David Lee: State’s taxing policy for government retirees is inequitable

Published 12:18 am Sunday, July 16, 2017

By David Lee

Special to the Salisbury Post

There is an inequitable tax practice for current government retirees in NC that you can help correct.

My government retirement income is not taxed by the state of North Carolina, but those who are retiring now, most likely are not receiving the same benefit. Their government retirement is taxed by the state of North Carolina. How is that fair?

Here’s the background. “As a result of the North Carolina Supreme Court’s decision in Bailey v. State of North Carolina, North Carolina may not tax certain retirement benefits received by retirees of the State of North Carolina and its local government or by the United States government retirees (including military) for each retirement plan if the retiree has five or more years of creditable service as of August 12, 1989.” From www.dor.state.nc.us

So what does that mean? My government service began in 1971 as a commissioned Naval Officer, well before Aug. 12, 1984 (five years of service before that date in 1989). My military pension is not taxable by North Carolina. My fellow military officer, who began his career in June of 1985, has his retirement taxed by our state. That was over 30 years ago, so most who are now retiring are in the same boat as my military friend.

Who does this affect? All federal, state and local government retires; teachers, firefighters, police, VA retirees, etc., etc., who are retiring without five or more years of service as of August 1989. Why aren’t they raising Cain about this inequity? Well, I don’t know. Awareness may be the biggest issue.

What’s the impact? There is cash-positive benefit for our state economy for retirees staying in our state and spending their money here. When projecting results 10 years, the ratio of benefits to costs is 2.5 to 1, a significant offset to the diminished income tax revenue.

Military retirees are used to moving. They can choose to live in states that don’t tax their retirement. That includes South Carolina and Tennessee, who have tax break provisions for their government retirement, as well as states that don’t have any state income tax, such as Texas and Florida.

So what to do? There is an organization in place that is working to get our N.C. Legislature to right this wrong. The 4th Branch is a coalition of groups representing military, federal, state and local public-service retirees. (See their web site: engage.4thbranchnc.org.}

This coalition arose from the struggle to achieve fair and equitable treatment for all government retirees with regard to the taxation of earned retirement benefits. This group was significant in the initial Bailey Settlement and they continue to work for extending the benefit.

House Bill 103, Equal Tax Treatment of Government Retirees, was introduced in February. Its description is, “an act to provide equal income treatment of government retirees’ benefits.” It was assigned to the House Committee on Finance.

Now the General Assembly’s 2017 session is over, and the fate of this initiative is uncertain. If a bill for equal tax treatment is ever to get a favorable vote, it has a long was to go.

You can help get it moving. Write to your legislative representatives. Sign up on the 4th Branch website to get important information.

David Lee is a resident of Salisbury, and past president of the local chapter of the Military Officers Association of America (MOAA).