RICHARDSON, Justice Pro Tempore.
This is a suit for declaratory judgment brought before the Oregon Tax Court pursuant to ORS chapter 28. The suit challenges the constitutionality of ORS 316.067(3) of the Personal Income Tax Act. ORS 316.067(1)(c) allows a deduction from taxable income of payments received under a retirement system established by the United States; including military retirement systems. The challenged statute, ORS 316.067(3), denies this exclusion in the case of a military retiree until age 65. The question presented to the court for determination is whether the exclusion from taxable income provided in ORS 316.067(1)(c) of funds received from a retirement system established by the United States may be denied in the case of military retirees until age 65 without violating the equal protection and uniformity requirements of the state and federal constitutions. The tax court held the statute was constitutional and dismissed the complaint. Plaintiff appeals. We affirm.
The facts are relatively simple and were presented to the tax court by stipulation. Taxpayer retired after 20 years of service in the Armed Forces. He is presently under 65 years of age and receives a military pension. In addition he has earned income in excess of $2,400 per year. Under ORS 316.067(3) he is denied exclusion from taxable income of retirement benefits until he reaches age 65. The exclusion after 65 is offset dollar for dollar against other earned income.
What is required in assessing a constitutional challenge to classification for tax benefit is a review of the grounds for the classification to determine if it rests upon a rational basis. The legislature may make distinctions of degree having a rational basis, and when subjected to judicial scrutiny they must be presumed to rest on that basis if there is any conceivable state of facts which would support it. Carmichael v. Southern Coal Co., 301 U.S. 495, 57 S.Ct. 868, 81 L.Ed. 1245, 109 A.L.R. 1327 (1937); Smith et al v. Columbia County et al, 216 Or. 662, 341 P.2d 540 (1959). It, however, is not sufficient to merely point out differences between
ORS 316.067 provides in pertinent part:
The statutory language quoted above is the result of amendment to the Income Tax Act in 1971. As it read in 1971 prior to amendment, ORS 316.067(1)(c) allowed subtraction from taxable income of amounts received from a United States retirement system but specifically excluded military retirement income from the tax benefit regardless of the age of the retiree. Consequently, the taxpayer would not have been entitled to an exclusion even after reaching age 65.
The 1971 amendment which created the taxpayer's constitutional challenge began with the introduction of House Bill 1283 which, in its original form, would have amended ORS 316.067(1) to subtract from federal taxable income
The language of ORS 316.067(1)(c) and (3) quoted above in the body of this opinion and as it read at the commencement of this proceeding was adopted as an amendment to House Bill 1283 in the Senate Committee on Taxation. The committee's deliberations provide some insight into the motives for the amendment. A senator, proposing adoption of the amendment said:
The 1971 amendment identified persons receiving income from a federal retirement system as a class who could receive the tax modification benefit. This general class was divided into two groups by the subclassification of military retirees who would not receive the income subtraction until they attained the age of 65, and then the subtraction is offset dollar for dollar against other earned income. Plaintiff asserts there is no rational basis for such subclassification of federal retirees because they are all members of a class receiving retirement income from a United States retirement system.
The Department of Revenue argues that the differences in eligibility for retirement benefits between Armed Forces retirement systems and those available to other federal employes justify the different treatment for income modification.
There are differences between the two retirement systems of a substantial nature that rationally relate to the purposes of the tax modification statute. The objective of the 1971 amendment to ORS 316.067 was to extend to military retirees a tax benefit approximately equal to that previously enjoyed by civil service retirees. The subclassification was necessary in order to not accord greater benefits to military retirees. This subclassification is based upon the differences in eligibility for retirement. Military personnel qualify for retirement after 20 years of service regardless of age. Generally persons enter the Armed Forces at an early age and if they retire after 20 years of service are still young enough to compete in the job market and commence a new career. As a result they have available not only their military retirement pay but the income from post-retirement employment. In addition they have the opportunity of qualifying for benefits from an additional retirement fund. The example cited by the Senate Committee on Taxation during consideration of the amendment to ORS 316.067 illustrates the generalization. A person who enters the military service at age 18, not an uncommon occurrence, and retires after 20 years of service is only 38 years old. He then has the opportunity at this relatively young age to enter new employment and work up to the traditional retirement age of 65. During this time he has received military pension benefits in addition to his regular income. Additionally he may have qualified for retirement income from a nonmilitary source. Thus at age 65 he would be receiving payments from two retirement systems.
In contrast a federal civil service employe must satisfy two basic requirements before becoming eligible for retirement, i.e., age and years of service. With few exceptions a federal civil service retiree must have reached age 55 and completed 30 years of service to qualify for full retirement benefits.
Plaintiff, while not disputing the factual premise that Armed Forces personnel retire at an early age, argues that this ignores the fact that many United States civil servants may retire younger than 55. He cites 5 U.S.C.A. § 8836 which provides that law enforcement officers and firefighters may retire after becoming 50 years of age and completing 20 years of service. He contends a civil service retiree once he has reached the age of 50 is no different than an Armed Forces retiree receiving retirement income at age 50. This example overlooks
General rules are essential if a system of the magnitude and complexity of the Personal Income Tax Act is to be administered with a modicum of efficiency, even though application of the rule may produce seemingly arbitrary consequences in some cases. A nonmilitary federal retiree may, in fact, after retirement obtain employment and create an additional retirement fund. Or conversely an Armed Forces retiree may be unable to enter a new career and be required to subsist on his military retirement pay. Making these determinations would require individualized proof as each income exclusion was claimed. The legislature could reasonably choose between a system of individualized inquiry and a general rule based on the source of the retirement benefit. The former method would introduce complexities in the administration of an already complex tax system and increase the expense of administration. The choice between these competing policies is a legislative determination and the decision to accord the benefit on the basis of an easily ascertainable criterion does not offend constitutional principles. See Califano v. Jobst, ___ U.S. ___, 98 S.Ct. 95, 54 L.Ed.2d 228 (1977).
In his second argument, supporting a constitutional challenge, plaintiff contends, even after age 65 when he would be entitled to the income exclusion, the retirement pay he receives must be offset dollar for dollar against other earned income, ORS 316.067(3). This, he argues, discriminates against the military retiree since civil service retirees are not subject to the same offset after age 62.
This is a valid factual assumption and a rational predicate for the classification of military pensioners for different treatment in allowing an income deduction. It is reasonably related to the legislative objective of extending the tax benefit on an approximately equal basis to federal retirees. We conclude ORS 316.067(3) does not contravene the Fourteenth Amendment to the United States Constitution or Art. 1, §§ 20 and 32, Art. IX, § 1, of the Oregon Constitution. The decree is affirmed.
"* * * However, if the retiree is under 62, the $3,400 subtraction is reduced dollar for dollar to the extent of any earned income, as defined in subsection (3) of this section, received during the taxable year. If the retiree receives $25,000 or more of household income, as defined in ORS 310.630, the subtraction is zero."