State Capitol Room 453(503) 986-1813Salem, Oregon 97310Cara Filsinger, Legislative Analyst August 1998
Government Retirement Income & Taxation
Detailed Chronology with Citations
Until the late 1980s, the pensions of PERS retirees were exempt from state income taxes. The state allowed onlypartial exemptions from income taxation for federal retirement benefits and no special exemptions for privateretirement benefits. However, a 1989 U.S. Supreme Court ruling required that states treat taxation of federal andstate retirement benefits in the same manner, putting Oregon in violation of federal law. For nearly ten years, thecourts and the Oregon legislature have addressed this retirement benefit taxation issue. This paper is a chronologyof major activities. A summary is available; please call (503) 986-1627.
. The U.S. Supreme Court rules that all federal, state, and local government retirementincome must be taxed (or not taxed) in the same manner (
Davis v. Michigan
). The ruling puts nearlyhalf of the states out of compliance with federal law, including Oregon.
The Oregon legislature passes HB 3508
, subjecting both federal and PERS pensions to stateincome taxes. The measure increases the benefits to PERS retirees to roughly offset the amount lost totaxation.
. Oregon voters gather enough signatures to refer HB 3508 to the next general election ballot
The referred HB 3508 is rejected by voters in the general election
The Oregon Tax Court rules that the state is in violation of the
decision, and orders thestate to provide refunds to retirees for state income taxes paid on federal retirement benefits (
Ragsdale v. Department of Revenue
The decision is appealed to the Oregon Supreme Court on the issue of the numberof years for which a refund is required.
The legislature passes HB 2352
. The measure directs state income taxes be imposed on bothfederal and PERS retirement benefits and allows retirees to file petition directly with Oregon Supreme Courtto challenge constitutionality of taxing PERS benefits. The measure also provides a low-income tax creditfor all pensions, public and private.
A benefit increase (one to four percent) is enacted through SB 656
. The increase acts topartially offset the impact of taxation on PERS retirees.
49 US 803 (1989).
Chapter 906, Oregon Laws 1989.
11 OTR 440 (1990).
Chapter 823, Oregon Laws 1991.
Chapter 796, Oregon Laws 1991.