[Congressional Record Volume 150, Number 130 (Monday, October 11, 2004)]
[Extensions of Remarks]
[Page E1933]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




INTRODUCTION OF LEGISLATION CLARIFYING THE LAW PROHIBITING STATES FROM 
 IMPOSING A TAX ON THE RETIREMENT INCOME OF NON-RESIDENTS OF THAT STATE

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                           HON. CHRIS CANNON

                                of utah

                    in the house of representatives

                        Friday, October 8, 2004

  Mr. CANNON. Mr. Speaker, I am today introducing legislation to 
clarify Public Law 104-95, adopted by the Congress in 1995, prohibiting 
States from taxing the retirement income of nonresidents. That law was 
enacted in response to actions of some States which were aggressively 
seeking to tax nonresidents on retirement income from past employment 
in that state. The Congress felt that State taxation of nonresidents' 
retirement income was unfair and imposed an unreasonable burden on 
nonresident retirees.
  The law defines ``retirement income'' as any income from specified 
types of qualified pension plans or from a nonqualified deferred 
compensation plan that meets certain payment requirements. Nonqualified 
deferred compensation plans are defined by reference to section 
3121(v)(2)(C) of the Internal Revenue Code (the ``Code'') which relates 
to employment taxes. Specifically, any income of an individual who is 
not a resident of the taxing State from any plan, program, or 
arrangement described in section 3121(v)(2)(C) is exempt from that 
State's income tax, provided the income received from such plan is part 
of a series of substantially equal periodic payments made--no less 
frequently than annually--over the life expectancy of the recipient, or 
for a period of not less than 10 years.
  I think the intent of the law is clear, but I am aware that a 
question could arise regarding state taxation of nonqualified 
retirement benefits paid by a partnership to its retired nonresident 
partners. Specifically, the concern is that the reference to section 
3121(v)(2)(C) of the Code could be construed to limit the exemption to 
payments made only to retired employees--i.e. those individuals 
subjected to FICA tax--since that provision is written in the context 
of employment taxation. Under this view, nonqualified retirement 
benefits paid by a partnership to its retired nonresident partners 
would not be exempt from nonresident state income taxation because 
there is no specific reference to self-employed individuals in the 
Public Law 104-95, section 3121(v)(2)(C) of the Code, or subsequently 
issued Treasury Regulations for that section.
  The bill makes it clear that section 3121(v)(2)(C) was meant to 
define nonqualified deferred compensation income, irrespective of 
whether the recipient was subject to FICA tax, by specifically 
including self-employed plans or arrangements. The rationale for 
applying the statute's exemption for employee retirement income applies 
equally to retirement income of an independent contractor or partner. 
Given the fact that the bill is intended to clarify what has been the 
intent of the bill all along, it applies as of the effective date of 
Public Law 104-95, i.e., to amounts received after December 31, 1995.

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