Claim for Reimbursement of Relocation Expense

Advice was requested concerning whether an employee may be reimbursed an Oregon State tax incurred after the sale of his residence incident to a change of his permanent duty station. Although the Federal income tax on the gain was postponed because the purchase price of the new residence was higher than the sale price of the Oregon residence, the employee's Oregon State income tax was increased because of the gain from the sale. The State imposed a 50 percent tax on the deferred gain of the sale of the residence in the State since a new residence was purchased outside the State. The employee argued that the tax arose only because he was transferred out of State and that he would not have had to pay it if he had remained in the State of Oregon. GAO found that the tax was based upon facts and circumstances unrelated to the sale transaction itself and that it arose from the employee's financial decisions and investment preferences resulting in a deferred gain. There was no showing that the employee suffered any out-of-pocket expense because he realized a sizeable gain on the sale of the residence. It was held that the employee may not be reimbursed for the tax.