94-2153

Income

Signed 1/19/96

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

XXXXX,

Petitioner, ) FINDINGS OF FACT,

: CONCLUSIONS OF LAW,

v. ) AND FINAL DECISION

:

AUDITING DIVISION OF THE ) Appeal No. 94-2153

UTAH STATE TAX COMMISSION, :

)

Respondent. : Tax Type: Income

_____________________________________

XXXXX,

Petitioner, )

:

v. )

:

AUDITING DIVISION OF THE ) Appeal No. 94-2254

UTAH STATE TAX COMMISSION, :

)

Respondent. : Tax Type: Income

_____________________________________

STATEMENT OF CASE

This matter came before the Utah State Tax Commission for a Formal Hearing on XXXXX. Alice Shearer, Commissioner, and G. Blaine Davis, Administrative Law Judge, heard the matter for and on behalf of the Commission. Present and representing Petitioner were XXXXX and XXXXX, from the law firm XXXXX. Present and representing Respondent were XXXXX and XXXXX, Assistant Attorneys General, together with XXXXX from the Operations Division, and XXXXX from the Attorney General's Office.

Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:

FINDINGS OF FACT

1. The tax in question is income tax.

2. The periods in question are XXXXX tax years.

3. Petitioners filed requests for refunds pursuant to the settlement reached between the parties in XXXXX v. Utah State Tax Commission, Civil No. 89-0903618.

4. Petitioners are both retirees from the XXXXX.

5. Petitioner XXXXX was employed by the XXXXX from XXXXX until his retirement in XXXXX.

6. XXXXX was hired by XXXXX, an employee of XXXXX.

7. Petitioner XXXXX was employed by the XXXXX from XXXXX until his retirement in XXXXX.

8. XXXXX was hired by XXXXX who was the personnel director for XXXXX in XXXXX.

9. Petitioners= claim forms and election forms were timely filed.

10. Petitioners supplied all information necessary to process their refund claims.

11. Petitioners= claims for refunds were denied by Respondent.

12. The amounts claimed as refunds are not in dispute.

13. In the XXXXX's, the State of Utah did not provide a retirement system for the employees of the XXXXX or for any other State of Utah employees.

14. In states where retirement systems existed the Federal government provided most of the funds which were used for those XXXXX employees to participate in the retirement programs.

15. In states such as Utah, where a retirement system did not exist, the Federal government allowed the XXXXX to create a retirement system for XXXXX retirees.

16. The retirement system for Utah XXXXX employees was established in approximately 1960 under Federal supervision and was required to meet Federal guidelines.

17. The Utah XXXXX set up a retirement system for its employees patterned after the Federal Retirement System.

18. The retirement system for XXXXX employees was funded primarily by grants from the Federal government and is administered by XXXXX. The administrator of the XXXXX is also the administer of the retirement program with XXXXX.

19. Employees who were hired by XXXXX prior to XXXXX continue to participate in the retirement program with XXXXX.

20. Employees who were hired by the XXXXX after XXXXX participate in the retirement system of the State of Utah.

21. If XXXXX retirees receive any cost-of-living adjustments in their retirement pay from XXXXX, such adjustments are tied to the cost-of-living adjustments approved by Congress for Federal retirees and its employees.

22. Any changes to the retirement program between XXXXX and XXXXX must be approved by the Federal government.

23. If the fund begins to experience financial problems, then the actuary for the fund informs the XXXXX, and they in turn will inform the Federal government of the shortfall.

24. If the fund is unsound, and the Federal government agrees, then the Federal government will pay money into the fund to make it actuarially sound.

25. Funding to secure the condition of the fund for the XXXXX' retirement program for XXXXX retirees is appropriated as a line item in the Federal budget each year.

26. The funding is sent by the Federal government to the XXXXX, which then forwards the money to XXXXX. The money is not paid directly from the Federal government to XXXXX or to the retirees.

27. The XXXXX has historically hired its personnel either directly through the State Personnel Division or under the direction of the State Personnel Division.

28. Any request by the Federal government to terminate a XXXXX employee would be advisory, while such a request by the Industrial Commission of the State of Utah would be a directive.

29. All former administrators, as well as the current administrator of the XXXXX were appointed to that position by the Industrial Commission of the State of Utah.

30. The Utah State Governor can hire and fire the XXXXX administrators for cause.

31. XXXXX, the current XXXXX administrator, sits on the Governor's Cabinet Council where he is entitled to participate in that council and give input on questions affecting state government. He does not have any such advisory role with the Federal government.

32. The XXXXX is a Division of the Industrial Commission of the State of Utah and has its own official seal, pursuant to Utah statute, which is judicially recognized.

33. Petitioners have participated in a retirement plan which was administered pursuant to a contract between the XXXXX and XXXXX. The Federal government is not a party or a participant in the contract with XXXXX.

34. The contributions to the retirement fund with the XXXXX were made directly by Petitioners themselves and by the XXXXX. Most of the funds contributed to the retirement fund at XXXXX were originally received by way of a grant from the Federal government.

35. Since XXXXX, all new employees hired by the XXXXX have been required to participate in the Utah State Retirement Plan which is administered by the Utah State Retirement Board.

36. Funding for the XXXXX is provided by State, Federal and other sources, but most of the funding is derived from Federal sources.

37. The money that XXXXX receives from the Federal government is placed in a fund called the XXXXX Administration Fund.

38. The Utah Treasurer is liable on his or her official bond for the faithful performance of his or her duties in connection with the XXXXX Administration Fund.

39. The XXXXX is covered under the Utah State Risk Management Program.

40. The Petitioners in this case received health and dental benefits through the State of Utah's health and dental benefit program provided to all State of Utah employees.

41. The Department of Employment Security pays its employees in accordance with a pay structure which is governed by the State of Utah pay structure for all of its employees.

42. The XXXXX closes its offices on XXXXX, which is a State holiday and not a Federal holiday.

43. The Utah State Auditor performs a yearly audit of the XXXXX activities, as well as an audit of the funds of the agency. The funds to pay for that audit come from the grant from the Federal government.

44. The XXXXX uses the State of Utah's Employee Grievance Program and system for any grievances for XXXXX employees.

45. The XXXXX and employees were permitted to join the Utah Public Employees Association, which is an association limited to State of Utah employees. Such membership has been allowed for the past 25 years, and one of the Petitioners was in fact a member of the Utah Public Employees Association.

46. The XXXXX was created by State statute, and the Department would cease to exist if the State statute creating that agency were repealed. Accordingly, the employees of the XXXXX are employees of the State of Utah, and are not employees of the Federal government.

47. The retirement benefits paid to Petitioner are paid from the XXXXX, a private insurance company.

48. The retirement benefits paid to Petitioners are not received by Petitioners as Federal retirement benefits, Federal annuities, or from Federal sources as that term was used in the Findings, Conclusions and Partial Summary Judgement from the District Court.

49. Petitioners are not Federal retirees and have never been Federal employees.

50. Petitioners are retirees from a State agency. Those employees received their appointments through a State governmental official, they worked for an agency that was created by State statute, they worked under supervision from other State employees, and they performed a combined State and Federal function.

51. Petitioners are retirees of the State of Utah, and receive their retirement pay by way of a private contract between the XXXXX of the Industrial Commission of Utah, a State agency, and the XXXXX. The United States Government is not in any way a party to that retirement agreement, notwithstanding that it was entered into pursuant to authorization from the United States Government to permit a portion of the grants from the Federal government to be utilized for the funding of that retirement agreement. The fact that Petitioners do not qualify for retirement from the Utah State Retirement fund does not mean that they are not retirees of State government.

52. Petitioners are not members of the class which was certified by the District Court as a class in the case of XXXXX et al. v Utah State Tax Commission, they were not characterized as being included in the class by the Supreme Court in its decision at 868 P.2d 796, they were not included as a part of the class by the definition of those class members in the joint agreement and refund plan between the parties of the XXXXX case, and they were not approved as members of the class by the court in its order on joint agreement and refund plan.

53. This case is not a successive stage of the XXXXX litigation, and it is not the same case. Therefore, the "law of the case" does not apply to this preceding.

The Commission having made and entered its Findings of Fact, now makes its:

CONCLUSIONS OF LAW

1. The Utah XXXXX is an agency of the State of Utah, having been created by Title 35 of the Utah code.

2. The funds which are received from the Federal government to fund the XXXXX are received by way of grant from the United States government to fund a State system of public employment offices. However, those funds go into an XXXXX fund to be utilized by the State agency in accordance with general guidelines which are adopted by the State agency and approved by the Federal government. When those funds are distributed, they are no longer Federal funds, but are State funds which have been received from the Federal government by way of a grant.

3. The State agency, XXXXX, is fully administered by State employees, subject to the supervision of State employees, and carries out a combined State and Federal function pursuant to the XXXXX Act.

4. Those who are deemed to be Federal employees are those who are defined by 5 U.S.C. '2105, and Petitioners do not fall within the definition of Federal employees pursuant to that statute.

5. The "law of the case" doctrine applies to successive stages of the same litigation, and is limited to decisions of matters previously decided in the same case. The subject case is a different case than the XXXXX litigation, and therefore the "law of the case" doctrine would not apply the term AFederal sources@ to this case.

6. Even if the law of the case would apply the term "Federal sources" to this case, that term was later defined in other proceedings of the same case to be limited to "Federal retirees," "Federal retirement income," "Federal retirement benefits," and "Federal retirement annuities." Therefore, the Utah Supreme Court in its decision on the XXXXX case, the parties in their stipulation to settle the claims in the XXXXX case, and the District Court in approving and accepting the settlement, further defined what had been meant by the term AFederal sources@, and limited that term to Federal retirement benefits, Federal retirement income, and Federal retirement annuities. Those terms do not include the income that is at issue in this preceding.

7. The fact that the Petitioners are not eligible for the exemption provided to other State employees because they were not members of the Utah State Retirement Plan does not mean that they are Federal employees. The exemption for members of the State Retirement Plan was a specific provision with very limited application, and many other retirees did not qualify for those same benefits.

8. At the hearing, counsel for Petitioners acknowledged that the case of Davis v. Michigan, 489 U.S. 801(1989), would not specifically mandate the exemption requested in this preceding. The Commission finds that the exemption requested is not mandated by Davis v. Michigan, Supra.

9. In Davis v. Michigan, Supra, the decision of the United States Supreme Court was based upon 4 U.S.C. '111, which is of limited application and only applies to "pay or compensation for personal service as an officer or employee of the United States, a territory or possession or political subdivision thereof, the government of the District of Columbia, or an agency or instrumentality of one or more of the foregoing ...." The Petitioners do not qualify as officers or employees of any of the listed agencies, and therefore 4 U.S.C. '111 does not apply to Petitioners.

10. There is no State statute which provides for the exemption under which Petitioners seek a refund of certain taxes paid, and Federal law, and judicial interpretation thereof, do not demand that such a refund be granted.

11. The Doctrine of Equitable Estopple does not apply to this case and is of no significance in the determination of the Commission.

12. The Respondent in its brief argued an issue of the statute of limitations denying Petitioners= request. However, because the Commission has determined that Petitioners do not otherwise qualify, it is not necessary to make a finding or reach a decision upon whether the statute of limitations would prevent the claim in this case.

DECISION AND ORDER

Based upon the foregoing, it is the decision of the Utah State Tax Commission that Petitioners do not qualify for the exemption they seek, and they should not receive the refund for which they applied. Accordingly, the decision of Respondent to deny the refund is hereby affirmed, and the Petition for Redetermination is denied. It is so ordered.

DATED this 19 day of January, 1996.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Roger O. Tew

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner

NOTICE: You have twenty (20) days after the date of a final order to file a Request for Reconsideration with the Commission. If you do not file a Request for Reconsideration with the Commission, you have thirty (30) days after the date of a final order to file a.) a Petition for Judicial Review in the Supreme Court, or b.) a Petition for Judicial Review by trial de novo in district court. (Utah Administrative Rule R861-1A-5(P) and Utah Code Ann. ''59-1-601(1), 63-46b-13 et. seq.)

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