States that collected billions of dollars in unlawful taxes from retired federal workers must provide refunds if no other way to remedy that harm can be found.
The Supreme Court, by a 7-2 vote Friday, said its 1989 decision declaring such taxes unconstitutional must be applied retroactively.
As a result, Virginia now faces the possibility of having to refund nearly $500-million to 200,000 retired federal workers who paid an invalid state tax between 1985 and 1989.
A Virginia law, like one in Michigan struck down by the high court in 1989, taxed federal pensions while exempting the pensions of retired state and local government employees. The court said such differing tax treatment is unconstitutional.
Friday's decision left an escape hatch for Virginia and other states, but there was disagreement _ inside and outside the court _ over the likelihood that any state could avoid refunds.
But Bob Tobias, president of the National Treasury Employees Union, said Virginia and other states eventually will be forced to pay refunds.
"The decision gives wiggle room only if there was a chance to attack the tax before paying it," Tobias said.
Opinions vary as to which states face liability, but the justices were told there were 16 states being asked for nearly $2-billion in refunds. Florida was not among them.
According to a brief submitted to the court, those states were:
Alabama, Arizona, Arkansas, Georgia, Iowa, Kansas, Kentucky, Mississippi, Montana, New York, North Carolina, Oklahoma, South Carolina, Utah, Virginia, and Wisconsin.