Air Force contractor who worked in Germany is caught in a taxing situation
By SCOTT SCHONAUER | STARS AND STRIPES Published: June 18, 2007
KAISERSLAUTERN, Germany — John Adair remembers the day he wrote what he calls “the biggest check in my life.”
It was July 14, 2004, just days before packing up and leaving Germany after living in the country for 24 years — first as an Air Force officer and later as a civilian contractor. He transferred a staggering 108,259.28 euros from his personal banking account at Ramstein Air Base to the Kaiserslautern tax office.
Adair, 58, a systems engineer who worked for U.S. Air Forces in Europe headquarters at the time, had battled German tax authorities in court over the payment of four years of income taxes and lost.
He compares watching that money disappear from his account to someone coming and taking his house.
“It was surreal,” said Adair, who now works in Langley, Va., for a different company. “What they did was so bad, so improper, so anti-American.”
Since that day, Adair and his lawyer have been fighting to get the money back. They argue that Adair should have never had to pay the taxes because an agreement between the U.S. and Germany exempts American military personnel, Defense Department workers and most civilian contractors from paying German income taxes.
Although few people are aware of the legal case, there are worries among American military officials the litigation could set a damaging precedent that would discourage American civilian contractors from working overseas and complicate the U.S. military’s relationship with its German hosts.
Hundreds of Americans work for defense contractors in Germany in support of both the Army and Air Force, and some of them are no different than Adair.
The Air Force is so concerned about the case that it has taken the unusual step of paying Adair’s legal fees, which have reached thousands of dollars. The U.S. Embassy in Berlin and the Army, according to Adair, have also provided advice and assistance at one time or another during the slow legal process.
The controversy stems from different interpretations of an agreement negotiated between the U.S. and Germany in the 1990s over the status of contractors.
A pact made in 1998 determined that the Status of Forces Agreement would cover only defense contractors considered to be “technical experts.” Those meeting the criteria would receive the same benefits as any Defense Department civilian employees and not have to pay German income taxes.
The one stipulation is that a contractor could lose that special status if he or she is considered to be a permanent resident of the country, or what both sides have termed an “ordinarily resident.” Such factors as marriage, children’s attendance at German schools, property ownership and spouse’s employment on the local economy are considered.
In October 2001, the Kaiserslautern tax office sent Adair a letter stating he needed to pay income taxes because he didn’t meet the definition of a “technical expert.” Adair, with the support of the base legal office, argued that didn’t make sense. He was an engineer and married to American who didn’t work on the economy. His daughter didn’t attend off-base schools, and he didn’t own any property in Germany.
“Every year I was in Germany I was serving my country on behalf of Germany,” Adair said. “I was there during the Cold War.”
Randy Harshman, an international lawyer for U.S. Air Force in Europe, said Adair fits the criteria of a “technical expert,” but Germany sees it differently. He believes the Kaiserslautern tax office, which refused to comment for this story, has targeted Adair because he has lived in Germany for more than two decades.
“His case is based on length of time alone,” he said. “How long is enough? We don’t know.”
That is why the Air Force and the Army are so interested in the case. There are 400 civilian contractors working in support of the U.S. military in Germany who are considered “technical experts.” Harshman estimates that 10 or more of those could be affected by the ruling because they have lived in Germany for quite some time.
Adair’s problems started shortly after he received the notice in the mail from the tax office. Later that month, the office requested Adair’s employer to start taking taxes out of his paycheck. Against Adair’s objections, the company began withholding 43 percent of his earnings and other benefits, including his cost-of-living allowance and the estimated “value” of his Defense Department ID card.
That led Adair to hire a German lawyer. He would have fled Germany and not paid the taxes, but he said he feared he would be branded a fugitive. Plus, he was assured by both the State Department and the Air Force that he met the criteria for the tax exemption and the courts would rule in his favor.
That didn’t happen.
“It all spiraled badly for me after that,” Adair said.
In March 2004, a finance court in Neustadt am der Weinstrasse ruled in favor of the tax office. About two months later, Adair said six representatives from the tax office went to his home to try to confiscate his personal property.
Adair and his wife started packing for a move to the United States shortly after the visit. But they didn’t leave before settling the debt the court said he owed. When they moved, they ended up paying a total of nearly $300,000 in income taxes to the Kaiserslautern office. The large sum crippled the family financially. To make ends meet, the Adairs dipped into their savings.
For now, all John Adair can do is wait. He appealed the finance court ruling, and a court in Munich has sent the decision back to the finance court in Neustadt to be reviewed. But as of Friday, no decision had been made.
The concern by Adair is the case is so politically sensitive and could have such far-reaching ramifications for German and American relations that there is no urgency on either side to reach a final decision.
“This has been a real emotional roller coaster for me,” he said before pausing. “Actually, ‘roller coaster’ might be the wrong term because there haven’t been any highs, only lows.”