State Tax Commission officials were scheduled to meet Monday to review a U.S. Supreme Court decision that could force Utah to change how it taxes federal and state pension income.
The high court, on an 8-1 vote, struck down a Michigan law permitting taxation of federal pension income, but exempting retirement benefits for state and local government workers. Utah, like Michigan and 12 other states, has a similar law."It's premature to say what it might or might not do to Utah's tax laws," said Tax Commissioner Roger Tew. "We haven't had a chance to go over the decision to see what its impacts could be."
The Tax Commission will study the Supreme Court ruling and make a report to Gov. Norm Bangerter and the Legislature, perhaps in time for discussion during Friday's special legislative session.
"What to do about (changing the law to conform to the Supreme Court decision) is entirely a legislative decision," Tew added.
Some changes in Utah law are likely, though. "It appears Utah is doing much the same thing as Michigan, so there are perhaps changes ahead in the tax law for this state," said Hal Hansen, State Tax Commission chairman.
Under the Michigan law, federal pensions are taxed the same as those of private industry. But there is no taxation applied to state and local government retirement income.
The Michigan law "violates principles of intergovernmental tax immunity by favoring retired state and local government employees over retired federal employees," Justice Anthony M. Kennedy wrote for the court majority.
In Utah, pension income from the state retirement system, which includes state and local government workers and school teachers, can be exempt from state income taxation. But most private and federal retirement income is taxable.
The issue of taxation of government employee pensions - and changing the way pensions are taxed - has been a thorny issue on Utah's Capitol Hill for some time. The Supreme Court decision could force the Legislature to take action.