement enabled Oregon to tax the income of pensioners from California, and if retirees wanted offsetting compensation they had to make application to California for a credit.

The new law reportedly will cost California at least $25 million a year in lost tax revenues from out-of-state retirees. Other states haven’t divulged their losses yet. But Dawes says California, Oregon and New York were among the most aggressive tax collectors across state lines.

In 1990, when Dawes took over the helm of RESIST for Washington, the single-issue lobby had only nine individual members in this state. Today, it has thousands.

“But now that our sole mission in life has been accomplished,” says Dawes, “RESIST will retire.”

What will he do with himself? Says Dawes, “What else - go fishing.”

, DataTimes MEMO: Associate Editor Frank Bartel writes on retirement issues each Sunday. He can be reached with ideas for future columns at 459-5467 or fax 459-5482.

The following fields overflowed: CREDIT = Frank Bartel The Spokesman-Review

Associate Editor Frank Bartel writes on retirement issues each Sunday. He can be reached with ideas for future columns at 459-5467 or fax 459-5482.

The following fields overflowed: CREDIT = Frank Bartel The Spokesman-Review

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