Commonwealth of Virginia flag.

Commonwealth of Virginia flag. Niyazz/Shutterstock.com

Federal Retiree Sues Virginia for Tax Discrimination

Former NASA employee claims commonwealth unfairly taxes pensions under the Civil Service Retirement System.

A federal retiree is suing the commonwealth of Virginia, claiming the Old Dominion is unfairly taxing residents who receive government pensions under the old Civil Service Retirement System.

Former NASA employee Karl Beisel has filed a lawsuit against the commonwealth’s Department of Taxation, alleging that Virginia’s tax exemption for the Social Security portion of certain pensions is discriminatory, violating the equal protection clause of the 14th Amendment and Title 4, Section 111 of the U.S. Code. Retirees under the Federal Employees Retirement System and the Virginia Retirement System (the system for commonwealth employees) receive an exemption because Social Security is a component of their overall retirement plans; there is no comparable exemption for CSRS retirees like Beisel because CSRS predates the 1935 Social Security Act. CSRS covers employees hired before 1984 when FERS was created, at which time feds starting contributing to Social Security. CSRS was closed to new enrollees when FERS was implemented in the early 1980s.

Those employees enrolled in CSRS do not pay Social Security taxes, and so do not receive Social Security when they retire under that system. “Under CSRS, an employee with 30 years of service will have earned an annuity equal to 56.25 percent of the average of his or her highest three consecutive years of pay,” stated a March 2014 report from the Congressional Research Service. “With 30 years of service, an employee enrolled in FERS will have earned a pension equal to 30 percent of the average of his or her highest three consecutive years of pay, or 33 percent, if the individual is 62 or older at retirement.”

Beisel claims that because of the difference in how Virginia taxes pensions, CSRS retirees end up paying more in annual state taxes than FERS or VRS retirees. For example, a CSRS retiree living in Virginia receiving an annual retirement income of $42,000 pays $690 more in taxes than does a FERS or VRS employee with the same retirement income because of the tax exemption, according to Beisel’s calculations on his website.

Beisel, who moved back to Virginia recently after living in Texas, which does not have an individual state income tax, is seeking a state income tax refund from Virginia for 2013 “comparable to values that would have resulted if he had made payments” into Social Security -- that amounts to $1,161.62 -- as well as a comparable tax exemption going forward to be determined. He is also seeking refunds for 2011, 2012 and 2013 for “similarly-situated Virginia taxpayers.” There are approximately 80,000 CSRS retirees subject to Virginia income tax, according to the official complaint. Beisel estimates that amounts to $2,700 per retiree on average for the past three tax years, and could total approximately $1 billion when factoring in future years.

The complaint cites the Supreme Court cases Harper v. Va. Department of Taxation (1993) and Davis v. Michigan Department of the Treasury (1989) in its argument. Both of those cases sided with the plaintiff, concluding that taxing federal pensions as income while exempting state annuitants from a similar tax violated Title 4. Beisel cited F.S. Royster Guano Co. v. Virginia (1920), which involved tax exemptions for some corporations’ profits and not others in his argument that Virginia’s tax exemption system regarding CSRS, FERS and VRS violated the 14th Amendment.

Neil McPhie, partner and director of legal services at Tully Rinckey, a federal sector labor and employment law firm in Washington, said he thinks the case will be dismissed early because the plaintiff “has not shown, for Constitutional purposes, that being a recipient of CSRS benefits places him in a suspect classification for judicial review of an Equal Protection Claim.” To be considered a suspect class (in this case, CSRS retirees), the group has to meet criteria suggesting they are likely the subject of discrimination. If the plaintiff can’t show that CSRS retirees as a class have been discriminated against, McPhie said, “then the state only has to show that there is a rational relationship between the tax and a ‘legitimate’ governmental reason offered as its justification. The fact that CSRS recipients did not pay into Social Security, nor reap the rewards of such payment, is likely to play a role in the state’s reasoning for the taxation of these benefits.”

McPhie is not involved with the case, and commented as an outside observer. Richmond, Virginia law firm Carrell Blanton Ferris is representing Beisel.

The Virginia Taxation Department declined to comment on the case.

(Image via Niyazz/Shutterstock.com)

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.