Were Army and Air Force Exchange Service retirement benefits exempt from Louisiana income tax as federal retirement income?

Plain-English summary

Army and Air Force Exchange Service retirement benefits qualified as exempt federal retirement income for Louisiana purposes. The Department treated AAFES as an instrumentality of the United States and its pension system as a retirement system for U.S. government retirees.

The exemption came from La. R.S. 47:44.2.

The retirement plan

AAFES operated a contributory defined-benefit pension called the Retirement Annuity Plan. It covered regular full-time civilian employees who were U.S. citizens, with benefits based on service years and the employee's highest three-year average compensation.

AAFES itself was organized as a joint major command of the U.S. Army and Air Force and provided retail services to service members and their families.

Why AAFES counted as the federal government

La. R.S. 47:44.2 exempted income received under a retirement system for retirees of the United States Government.

The ruling relied on Standard Oil Co. of California v. Johnson, in which the U.S. Supreme Court held that Army Post Exchanges were an arm of the United States. Those exchanges later became part of AAFES.

The Department reasoned that the Department of Defense succeeded the War Department and that AAFES stood in the same relationship to the Defense Department as the Army Post Exchanges had stood to the War Department. A pension system established by AAFES was therefore established by the United States government.

What this means for you

AAFES retirees

Under this ruling, benefits from the AAFES pension system qualified for Louisiana's federal-retirement-income exemption.

Retirees from other organizations

The analysis depended on AAFES being a U.S. instrumentality. Do not assume a pension from another contractor, association, or federally connected organization receives the same treatment.

Accountants and tax professionals

Confirm the payer and retirement system, then check the current version of La. R.S. 47:44.2 and later Department guidance.

Common questions

Q: Was AAFES treated as a federal instrumentality?

A: Yes.

Q: What AAFES plan did the ruling describe?

A: The contributory defined-benefit Retirement Annuity Plan for regular full-time U.S.-citizen civilian employees.

Q: What determined the plan's benefits?

A: Years of service and the employee's highest three-year average compensation.

Q: Why were the benefits exempt?

A: AAFES was a U.S. instrumentality, so its pension system qualified as a retirement system for U.S. government retirees under La. R.S. 47:44.2.

Citations and references

• La. R.S. 47:44.2 — federal retirement-income exemption
• Standard Oil Co. of California v. Johnson — cited U.S. Supreme Court decision treating Army Post Exchanges as an arm of the United States
• LAC 61:III.101.C — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 08-005

Original ruling text

RPage 1 of 1Revenue Revenue RevenueRRRRevenue Information Bulletin No 01-xxxx
Transactions by Roustabouts, “Work as Directed" Service ProvidersrrEVENUErRRR

Revenue Ruling
No. 08- 005
February 11, 2008
Individual Income Tax
Army and Air Force Exchange Service Retirement Benefits
Purpose: The purpose of this Revenue Ruling is to address whether or not retirement benefits
from the Army and Air Force Exchange Service qualify as a federal government pension that is
exempt from Louisiana state income tax.
Analysis/Discussion: La. R.S. 47:44.2 provides an exemption from taxation for federal
retirement income. Specifically, La. R.S. 47:44.2 states that “… any income received by an
individual pursuant to a retirement system for retirees of the United States Government … shall
be exempt from the state income tax.”
The Army and Air Force Exchange Service is organized as a joint major command of the United
States Army and the United States Air Force. The Army and Air Force Exchange Service
provides retail services to soldiers, airmen, and their families through a network of stores
principally located in the United States, Europe, the Pacific Rim, and the Middle East.
The Army and Air Force Exchange Service has a contributory defined benefit pension plan, the
Retirement Annuity Plan, covering regular full time civilian employees who are citizens of the
United States. Benefits are based on years of service and the employees’ highest three year
average compensation.
In Standard Oil Co. of California v. Johnson, the Supreme Court of the United States held that
the United States Army Post Exchanges, which are now part of and under the administration of
the Army and Air Force Exchange Service, are an arm of the United States. The Supreme
Court’s decision was based, in part, on the fact that Army Post Exchanges were established in
accordance with War Department regulations. The Department of Defense is the successor to
the War Department and the Army and Air Force Exchange Service stands in the same position
in relation to the Department of Defense as the Army Post Exchanges stood in relation to the
War Department. As such, a pension system established by the Army and Air Force Exchange
Service is established by the United States government.
Conclusion: The Army and Air Force Exchange Service is an instrumentality of the United
States. As such, a pension system established by the Army and Air Force Exchange Service is a
retirement system for retirees of the United States government and is thereby exempt from
Louisiana state income tax.
Cynthia Bridges
Secretary

A Revenue Ruling is issued under the authority of LAC 61III.101 (C ). A Revenue Ruling is written to provide
guidance to the public and to Department of Revenue employees. It is a written statement issued to apply principles
of law to a specific set of facts. A Revenue Ruling does not have the force and effect of law and is not binding on
the public. It is a statement of the department's position and is binding on the department until superseded or
modified by a subsequent change in statute, regulation, declaratory ruling, or court decision.