U N IT E D STATES OF AM ERICA

RAILROAD RETIREM ENT BO ARD

844 N O RTH R U SH STREET

CHICAGO, ILLINOIS 60611-2092

GENERAL COUNSEL

August 15, 2003

L-2003-09

VIA TELEFACSIMILE

Mr. Tom Dwyer 

National Legislative Director 

National Association of Retired 

And V eteran Railroad Employees

D ear Mr. Dwyer:

This is in response to your request, directed to Mr. Robert Bergeron, 

Assistant to the Labor M em ber of the Railroad Retirem ent Board, th at I 

review the a m e n d m e n t to section 143.124 of the Missouri Revised Statutes 

(V.A.M.S. § 143.124) by Missouri House Bill No. 600, e n a c te d July 1, 2003, 

a n d consider w hether th e a m e n d m e n t renders railroad retirem ent 

annuities subject to in co m e taxation by the state of Missouri.

The first subsection of section 143.124, which w as not altered by the 2003 

am en d m en t, provides in pertinent part that:

1. O ther provisions of law to the contrary notwithstanding, the total 

am o u n t of all annuities * * * a b o v e * * * six thousand dollars 

annually provided by any law of this state, [or of ] the United 

States, * * * shall b e subject to tax under th e provisions of this 

c h a p te r * * *.

Printed on recycled paper
UNITED STATES RAILROAD RETIREMENT BOARD -2 -

Subsection 5 of section 143.124 further provides th at although social 

security benefits “a re not to b e considered as retirem ent benefits", social 

security benefits a re to b e su b tracted from the calculation of Missouri 

incom e. The 2003 a m e n d m e n t w hich is th e subject of your inquiry a d d s 

subsection 10, which states th at various exem ptions of pensions from 

incom e as specified by section 143.124 apply to any pension defined by 

subsection 1 a b o v e , w hich is included in th e Federal gross incom e 

calculation a n d not otherwise d e d u c te d from incom e u n d er Missouri law.

As you know, railroad retirem ent annuities, including supplem ental 

annuities, a re p aid pursuant to the Railroad Retirem ent Act of 1974 

(45 U.S.C. § 231 et. seq.). Section 14 of the Railroad R etirem ent Act 

(45 U.S.C. § 231m) provides, in pertinent part, as follows:

14(a) Except as provided in subsection (b) of this subsection a n d 

th e Internal R evenue C o d e of 1954, notwithstanding an y other law 

of th e United States, or of any State, * * * no annuity or 

supplem ental annuity shall b e assignable or subject to an y tax * * *.

(b)(1) This section shall not o p e ra te to ex clu d e th e am o u n t of any 

supplem ental annuity * * * from incom e tax ab le pursuant to the 

Federal incom e tax provisions * *

The Internal R evenue C o d e requires th at th e portion of a railroad 

retirem ent annuity w hich is equivalent to a social security benefit is subject 

to taxation on the sam e basis as a social security benefit. See section 

86(d)(1) of th e C o d e (26 U.S.C. § 86(d)(1)). The C o d e further provides th at 

the rem aining portion of a railroad retirem ent annuity, a n d any 

supplem ental annuity, shall b e taxable as incom e to th e sa m e extent as a 

private pension under an em ployer plan. See section 72(r) of th e C o d e 

(26 U.S.C. § 72(r)). These Internal Revenue C o d e provisions are, in effect, 

exceptions to th e prohibition against taxation co n ta in e d in section 14 of 

the Railroad Retirement Act, but only for purposes of Federal incom e 

taxes. Section 14 of th e Act clearly continues to ex em p t railroad 

retirem ent annuities, including supplem ental annuities, from incom e 

taxation by States.
UNITED STATES RAILROAD RETIREMENT BOARD -3 -

It a p p e a rs th at section 143.124 of th e Missouri Revised Statues m ay allow 

d ed u ctio n of th e social security equivalent portion of a railroad retirem ent 

annuity from th e calculation of Missouri adjusted gross incom e but m ay 

not exclude th e rem aining railroad retirem ent annuity a n d supplem ental 

annuity. However, any question has b e e n foreclosed by the Suprem e 

C ourt of Missouri in C arter v. Director of Revenue. 805 S.W. 2d 154, (Mo. 

1991), cert, d e n . 502 U.S. 821 (1991). The Court in th at c a se c o m p a re d 

th e prohibition by section 14 against state taxation of railroad retirem ent 

benefits with section 207 of the Social Security Act (42 U.S.C. § 407) a n d 

c o n c lu d e d "While federal law d o es not prohibit state taxation of Social 

Security benefits, 45 U.S.C. 231 m d o es exclude * * * railroad retirem ent 

benefits from state taxation." 805 S.W. 2d a t 156.

In a c c o rd with the decision of the Suprem e Court of Missouri in the C arter 

c a s e , in my opinion the exem ption co n tain ed in section 14 of the Railroad 

Retirement A ct prohibits taxation of annuities, including supplem ental 

annuities, u n d er the incom e tax laws of Missouri.

I h op e the foregoing discussion is of assistance to you.

Sincerely,

Steven A. Bartholow 

G eneral Counsel

b cc: Office of the Labor M em ber

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