96-2493

Federal Retiree

Signed 5/1/97

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

PETITIONER, :

Petitioners, : FINDINGS OF FACT,

: CONCLUSIONS OF LAW,

v. : AND FINAL DECISION

CUSTOMER SERVICE DIVISION : Appeal No. 96-2493

UTAH STATE TAX COMMISSION, :

Respondent. : Account No. #####

: Tax Type: Federal Retiree

_____________________________________

STATEMENT OF CASE

This matter came before the Utah State Tax Commission for a formal hearing on April 9, 1997, Gail S. Reich, Administrative Law Judge, heard the matter for and on behalf of the Commission. Present and representing the Petitioner were PETITIONER REP. and PETITIONER REP.. Present and representing the Respondent were John McCarrey, Assistant Attorney General, and Julie Halverson of the Customer Service Division.

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 period in question is 1986 and 1987.

3. As a federal retiree in the State of Utah, Petitioner was required to pay state income taxes on federal retirement income, although state retirees did not pay income tax on their retirement income.

4. Respondent’s taxing of federal retirees but not state retirees was declared illegal in Davis v. Michigan Dept. of Treasury, 489 U.S. 803 (1989) and Brumley v. State Tax Commission, 868 P.2d 796 (Utah 1994).

5. In April 1994, Respondent entered into a stipulated settlement with the class of federal retirees to refund state income taxes collected on federal retirement income for the years 1985, 1986, 1987 and 1988.

6. On April 22, 1994, in the Joint Agreement and Refund Plan filed in Third Judicial District Court, attorneys for the federal retiree class, acting on behalf of Petitioners agreed to the following manner in which Petitioners and all other class members would be contacted:

Notice to Class Members of their Right to Receive Refunds. As soon as is reasonably possible after court approval of the Refund Plan, the Tax Commission shall:

(a) Notify by letter Class Members who have previously filed amended returns. If complete, they will receive a status letter, with the appropriate form, telling them how to proceed. . . .If their returns are incomplete, they will receive a claim form. . .and letter informing them they will need to file.

(b) Mail written Notice of Tax Refund. . .and Claim Forms in the form attached thereto to class members who can be identified from records available to the Tax Commission and who do not receive notice. . .and

7. According to the Joint Agreement, the Commission was to identify class members in the following way:

The Tax Commission utilizing best efforts, shall immediately proceed to identify all class members entitled to a refund and determine their current addresses. Class members and their current addresses shall be identified and determined from information and data obtained from payers of the retirement income, the Internal Revenue Service and such other information and data available from the Tax Commission’s records, including previously filed income tax returns, amended income tax returns and claims for refund, protective claims, and written and telephone communications to the Tax Commission and class representatives, and from such other reasonably obtainable lists, as well as information and data approved by the representatives of the parties.

8. The stipulation likewise provided that the following information would be provided to class counsel:

Information to Class Representatives. To enable class representatives to locate and assist class members in filing returns, the Tax Commission will regularly provide class representatives with a current list of all identifiable class members, their mailing addresses, status of refund claims including their name, address, and all offsets, including attorneys fees. . . . The Tax Commission shall notify class representatives of those initial notices returned as undeliverable.

9. The Tax Commission’s Operations Division and Technology Management Group identified class members using information from the U.S. Office of Personnel Management, Armed Forces Retirement Offices, and the Internal Revenue Service. These records were compared with Tax Commission records to verify class membership.

10. A list of the status of claims of persons verified a class members was routinely provided to class representatives, but because of the large number of potential class members and the potential for confusion in administering claims, it was only provided for class members as the agreement required.

11. On April 28, 1994, and May 2, 1994, the Commission mailed 27,820 booklets by third class mail to potential claimants whether or not they could be verified as class members. All Utah State Tax Booklets were regularly mailed by third class mail. Third class mail is not returned to the sender as undeliverable.

12. The Commission determined that it would mail claim form booklets to many individuals it could not verify were class members, but who potentially were class members.

13. In a pleading filed with the Third Judicial District Court on June 28, 1994, the federal retiree class alleged that the July 31, 1994, time deadline should be extended because inadequate notice had been given to claimants who had moved, claimants whose Tax Commission records were wrong or incomplete, or whose amended returns had been improperly processed.

14. These allegations relating to inadequate notice were subsequently resolved by stipulation between Class Counsel and Counsel for the Tax Commission on July 21, 1994, with additional mailings:

Plaintiffs, by and through class counsel, Helgesen, Waterfall & Jones, and defendants, by and through the Utah Attorney General’s Office, hereby stipulate to a resolution of the issues stated in Plaintiffs’ Memorandum in Support of motion to Require the Tax Commission to Provide Additional Notice to the Class, to Extend the Time to File Refund Claims and other Relief...

This stipulation required no further notice for any claimants.

15. In addition to the status letter and claim booklet mailings, the parties agreed to the following published notice: “The published legal notices shall be advertisements appearing four (4) times in the newspapers listed. . .”

16. In addition to these published notices, the Tax Commission conducted five federal retiree claim seminars that were widely publicized in the media. Likewise, Class Representatives widely published notices of the opportunity to submit claim forms. The resolution of the federal retiree case was widely covered by the media.

17. The stipulation between the parties allowed Class Representatives the opportunity to verify whether the Commission was fully complying with it:

The Tax Commission shall work with the representatives for the class members and shall provide them with such access and information as shall be reasonably necessary to verify the Tax Commission’s compliance with the terms of this Refund Plan and to assist class members in obtaining their refunds.

18. By stipulation, the parties agreed to the following final date for claims and extensions:

All class members who desire refunds shall file a Claim Form or a Request for Extension by July 31, 1994. One extension of 3 months will be given until October 31, 1994, if requested in writing by July 31, 1994, and an additional extension shall be granted until January 31, 1995, if requested in writing by October 31, 1994. Requests for extensions must be authorized by individual class members.

19. Petitioner filed the claim for 1985 and 1988 in a timely fashion dated June 19, 1994. Petitioner indicated that the reason the 1986 and 1987 were not filed at the time is that the W-2 forms were not available and copies had to be obtained. PETITIONER testified at the hearing that she went to her tax preparer to obtain copies of the 1986 and 1987 claim on July 30, 1994, took them home to be signed, and mailed them on July 31, 1994. XXXXXX, the tax preparer testified that she did come to his office for a form, but his records indicate no date of signatures on the form and therefore was not able to verify that it was indeed the 1986 and 1987 claim form that he gave her. He indicated that inadvertently he may have given her duplicate copies of the 1985 and 1988.

20. The records of the Tax Commission show that duplicate claim forms for 1985 and 1988 were filed bearing the July 30, 1994 date. No forms for 1986 and 1987 were ever received before the deadline.

APPLICABLE LAW

Utah Code Annotated §49-10-201. Governor may negotiate settlement [Repealed effective July 1, 1997].

(1) The governor may:

(a) conduct settlement negotiations on behalf of the state to settle the lawsuit; and

(b) until July 1, 1994, enter into a written settlement agreement on behalf of the state that settles all claims asserted by federal retirees against the state in that lawsuit.

(2) The governor shall ensure that in exchange for any benefit received by a claimant under the settlement affirmatively releases the state from all claims arising of out of the subject matter of the lawsuit.

(3) Notwithstanding the provisions of Section 59-1-402, as amended by House Bill 7, 1993 Second Special Session of the Utah Legislature, the governor may authorize payment as part of the settlement agreement for 100% of all taxes owed retirees under the lawsuit plus interest through October 11, 1993, in the amount of 9% per annum for a cash payment, and 12% per annum for deferred payment.

Utah Code Annotated §49-10-202. State Tax Commission to administer settlement-Refundable tax credit [Repealed effective July 1, 1997].

(1) The State Tax Commission shall:

(a) administer any settlement agreement signed by the governor under this part;

(b) make payments from the Federal Retirees Settlement Fund as required by the settlement agreement;

(d) develop printed documentation necessary to accomplish these requirements;

(e) obtain approval from the governor’s general counsel and the attorney general of the form and substance of all documentation.

(f) include, as part of the written documentation, language allowing the claimant to direct that any amount owing to the claimant under the settlement agreement be deposited into a checkoff rather than being paid to the claimant; and

(g) transfer monies from the Federal Retirees Settlement Fund to one or more of the checkoffs as directed by claimants.

(2)(a) The tax commission is authorized to make payments from the Federal Retirees Settlement Fund in the form of refundable tax credits for tax years 1993, 1994, and 1995 as required by the settlement agreement.

(b) For those federal retirees electing to receive their settlement in the form of a tax credit for tax years 1993, 1994, and 1995, there is created a refundable tax credit for tax years 1993, 1994, and 1995, in an amount equal to 1/3 of the federal retirees refund amount plus interest under the settlement agreement.

(c) The tax commission shall withhold from any settlement amount paid from the Federal Retirees Settlement Fund up to 15% of the settlement amount for class member attorney’s fees. The tax commission shall distribute the monies withheld for attorney’s fees, less any authorized administrative charges, in accordance with the district court order.

(3) The attorneys for the class members of the federal retirees lawsuit may review records or information in the custody of the commission in accordance with Section 59-1-403.

CONCLUSIONS OF LAW

The issue in this case is whether Petitioner timely filed claim forms for 1986 and 1987. The Tax Commission records have shown that timely filing were made for 1985 and 1988 and that duplicate copies of 1985 and 1988 were submitted at the time that Petitioner is arguing that the 1986 and 1987 forms were submitted. No 1986 or 1987 forms were received by the Commission in a timely fashion, but rather not until September 30, 1996, having been signed on that date and filed on that date. The records and the greater weight of the testimony validates that Petitioner filed duplicate copies of the 1985 and 1988 claim forms and did not actually file claim forms for 1986 and 1987 until more than two years after the cutoff date for filings. Based on the evidence, the Commission finds the Petitioner has identified no valid grounds for varying the terms of the agreement as it applies to the instant case and justifiable grounds do not exist for extending the filing.

DECISION AND ORDER

Based upon the foregoing, the Tax Commission finds in favor of Respondent. It is so ordered.

DATED this 1 day of MAY, 1997.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Richard B. McKeown

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner