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IN THE OREGON TAX COURT MAGISTRATE DIVISION Income Tax NORMAN BECRAFT, Plaintiff, v. DEPARTMENT OF REVENUE, State of Oregon, Defendant. ) ) ) ) ) ) ) ) ) )

TC-MD 040791A

DECISION

Plaintiff appealed Defendant's assessment of personal income taxes for the 2003 tax year. Plaintiff was represented by Frank C. Rote, III. Defendant appeared through Kimberly Lougee and Nancy Grigorieff, both of its staff. I. STATEMENT OF FACTS The issue in this appeal is whether Plaintiff's income for the 2003 tax year is protected from Oregon's personal income tax by the Railroad Retirement Act of 1974. Plaintiff filed a 2003 Oregon full-year resident income tax return that included a subtraction at Line 18 for $58,488, labeled as "R.R. Retirement." Plaintiff's federal return shows $33,488 of pension income from the State of California and a $25,000 IRA distribution. The Form 1099-R shows the $33,488 to have been issued by the State of California Public Employees' Retirement System. Plaintiff contends that money was railroad retirement from a special district of California Bay Area Rapid Transit. Plaintiff's W-2s show him to have been employed by Bay Area Rapid Transit. Plaintiff worked for Bay Area Rapid Transit for about 20 years. Plaintiff did not pay any amounts to Social Security from about 1981 on. Plaintiff testified that, rather than pay Social /// DECISION TC-MD 040791A 1

Security, Bay Area Rapid Transit funds were contributed to California Public Employee Retirement System. Defendant contends Plaintiff's income is taxable retirement income. Plaintiff contends his retirement benefits qualify for the railroad retirement subtraction authorized by the Railroad Retirement Act of 1974. Plaintiff asserts his conclusion was consistent with advice he was given by an unidentified member of Defendant's staff. II. ANALYSIS The Railroad Retirement Act of 1974 prohibits states from taxing certain railroad benefits. The Railroad Retirement Act applies to benefits issued by the Railroad Retirement Board. See ORS 316.054.1 Plaintiff has two arguments. The first is that he received his payment from California's Public Employee Retirement System because of the services he rendered to Bay Area Rapid Transit. Plaintiff describes Bay Area Rapid Transit as a railroad. Because Bay Area Rapid Transit is a railroad, Plaintiff reasons, his California retirement income is exempt. The fact that no payment was made to Social Security was presented by Plaintiff as an additional point. The particular problem with that line of reasoning is that not all benefits paid by organizations with the attributes of railroads qualify for special treatment. Only Railroad Retirement Board benefits, as set out in 45 USC section 231, are protected from state income tax. California public retirement payments are not made through the Railroad Retirement Board. Because taxability is determined, not by the duties an employee performs to gain his or her retirement, but by who pays the retirement, Plaintiff's income is not protected from Oregon income tax. See Lester v. Dept. of Rev., TC-MD 030139E (Dec 19, 2003).

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All references to the Oregon Revised Statutes (ORS) are to 2001.

DECISION TC-MD 040791A

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Plaintiff's second argument is that this distinction makes ORS 316.054 unconstitutional in that Oregon cannot exempt some railroad benefits while taxing others. The court is not persuaded. Tax classifications survive constitutional scrutiny under the uniformity provisions of the Oregon Constitution if there is a rational basis for the classification. See Huckaba v. Johnson, 281 Or 23, 26, 573 P2d 305 (1978) and Simpson v. Dept. of Rev., 12 OTR 455 (1993) aff'd 318 Or 579, 870 P2d 824 (1994). In this instance, the distinction, drawn on the basis of those who work for railroads engaged in interstate commerce as opposed to employees whose labor is purely local in character, is rational. The court also does not see any violation of the Equal Privileges and Immunities granted by Article I, section 20, of the Oregon Constitution, in that taxing on the basis of the entity paying the retirement benefit is neither impermissibly based on a person's immutable characteristics, nor is it invidious or lacking in rational foundation. Northwest Advancement v. Bureau of Labor, 96 Or App 133, 772 P2d 943, rev den 308 Or 315, 779 P2d 618 (1989). Similar reasoning is fatal to Plaintiff's claim under the Fourteenth Amendment to the United States Constitution. Dutton Lbr. Corp. v. Tax Com., 228 Or 525, 365 P2d 867 (1961). The remaining point is Plaintiff's comment that he had been told by Defendant that his income would be exempt. That may be true insofar as it goes, however, lacking further particulars as to exactly what Plaintiff told Defendant in the course of their dialogue, it does not now bar Defendant from collecting the tax. It is settled that a "taxpayer claiming estoppel against the state must show `proof positive' that they were misled by the state. Mere testimony that the government orally misguided taxpayer, is generally, by itself, insufficient to show `proof /// ///

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positive' that the taxpayer was misled." Schellin v. Dept. of Rev., 15 OTR 126, 131 (2000) (citation omitted). III. CONCLUSION Now, therefore, IT IS THE DECISION OF THIS COURT that this appeal must be denied. Dated this _____ day of December 2005.

____________________________________ SCOT A. SIDERAS MAGISTRATE

If you want to appeal this Decision, file a Complaint in the Regular Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR. Your Complaint must be submitted within 60 days after the date of the Decision or this Decision becomes final and cannot be changed.

This document was signed by Magistrate Scot A. Sideras on December 7, 2005 . The Court filed this document on December 7, 2005.

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