Court Opinion

ID: 8171822
Source: CourtListenerOpinion
Date Created: 2022-09-09 21:20:12.236054+00
Date Added: 2024-06-11T16:39:46.802780
License: Public Domain

Dooley, J.,
concurring. Although I agree with the Court’s decision and rationale, I want to clarify what I believe has not been decided. We have decided that the use of the adjustment method conflicts with 31 U.S.C. § 3124. We have not decided that only the recomputation method would comply with that statute.
The State used the adjustment method rather than the recomputation method because the former almost always results in a higher tax liability, and never results in a lower tax liability. The reason for this is the progressivity of Vermont’s income tax, derived from the progressivity of the federal income tax on which it is piggybacked. Higher incomes are taxed at higher rates so that income exclusion reduces both the income to be taxed and the average rate of taxation. In effect, the adjustment method takes out the federal obligation income, but the average taxation rate remains as if the federal obligation income were still present.
The State does have a point, however, that pure application of the recomputation method can result in a tax shelter that should not be protected by § 3124. For example, if a high income individual had 95% of his or her income from federal obligation income, it is inappropriate to allow the remaining income to become untaxable as a result of personal exemptions and deductions. To continue the example, imagine if the individual gave 5% of his or her total income to charity. It is unreasonable to allow a full offset of the charitable deduction against taxable income, reducing taxable income to zero, as if none of the federal obligation income were used to support the charitable contributions.
In my opinion, Vermont could create a system of allocating exemptions and deductions between taxable and nontaxable income, which would pass muster under § 3124 as interpreted in Bartow but which would not allow the State to gain from the progressivity of the income tax. The system would be more complicated and would achieve a result between the adjustment and recomputation methods *329in many cases. Because the State failed to create such a system, it cannot prevail here.
I am authorized to say that Judge Bryan joins in this concurrence.