For want of about $40,000, Charlie Milligan is suing the Tacoma School District. The former schools chief, who left town a year ago with a cash-and-benefits settlement worth about $418,000, says the district still owes him money.

The school district disputes his claim, legal counsel Susan Schreurs said Wednesday.

The quarrel is all about income taxes – and income tax brackets.

It entered the Pierce County Superior Court system as Dr. Charles D. Milligan, Plaintiff, v. Tacoma School District No. 10, Defendant, on Tuesday.

The case, set forth in Milligan’s lawsuit and other documents, goes like this:

The settlement/retirement pact Milligan and the School Board agreed to during the divisive days of June 2007 provided for Milligan to walk away with $275,000 in cash on Aug. 1, 2007. The package was actually substantially higher, the idea being that Milligan’s quarter-million-dollars-plus would come after withholding taxes were paid. The deal also included medical coverage through the end of this month. It was designed to effectively buy out Milligan’s contract and prevent litigation.

When Milligan compiled his income tax return for 2007 earlier this year, he discovered he would owe about $40,000 more than he expected, according to a letter he wrote to Schreurs in February.

The tax issues are complex, said his letter, which is attached to the lawsuit. His bottom line: The School District left him with an unexpected tax liability of $39,696 from the settlement. If he had to pay that, it would reduce his net settlement payment to $235,304, he wrote. To cover his taxes and other associated expenses, the district needs to send him $62,465, he told Schreurs.

He didn’t want to hire a lawyer, Milligan said. He was certain “that this was just an oversight.”

Schreurs disagreed. In a March reply to Milligan, she said the district withheld a flat 25 percent, or $93,473.83, plus an additional $5,421.48 in Medicare taxes, resulting in a total payment to him of $275,000.

“This complies with the requirements of the agreement and the law,” she wrote.

Copies of Milligan’s W-2 forms weren’t included with the lawsuit and weren’t available Wednesday. But his salary alone for the first six months of 2007 was roughly $105,000, and his salary-and-benefits settlement deal was worth about $418,000.

The district did, however, uncover an error in Milligan’s favor, Schreurs’ letter added. He was charged $354 for health care premiums in August. He shouldn’t have been, she wrote. The district sent a refund.

More legal correspondence followed.

Milligan’s attorney, Mark Deming, wrote to Schreurs in April, saying Milligan’s income put him in the 35 percent tax bracket, and that the district simply didn’t pay enough in taxes on his behalf for him to net $275,000. If the district didn’t file a corrected W-2 and pay more taxes, Milligan would need a direct payment of $62,465, Deming wrote. The reason that’s more than the disputed $40,000? Milligan would have to pay taxes on anything the district paid him in 2008, Deming’s letter said.

Bryan Smith, an attorney with the Seattle law firm Perkins Coie, replied to Deming on the district’s behalf in May, effectively saying, in 2 pages of legalese, “No dice.” The district followed the law when it withheld 25 percent, he wrote.

Milligan’s lawsuit doesn’t specify the amount of damages he’s seeking; rather, it says he wants the court to find that the district breached the settlement agreement and award reasonable attorney fees, taxable costs, interest and “other and further relief” the court deems “just and equitable.”

Language in the pact prevents Milligan from suing over his departure – unless the agreement is breached.

Milligan, now working for an education consulting company in Nashville, Tenn., could not be reached for comment Wednesday.

Deming thinks the district ought to pay up and avoid the expense of a lawsuit, especially with a high-priced Seattle attorney defending the school system, he said Wednesday.

Schreurs said it hasn’t been decided who will handle the case.

Milligan was pushed out of his job, Deming said. It’s reasonable to ask, he added, “Geez, can’t the school district just get it right and pay the guy?”

Kris Sherman: 253-597-8659