Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, May 26, 1994                   TAG: 9405260098
SECTION: VIRGINIA                    PAGE: C3   EDITION: METRO 
SOURCE: Associated Press
DATELINE: RICHMOND                                LENGTH: Medium

RETIREES FILING NEEDLESS RETURNS

Gov. George Allen last week signed emergency legislation passed May 11 making it clear that the pensioners do not have to file amended returns for 1985-88 by June 18.

Allen and Attorney General Jim Gilmore are trying to negotiate a settlement of the lawsuit. The retirees need not take any action until the suit is resolved, either by a settlement or by the courts, Dianne Lee of the Taxation Department said Wednesday.

Virginia was one of several states that taxed federal pensions but exempted state pensions before the U.S. Supreme Court ruled in 1989 in a Michigan case that such policies are illegal.

A group of Virginia retirees sued to recover the illegally collected taxes for 1985-88, the only years covered because of the statute of limitations. The Supreme Court ruled last June 18 that its decision must be retroactively applied.

State law requires amended returns to be filed, if necessary, one year after a final court decision - hence the confusion over the deadline, Lee said.

However, the question of whether the state owes refunds has not been resolved. The Supreme Court left it to the state courts to determine whether Virginia law provided adequate opportunities for retirees to challenge the taxes before paying them.

A judge ruled the state owes no refunds, but the retirees have appealed to the Virginia Supreme Court. If the state loses, it could face an obligation of more than $700 million, including interest.

The legislation signed by Allen says the U.S. Supreme Court decision in the Virginia case will not be deemed a final decision for purposes of calculating the one-year statute of limitations.