October 12, 1994
TO: OPERATIONS MEMBERS NO. 35-94
PENSION MEMBERS NO. 33-94
TRANSFER AGENT ADVISORY COMMITTEE NO. 42-94
RE: DEVELOPMENTS ON SOURCE STATE TAXATION LEGISLATION
__________________________________________________________
As previously reported, the Institute proposed an amendment
to the "source-state taxation" provisions in the Bankruptcy
Amendments Act of 1994 (S. 540) designed to protect third-party
payors of retirement benefit distributions, such as mutual funds,
from being required by any state to deduct and withhold income
taxes or to issue any reports with respect to any such tax. (See
Institute Memorandum to Operations Members No. 34-94, Pension
Members No. 30-94, Transfer Agent Advisory Committee No. 38-94,
dated September 26, 1994).
A compromise measure offered as a stand alone bill in the
House (H.R. 546) has replaced the "source-state taxation"
provisions in S. 540. The Institute's proposed amendment was not
incorporated into H.R. 546. The compromise bill was approved by
the House on October 3, and referred to the Senate for
concurrence. A copy is attached. While both the House and
Senate will return after the elections for a vote on GATT, they
are not expected to take up any other measures.
Under H.R. 546, the first $30,000 of pension income received
in a calendar year from the following types of plans would be
exempt from source state taxation: section 401(a) qualified
plans, section 408(k) simplified employee pensions, section
403(a) annuity plans, section 403(b) annuity contracts,
individual retirement plans, section 457 plans, section 414(d)
government plans, and section 501(c)(18) trusts. Lump sum and
periodic benefit payments are included in determining the $30,000
annual exclusion. Individual recipients appear to be given
authority to allocate pension income among states for tax
purposes. The bill contains a provision stating that it shall
not be construed as having any effect on ERISA preemption of
state laws. There are various other provisions concerning, for
example, allocation of pension income among multiple recipients
and cost-of-living increases in the $30,000 exclusion.
We will keep you informed of developments.
John J. Canary, Jr.
Assistant Counsel -
Pension
Attachment