B-104553, MAY 21, 1963

B-104553, MAY 21, 1963

TO CHAIRMAN, UNITED STATES CIVIL SERVICE COMMISSION:

ON APRIL 24, 1963, YOU REQUESTED OUR VIEWS CONCERNING A PROPOSAL SUBMITTED TO YOU BY THE DEPUTY ASSISTANT SECRETARY OF THE TREASURY THAT AGENCIES BE AUTHORIZED TO ALLOW THEIR EMPLOYEES TO MAKE VOLUNTARY ALLOTMENTS FROM THEIR SALARIES TO PAY STATE AND DISTRICT OF COLUMBIA INCOME TAXES IN SITUATIONS IN WHICH PAYROLL WITHHOLDINGS OF THOSE TAXES IS NOT NOW SUBJECT TO MANDATORY WITHHOLDING. SPECIFICALLY YOU REQUESTED OUR DECISION UPON THE FOLLOWING QUESTIONS:

"/1) MAY THE COMMISSION, BY REGULATION ISSUED ON AUTHORITY OF 5 U.S.C. 3075, 3076 AND E.O. 10982, PERMIT AGENCIES TO PROVIDE FOR ALLOTMENTS BY EMPLOYEES FOR THE PURPOSE OF PAYING STATE AND DISTRICT OF COLUMBIA INCOME TAXES THAT ARE NOT SUBJECT TO WITHHOLDING UNDER 5 U.S.C. 84B OR SECTION 11 "/K)" OF THE ACT OF MARCH 31, 1956?

"/2) (A) IF THE ANSWER TO QUESTION (1) IS IN THE AFFIRMATIVE, DOES 5 U.S.C. 140 REQUIRE THAT THE ALLOTTEE OR ALLOTTER PAY A FEE TO COVER THE ESTIMATED EXPENSE OF THE ALLOTMENT?

"/B) IF 5 U.S.C. 140 DOES NOT REQUIRE PAYMENT OF SUCH A FEE, DOES IT AUTHORIZE SUCH A FEE BEING CHARGED?

"/3) IF THE ANSWER TO QUESTION 2 (A) OR 2 (B) IS IN THE AFFIRMATIVE, MAY A UNIFORM FEE BE IMPOSED BY PRESIDENTIAL ACTION AS INDICATED BY THE FINAL PARAGRAPH IN YOUR DECISION OF JANUARY 7, 1963?

YOU EXPRESS THE VIEW THAT THE LEGAL ISSUES INVOLVED ARE MUCH THE SAME AS THOSE CONSIDERED IN OUR DECISION TO YOU OF JANUARY 7, 1963, B 40342, B- 132133, PERTAINING TO VOLUNTARY ALLOTMENTS BY GOVERNMENT EMPLOYEES FOR THE PURPOSE OF PAYING UNION DUES. IN THAT DECISION WE QUOTED SECTION 5 AND A PART OF SECTION 6 OF THE ACT OF SEPTEMBER 26, 1961, PUB.L. 87-304, 75 STAT. 663, 5 U.S.C. 3075, AND SECTION 2 (B) OF EXECUTIVE ORDER NO. 10982 OF DECEMBER 25, 1961, AND AFTER A BRIEF DISCUSSION THEREOF CONCLUDED THAT THE CIVIL SERVICE COMMISSION WAS AUTHORIZED TO PROMULGATE REGULATIONS PERMITTING EMPLOYEES TO AUTHORIZE ALLOTMENTS FROM THEIR COMPENSATION (PAYROLL DEDUCTIONS) FOR THE PURPOSE OF PAYING UNION DUES.

THE PURPOSE OF THE PROPOSAL IS TO ENABLE BY MEANS OF VOLUNTARY ALLOTMENTS MADE BY THE EMPLOYEES THE WITHHOLDING OF INCOME TAXES FOR STATES OTHER THAN THOSE IN WHICH THEY ARE EMPLOYED. IT IS STATED THAT SUCH WITHHOLDING WOULD BE DESIRABLE IN THE INTEREST OF GOOD PERSONNEL ADMINISTRATION, HELPFUL TO EMPLOYEES IN MEETING THEIR RESPONSIBILITIES AND IN SIMPLIFYING THEIR TAX COMPLIANCE PROBLEMS, AND WOULD EXTEND PRESENT FEDERAL COOPERATION WITH THE STATES IN THE ADMINISTRATION OF THEIR TAX LAWS.

THE PROCEDURE PROPOSED BY THE TREASURY DEPARTMENT IS OUTLINED ON PAGE 2 OF THE DEPUTY ASSISTANT SECRETARY'S LETTER AS FOLLOWS:

"* * * THE CIVIL SERVICE COMMISSION BY REGULATION WOULD AUTHORIZE AGENCIES TO UNDERTAKE SUCH DEDUCTIONS AND WOULD PROVIDE THAT THE TREASURY WOULD ISSUE INSTRUCTIONS TO AGENCIES AS TO HOW THE PROGRAM IS TO OPERATE. THE TREASURY NOW ISSUES SUCH INSTRUCTIONS UNDER THE WITHHOLDING AGREEMENTS WITH THE STATES. THE AGENCY WOULD NOTIFY EMPLOYEES THAT IF THE STATE OF EMPLOYMENT DOES NOT REQUIRE WITHHOLDING ON COMPENSATION OF NONRESIDENTS, THE TAX OF THE STATE OF RESIDENCE WOULD BE WITHHELD UNLESS AN EMPLOYEE FILES A FORM INDICATING THAT HE DOES NOT DESIRE SUCH WITHHOLDING. THIS WOULD BE SIMILAR TO THE PROCEDURE NOW FOLLOWED UNDER THE FEDERAL EMPLOYEES' GROUP LIFE INSURANCE ACT WHICH PROVIDES FOR AUTOMATIC COVERAGE UNLESS THE EMPLOYEE GIVES NOTICE THAT HE DESIRES NOT BE BE INSURED. THE DEPARTMENT OR AGENCY WILL HAVE INFORMATION AS TO THE RESIDENCE OF EACH EMPLOYEE UNDER THE FORTHCOMING REVISION OF BUREAU OF THE BUDGET CIRCULAR NO. A-38 WHICH INSTRUCTS HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS TO OBTAIN FROM EACH EMPLOYEE HIS RESIDENCE ADDRESS AND TO SEND THE COPY OF THE EMPLOYEE'S FORM W-2 TO THIS ADDRESS.'

THE MATTER OF WITHHOLDING INCOME TAXES FROM THE COMPENSATION OF A FEDERAL EMPLOYEE FOR A STATE OTHER THAN THAT IN WHICH HE IS A RESIDENT AND IS EMPLOYED HAS BEEN CONSIDERED BY THE CONGRESS AND H.R. 6313 ON THAT SUBJECT HAS BEEN INTRODUCED DURING THE PRESENT SESSION. NO STATUTE AUTHORIZING SUCH WITHHOLDING HAS BEEN ENACTED. ON PAGE 3 OF THE REPORT OF THE SENATE FINANCE COMMITTEE (REPORT NO. 662 TO ACCOMPANY S. 2282, ENACTED AS PUB.L. 86-371) DATED AUGUST 11, 1959, WE FIND THE FOLLOWING:

"* * * YOUR COMMITTEE IS CONCERNED OVER THE MULTIPLICITY OF INCOME TAXES WHICH IS DEVELOPING AS MANY STATES (AND NOW SEVERAL CITIES, AS WELL) TURN TO THIS SOURCE OF REVENUE. AS A RESULT IT OFTEN OCCURS THAT AN INDIVIDUAL FINDS TWO OR MORE STATES ASSERTING THE RIGHT TO TAX HIS INCOME. THUS, HE MAY BE FACED WITH THE POSSIBILITY OF PAYING SEVERAL LOCAL INCOME TAXES AND MAY HAVE TO GO TO THE EFFORT OF FILING SEVERAL RETURNS AND EXPLAINING HIS FINANCIAL AFFAIRS SEVERAL TIMES. YOUR COMMITTEE IS AWARE THAT AN INDIVIDUAL REGULARLY EMPLOYED BY AN AGENCY OF THE UNITED STATES IN A PARTICULAR STATE MAY, NEVERTHELESS, NOT BE A RESIDENT OF THAT STATE. SUCH A CASE THERE MIGHT WELL BE AN ISSUE BETWEEN HIM AND THE STATE AS TO WHETHER HE IS LIABLE FOR THE STATE INCOME TAX. HOWEVER, IF THE U.S. AGENCY WHICH EMPLOYS HIM HAS WITHHELD FROM HIS SALARY THE STATE WILL HAVE THE ADVANTAGE, IN ANY DISCUSSION OR LITIGATION, OF HAVING PART OR ALL OF THE CLAIMED TAX IN ITS HANDS. WITHHOLDING AS TO SUCH AN INDIVIDUAL MIGHT WELL HAVE THE EFFECT OF HELPING A STATE ASSERT AND COLLECT AN INCOME TAX FROM A NONRESIDENT. YOUR COMMITTEE BELIEVES THAT IN ANY ISSUE INVOLVING STATE INCOME TAX BETWEEN A STATE AND RESIDENT OF ANOTHER STATE, THE POSITION OF THE UNITED STATES AND OF ALL ITS AGENCIES AND DEPARTMENTS SHOULD BE A NEUTRAL ONE. IT THEREFORE BELIEVES THAT THERE SHOULD BE NO WITHHOLDING BY THE UNITED STATES ON THE SALARY OF A FEDERAL EMPLOYEE WHO IS NOT A RESIDENT OF THE STATE IN WHICH HE IS EMPLOYED, SO THAT IF THIS STATE ASSERTS THE RIGHT TO COLLECT INCOME TAX FROM HIM, IT WILL NOT HAVE THE ADVANTAGE OF HAVING THE MONEY IN ITS HANDS IN ADVANCE. FOR THESE REASONS, YOUR COMMITTEE BELIEVES IT DESIRABLE TO PROVIDE THAT NO U.S. DEPARTMENT OR AGENCY SHALL WITHHOLD FROM THE SALARY OF AN EMPLOYEE WHO STATES IN WRITING THAT HE IS NOT A RESIDENT OF THE STATE IN WHICH HE IS EMPLOYED.'

A VOLUNTARY ALLOTMENT MADE BY AN EMPLOYEE FOR STATE INCOME TAXES WOULD SEEM TO OVERCOME THE OBJECTIONS RAISED BY THE COMMITTEE IN THAT NO WITHHOLDING WOULD BE MADE EXCEPT AT THE EMPLOYEE'S DIRECTION. HOWEVER, WE DO NOT BELIEVE THE PROPOSAL OF THE TREASURY DEPARTMENT THAT THE FAILURE OF THE EMPLOYEE TO GIVE WRITTEN NOTICE TO THE CONTRARY PROPERLY MAY BE CONSTRUED AS AN ALLOTMENT WITHIN THE MEANING OF SECTION 5 OF PUB.L. 87- 304, ABOVE. WHILE SUCH PROCEDURE IS BEING FOLLOWED UNDER THE FEDERAL EMPLOYEE'S GROUP LIFE INSURANCE ACT OF 1954, THAT ACT PROVIDES FOR AUTOMATIC COVERAGE UNLESS THE EMPLOYEE GIVES WRITTEN NOTICE THAT HE DOES NOT DESIRE TO BE INSURED AND THEREFORE THE PROCEDURE FOLLOWS THE STATUTE. SEE U.S.C. 2094 (A). HERE, HOWEVER, WE HAVE NO SUCH STATUTORY DIRECTION BUT MUST RELY UPON THE TERMS OF PUB.L. 87-304, AND WE FIND NOTHING THEREIN WHICH REQUIRES AN EMPLOYEE TO TAKE AFFIRMATIVE ACTION TO PREVENT WITHHOLDINGS FROM HIS COMPENSATION WHICH ARE NOT REQUIRED BY LAW. ON THE CONTRARY THE ACT MERELY PERMITS HIM TO MAKE SUCH ALLOTMENTS OR ASSIGNMENTS AS THE HEAD OF THE DEPARTMENT DEEMS APPROPRIATE. THEREFORE, OUR OPINION IS THAT ANY WITHHOLDING FROM THE COMPENSATION OF EMPLOYEES PURSUANT TO SECTION 5 OF PUB.L. 87-304, 75 STAT. 663, 5 U.S.C. 3075, MUST BE BASED UPON THEIR WRITTEN REQUESTS OR AUTHORIZATIONS IN WHICH THE NAMES OF THE ASSIGNEES OR ALLOTTEES ARE SHOWN. UPON THE ASSUMPTION THAT ANY REGULATIONS ISSUED WILL SO PROVIDE QUESTION 1 IS ANSWERED IN THE AFFIRMATIVE.

CONCERNING CHARGES OR FEES FOR ANY WORK, SERVICES, PUBLICATIONS, PERMITS, ETC., FURNISHED TO ANY PERSON (INCLUDING GROUPS, ASSOCIATIONS, ORGANIZATIONS, PARTNERSHIPS, CORPORATIONS OR BUSINESSES), SECTION 501 OF THE ACT OF AUGUST 31, 1951, 65 STAT. 290, 5 U.S.C. 140, PROVIDES IN PERTINENT PART AS FOLLOWS:

"* * * THE HEAD OF EACH FEDERAL AGENCY IS AUTHORIZED BY REGULATION (WHICH, IN THE CASE OF AGENCIES IN THE EXECUTIVE BRANCH, SHALL BE AS UNIFORM AS PRACTICABLE AND SUBJECT TO SUCH POLICIES AS THE PRESIDENT MAY PRESCRIBE) TO PRESCRIBE THEREFOR SUCH FEE, CHARGE, OR PRICE, IF ANY, AS HE SHALL DETERMINE, IN CASE NONE EXISTS, OR REDETERMINE, IN CASE OF AN EXISTING ONE, TO BE FAIR AND EQUITABLE TAKING INTO CONSIDERATION DIRECT AND INDIRECT COST TO THE GOVERNMENT, VALUE TO THE RECIPIENT, PUBLIC POLICY OR INTEREST SERVED, AND OTHER PERTINENT FACTS, AND ANY AMOUNT SO DETERMINED OR REDETERMINED SHALL BE COLLECTED AND PAID INTO THE TREASURY AS MISCELLANEOUS RECEIPTS * * *.'

HOWEVER, THE ACT OF JULY 17, 1952, 66 STAT. 765, 5 U.S.C. 84B-84C, WHICH AUTHORIZED THE WITHHOLDING OF STATE INCOME TAXES UNDER THE CONDITIONS STATED THEREIN WAS AMENDED BY SECTION 2 OF PUB.L. 86-371, APPROVED SEPTEMBER 23, 1959, 73 STAT. 654, 5 U.S.C. 84C, TO PROVIDE IN PERTINENT PART:

"* * * NO DEPARTMENT OR AGENCY OF THE UNITED STATES SHALL, AFTER MARCH 31, 1959, ACCEPT COMPENSATION FROM ANY STATE OR TERRITORY FOR SERVICES RENDERED IN WITHHOLDING STATE OR TERRITORIAL INCOME TAXES FROM THE SALARIES OF EMPLOYEES OF SUCH DEPARTMENT OR AGENCY.'

THE REASON FOR, AND THE EXPLANATION OF, THIS PROVISION IS FOUND ON PAGE 2 OF THE REPORT OF THE SENATE FINANCE COMMITTEE AS FOLLOWS:

"THE BILL, AS INTRODUCED, PROVIDES THAT SECTION 2 OF THE ACT OF JULY 17, 1952, 66 STAT. 765 (5 U.S.C. 84C), IS AMENDED TO PROVIDE THAT NO DEPARTMENT OR AGENCY OF THE UNITED STATES SHALL ACCEPT COMPENSATION FROM ANY STATE OR TERRITORY FOR WITHHOLDING STATE OR TERRITORIAL INCOME TAXES AFTER MARCH 31, 1959. THIS HAS BECOME NECESSARY BECAUSE THE STATE OF MASSACHUSETTS NEWLY ENACTED WITHHOLDING TAX LAW PROVIDES FOR COMPENSATION TO EMPLOYERS WHO WITHHOLD FROM THEIR EMPLOYEES. THE UNITED STATES DOES NOT PAY COMPENSATION FOR WITHHOLDING (EITHER TO THE STATES OR TO PRIVATE EMPLOYERS). MOREOVER, THE UNITED STATES NOW WITHHOLDS FOR 20 STATES AND TERRITORIES AND DOES NOT RECEIVE COMPENSATION FROM ANY OF THEM. THEREFORE, IT DOES NOT SEEM EQUITABLE THAT MASSACHUSETTS SHOULD BE ALONE IN PAYING THE UNITED STATES FOR THIS TAX WITHHOLDING SERVICE. THE TREASURY FEELS STRONGLY THAT NO COMPENSATION SHOULD BE ACCEPTED FROM MASSACHUSETTS. HOWEVER, THERE IS DOUBT AS TO THE POWER OF THE EXECUTIVE DEPARTMENTS OR OF ANY OF THEIR OFFICERS TO DECLINE TO ACCEPT COMPENSATION DUE THE UNITED STATES. IT IS ALSO BELIEVED THAT, IF THERE IS NO SPECIFIC PROVISION, THERE IS SOME POSSIBILITY THAT AN AGREEMENT BY THE SECRETARY OF THE TREASURY TO WITHHOLD WITHOUT COMPENSATION, WHEN OTHER EMPLOYERS RECEIVE COMPENSATION, MAY BE VIEWED AS AN ASSUMPTION OF MORE BURDENSOME REQUIREMENTS THAN OTHER EMPLOYERS. (THE ASSUMPTION OF A MORE BURDENSOME REQUIREMENT IS SPECIFICALLY PROHIBITED BY THE STATUTE.) FOR THESE REASONS, IT SEEMS THAT THE BEST METHOD OF REFUSING THE COMPENSATION IS TO PROHIBIT ITS ACCEPTANCE BY ANY AGENCY OR DEPARTMENT OF THE UNITED STATES BY STATUTE.'

OUR OPINION IS THAT SINCE SECTION 501, ABOVE, DOES NOT PURPORT TO REQUIRE COLLECTION FROM A STATE OR THE DISTRICT OF COLUMBIA, AND HAVING REGARD FOR THE PROVISIONS OF SECTION 2 OF PUB.L. 86-371, AND ITS LEGISLATIVE HISTORY, ABOVE, A SERVICE CHARGE SHOULD NOT BE EXACTED FROM A STATE OR THE DISTRICT OF COLUMBIA, FOR THE WITHHOLDING OF INCOME TAXES IN THE ABSENCE OF LEGISLATION SPECIFICALLY AUTHORIZING SUCH A CHARGE. CONCERNING PAYMENT OF A FEE BY THE EMPLOYEE-ALLOTTER, WE ARE AWARE THAT WITHHOLDING OF SUMS FOR TAXES AND OTHER BENEFITS FROM EMPLOYEES IS EXERCISED IN MANY AUTHORIZED AREAS WITHOUT A CHARGE. WE NOTE ALSO THAT SECTION 501 OF THE ACT OF AUGUST 31, 1951, A PORTION OF WHICH IS QUOTED ABOVE, PERMITS OF A DETERMINATION TO MAKE NO CHARGE FOR A SERVICE. THEREFORE, WE BELIEVE A CHARGE AGAINST THE EMPLOYEES MAY BE, BUT IS NOT REQUIRED TO BE, MADE DEPENDING ON THE POLICY ESTABLISHED OR DETERMINATION MADE UNDER THE ACT. QUESTIONS 2 (A) AND 2 (B) ARE ANSWERED ACCORDINGLY. IF, HOWEVER, SUCH A FEE WERE TO BE EXACTED FROM THE EMPLOYEE, A UNIFORM FEE COULD BE IMPOSED BY PRESIDENTIAL ACTION. QUESTION 3 IS ANSWERED IN THE AFFIRMATIVE.