Opinion ID: 1120875
Heading Depth: 1
Heading Rank: 3

Heading: oregon system for taxing government retirement benefits

Text: Taxpayers allege, and Defendants acknowledge, that Oregon taxes income from government retirement benefits for former Oregon state workers differently than it taxes income from government retirement benefits of former federal workers. The taxation of income from federal retirement programs is governed by ORS 316.680(1)(c), which provides for deduction of certain of that income from the figure for federal taxable income on a taxpayer's Oregon income tax return: (1) There shall be subtracted from federal taxable income:      (c) Amounts received by a retiree, or the surviving spouse of a retiree in the taxable year in compensation for or on account of personal services rendered in prior years, from a pension, annuity, retirement or similar fund under a public retirement system established by the United States, including the retirement system for the performance of service in the Armed Forces of the United States, or by this state or any municipal corporation or political subdivision of this state. The maximum amount excludable from taxable income under this paragraph from such pensions or annuities shall be in the amount of $5,000. If the taxpayer receives $30,000 or more of household income, as defined in ORS 310.630, the subtraction shall be reduced one dollar for each one dollar, or fraction thereof, that the household income of the taxpayer exceeds $30,000. Thus, the largest amount of federal retirement income a retired federal worker may deduct is $5,000, and the worker may not deduct any of the worker's retirement income if the total of the retired worker's household income exceeds $35,000. The retired federal worker must pay Oregon income tax on any amount not deducted. Oregon public employee retirees are treated differently. The Oregon Public Employees' Retirement System was established by the Public Employees' Retirement Act of 1953, Or. Laws 1953, ch. 200, and is now codified as ORS 237.001 to 237.315. A part of that Act, ORS 237.201(1), provides: The right of a person to a pension, an annuity or a retirement allowance, to the return of contribution, the pension, annuity or retirement allowance itself, any optional benefit or death benefit, or any other right accrued or accruing to any person under the provisions of ORS 237.001 to 237.315, and the money in the various funds created by ORS 237.271 and 237.281, shall be exempt from garnishment and all state, county and municipal taxes heretofore or hereafter imposed, except as provided under ORS chapter 118, shall not be subject to execution, garnishment, attachment or any other process or to the operation of any bankruptcy or insolvency law heretofore or hereafter existing or enacted except for execution or other process upon a support obligation or an order or notice entered pursuant to [certain other statutes not pertinent to the present case], and shall be unassignable. [3] Taxpayers assert that this disparate treatment, for Oregon personal income tax purposes, of retirement income of state and federal workers is unconstitutional.