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Melof v. James5/28/1999
peace officers, 4) any United States Government source; and 5) a "defined benefit plan," as defined in § 414(j) of the Internal Revenue Code of 1986. §§ 40-18-19 through -20, Ala. Code 1975.
"Before 1991, for the tax years beginning in 1987, firefighters received an exemption on the first $8,000 per year of retirement compensation. Before 1991, for the tax years beginning in 1984, peace officers received an exemption on the first $8,000 per year of retirement compensation. Before 1991, there was no exemption for private retirement benefits. The retirement benefits of Alabama teachers, state employees, and federal civil service employees were exempt from tax before 1991 and for the years in question in this case.
"The Internal Revenue Code, as amended by the Employee Retirement Income Security Act ('ERISA'), Pub. L. No. 93-406, 1974, classifies qualified retirement plans as 'defined benefit plans' and 'defined contribution plans.' The distinction between the two types of plans is that an employee's benefit under a 'defined contribution plan' is the amount in an account in the employee's name, while an employee's benefit under a 'defined benefit plan' is specified by the terms of the plan. In other words, a 'defined contribution plan' specifies how much goes into the plan, while a 'defined benefit plan' specifies how much comes out of the plan.
"The retirement benefits distributed by the TRS and the ERS are from a 'defined benefit plan,' meaning that the employee's benefit is specified by the terms of the plan. § 16-25-14 and § 36-27-16, Ala. Code 1975." Melof v. James, So. 2d at .
In essence, Amendment 25 to the Alabama Constitution of 1901 does three things: 1) it allows the legislature to institute an income tax; 2) it tells how the tax funds are to be distributed; and 3) it prohibits the State from imposing on the citizenry at large an income-tax structure that differs from that applied to state employees. Amendment 25 reads in full:
"Article XXII. The legislature shall have the power to levy and collect taxes for state purposes on net incomes from whatever source derived within this state, including the incomes derived from salaries, fees and compensation paid from the state, county, municipality, and any agency or creature thereof, for the calendar year, 1933, and thereafter and to designate and define the incomes to be taxed and to fix the rates of taxes, provided that the rate shall not exceed 5 percent nor 3 percent on corporations. Income shall not be deemed property for purposes of ad valorem taxes. From net income an exemption of not less than fifteen hundred dollars ($1,500.00) shall be allowed to unmarried persons and an exemption of not less than three thousand dollars ($3,000.00) shall be allowed to the head of a family, provided that only one exemption shall be allowed to husband and wife where they are living together and make separate returns for income tax.
An exemption of not less than three hundred dollars ($300.00) shall be allowed for each dependent member of the family of an income tax payer under the age of 18 years. The legislature shall reduce the ad valorem tax from time to time when and to such an amount as the revenue derived from the income tax will justify. In the event the legislature levies an income tax, such tax must be levied upon the salaries, income, fees, or other compensation of state, county and municipal officers and employees, on the same basis as such income taxes are levied upon other persons. All income derived from such tax shall be held in trust for the payment of the floating debt of Alabama until all debts due on Oct. 1st, 1932, are paid and thereafter used exclusively for the reduction of st
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