Does the federal law shielding nonresidents' pension income from state tax (Public Law 104-95) cover a pension distribution a nonresident received back in 1995?

Plain-English summary

Two nonresidents of New York, William J. Gedale and Kathrin S. Brown, received a pension distribution in 1995. They asked whether that distribution was shielded from New York income tax by a federal law - Public Law 104-95 - that bars states from taxing the retirement income of people who aren't residents or domiciliaries of that state.

The Department explained that, absent an exemption, New York's Tax Law § 631 would ordinarily treat a nonresident's pension as taxable New York source income unless it qualifies as an annuity (in which case a separate regulation, 20 NYCRR 132.4(d), exempts nonresident annuity payments). Public Law 104-95 added a federal preemption, codified at 4 U.S.C. § 114(a), that blocks states from taxing a nonresident's or non-domiciliary's "retirement income." But that federal law is explicit about timing: it applies only to "amounts received after December 31, 1995."

Because the Petitioners' distribution was received in 1995 - before that cutoff - the Department concluded the federal exemption did not apply, even assuming the payment would otherwise have qualified as "retirement income" under 4 U.S.C. § 114. The Petitioners argued the law should apply retroactively to their 1995 payment, but the Department held the statutory effective date controls and cannot be read around. The opinion also noted that the Petitioners later mentioned a separate pension distribution received in 1996; that later distribution might be excludable from New York source income for the 1996 tax year, provided it otherwise satisfies the requirements of 4 U.S.C. § 114(a).

What this means for you

Nonresidents who received pension income in 1995

If you're a nonresident of New York and received a pension or retirement distribution in calendar year 1995, Public Law 104-95's protection against state taxation does not apply to that payment - the federal law only reaches amounts received after December 31, 1995. That 1995 income remains New York source income under Tax Law § 631 unless some other exemption (such as the annuity rule in 20 NYCRR 132.4(d)) applies.

Accountants and tax professionals

When advising a nonresident client about pre-1996 pension distributions, don't assume Public Law 104-95 reaches back to cover them - check the actual receipt date against the December 31, 1995 cutoff. Distributions received in 1996 or later from the same plan may be treated differently and should be evaluated separately.

Common questions

Q: Does Public Law 104-95 exempt all pension income received by nonresidents of New York?
A: Only income received after December 31, 1995. Amounts received in 1995 or earlier are not covered by the federal preemption, regardless of whether they would otherwise qualify as "retirement income."

Q: The Petitioners argued the law should apply retroactively - did that work?
A: No. The Department held that the statute's effective date is explicit and applies only to amounts received after December 31, 1995, so it rejected retroactive application to the 1995 distribution.

Q: What about the 1996 distribution the Petitioners also mentioned?
A: The Department noted that distribution might be excluded from New York source income for 1996, provided it otherwise qualifies as "retirement income" under 4 U.S.C. § 114(a).

Q: If a pension isn't covered by Public Law 104-95, is it automatically taxable to a nonresident?
A: Under Tax Law § 631 and 20 NYCRR 132.4(d), a nonresident's pension is not New York-taxable if it constitutes an annuity; if it doesn't constitute an annuity, it's treated as compensation for services and is taxable to the extent the underlying services were performed in New York.

Citations and references

• Tax Law § 631(a) - New York source income of a nonresident individual
• Tax Law § 631(b)(1) - income from a business, trade, profession, or occupation carried on in New York
• 20 NYCRR 132.4(d) - taxation of nonresident pensions and annuities attributable to former New York employment
• 4 U.S.C. § 114(a) (Public Law 104-95) - federal preemption of state tax on a nonresident's or non-domiciliary's retirement income, effective for amounts received after December 31, 1995
• 4 U.S.C. § 114(b)(1) - definition of "retirement income"

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_2000.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a00_4i.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(4)I
Income Tax
July 11, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I991213B

On December 13, 1999, a Petition for Advisory Opinion was received from William J.
Gedale and Kathrin S. Brown, 399 Riversville Road, Greenwich, Connecticut 06831.
The issue raised by Petitioners, William J. Gedale and Kathrin S. Brown, is whether, pursuant
to Federal Public Law 104-95, a pension distribution received by a nonresident of New York State
in 1995 is exempt from New York source income under section 631 of Article 22 of the Tax Law.
Petitioners submits the following facts as the basis for this Advisory Opinion.
The Petitioners, nonresidents of New York, received a pension distribution in 1995. For
purposes of this Advisory Opinion, it is assumed that Petitioners are not domiciliaries of New York
State and that the pension distribution is not an annuity and constitutes New York source income
under section 631 of the Tax Law, unless exempt pursuant to Federal Public Law 104-95.
Discussion
Section 631(a) of the Tax Law provides that the New York source income of a nonresident
individual is the sum of the following: (1) the net amount of items of income, gain, loss and
deduction entering into the individual’s federal adjusted gross income, as defined in the laws of the
United States for the taxable year, derived from or connected with New York sources, and (2) the
portion of the modifications described in section 612(b) and (c) of the Tax Law which relate to
income derived from New York sources.
Section 631(b)(1) of the Tax Law provides that items of income, gain, loss and deduction
derived from or connected with New York sources shall include those items attributable to a
business, trade, profession or occupation carried on in New York State.
Section 132.4(d) of the Personal Income Tax Regulations provides that where an individual
formerly employed in New York State is retired from service and thereafter receives a pension or
other retirement benefit attributable to the individual’s former services, the pension or retirement
benefit is not taxable for New York State personal income tax purposes if the individual receiving
it is a nonresident and if it constitutes an annuity. Where a pension or other retirement benefit does
not constitute an annuity, it is compensation for personal services and, if the individual receiving it
is a nonresident, it is taxable for New York State personal income tax purposes to the extent that the
services were performed in New York State.

-2­
TSB-A-00(4)I
Income Tax
July 11, 2000

However, section 114(a) of Title 4 of the US Code, as added by Public Law 104-95, January
10, 1996, and applicable to “amounts received after December 31, 1995”, provides that “[n]o State
may impose an income tax on any retirement income of an individual who is not a resident or
domiciliary of such State (as determined under the laws of such State).” Section 114(b)(1) of Title
4 of the US Code defines the term “retirement income” as any income from certain specifically
enumerated plans.
Accordingly, pursuant to section 114 of Title 4 of the US Code, New York State may not
impose personal income tax under Article 22 of the Tax Law on retirement income, as defined in
section 114, that an individual, who is not a resident or domiciliary of New York State, receives after
December 31, 1995. Petitioner asserts that this provision should apply, retroactively, to retirement
income received in 1995. However, the effective date provision is explicit; the Federal preemption
applies to “amounts received after December 31, 1995.” Therefore, even assuming that it would
otherwise qualify as “retirement income” under section 114 of Title 4 of the US Code, the pension
distribution received by Petitioners in 1995 would not be excluded pursuant to section 114(a) from
New York source income as computed under section 631 of the Tax Law for taxable year 1995.
It is noted that additional information submitted by Petitioners refers to a pension distribution
received in 1996. This distribution might be excluded from New York source income computed
under section 631 of the Tax Law for taxable year 1996, provided it otherwise qualifies under section
114(a) of Title 4 of the US Code.

DATED: July 11, 2000

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.