A tax-rights committee fighting new state income taxes on pensions for state and local employees is suggesting that all retirees pay their state income taxes now under protest.
Paying under protest, the committee says, is the only way that the retirees can get their money back later if the new tax on retirement income is declared unconstitutional.The suggestion follows filing of a class-action suit Feb. 26 in Wake County Superior Court by two retired North Carolina judges and 15 retired state employees. The lawsuit seeks to overturn new state income taxes imposed on state and local pensions as the result of a law passed by the General Assembly last August. The law was made retroactive to Jan. 1, 1989.
Since 1941, state and local government employees in North Carolina have been exempted from income tax on their state and local pensions. The legislature last year changed this to allow taxation not only of the retirement pay but deferred compensation and 401K retirement plan funds because of pressure by the federal government to treat that income the same as federal retirement income.
Harry Underwood, the chairman of the North Carolina State-Local Employees Tax Rights Committee, said Tuesday it is particularly important that all retired state and local employees pay their 1989 and 1990 state income taxes under protest until the lawsuit is resolved.
Attorney General Lacy Thornburg has issued an opinion that state law can be used to deny claims for refund of taxes unconstitutionally collected unless the taxpayer pays under protest.