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Dawson v. Steager

United States Supreme Court

February 20, 2019

JAMES DAWSON, ET UX., PETITIONERS
v.
DALE W. STEAGER, WEST VIRGINIA STATE TAX COMMISSIONER

          Argued December 3, 2018

          On Writ Of Certiorari To The Supreme Court Of Appeals Of West Virginia

         After petitioner James Dawson retired from the U.S. Marshals Service, his home State of West Virginia taxed his federal pension benefits as it does all former federal employees. The pension benefits of certain former state and local law enforcement employees, however, are exempt from state taxation. See W.Va. Code Ann. §11-21-12(c)(6). Mr. Dawson sued, alleging that the state statute violates the intergovernmental tax immunity doctrine as codified at 4 U.S.C. §111. Under that statute, the United States consents to state taxation of the pay or compensation of federal employees, but only if the state tax does not discriminate on the basis of the source of the pay or compensation. A West Virginia trial court found no significant differences between Mr. Dawson's job duties as a federal marshal and those of the state and local law enforcement officers exempted from taxation and held that the state statute violates §111's antidiscrimi nation provision. Reversing, the West Virginia Supreme Court of Appeals emphasized that the state tax exemption applies only to a narrow class of state retirees and was never intended to discriminate against former federal marshals.

         Held: The West Virginia statute unlawfully discriminates against Mr. Dawson as §111 forbids. A State violates §111 when it treats retired state employees more favorably than retired federal employees and no "significant differences between the two classes" justify the differential treatment. Davis v. Michigan Dept. of Treasury, 489 U.S. 803, 814-816. Here, West Virginia expressly affords state law enforcement retirees a tax benefit that federal retirees cannot receive, and there are no "significant differences" between Mr. Dawson's former job responsibilities and those of the tax-exempt state law enforcement retirees.

         The narrow preference should be permitted, the State argues, because it affects too few people to meaningfully interfere with federal government operations. Section 111, however, disallows any state tax that discriminates against a federal officer or employee-not just those that seem especially cumbersome. And in Davis the Court refused a similar invitation to add unwritten qualifications to §111. That is not to say that the narrowness of a state tax exemption is irrelevant. If a State exempts only a narrow subset of state retirees, it can comply with §111 by exempting only the comparable class of federal retirees. The State also argues that the statute is not intended to harm federal retirees but to help certain state retirees. The "State's interest in adopting the discriminatory tax," however, "is simply irrelevant." Davis, 489 U.S., at 816.

         For reasons other than job responsibilities, the State insists, retired U.S. Marshals and tax-exempt state law enforcement retirees are not "similarly situated." But the State's statute does not draw any such lines. It singles out for preferential treatment retirement plans associated with particular state law enforcement officers. The distinguishing characteristic of the retirement plans is the nature of the jobs previously held by retirees who may participate in them. The state trial court found no "significant differences" between Mr. Dawson's former job responsibilities as a U.S. Marshal and those of the state law enforcement retirees who qualify for the tax exemption, and the West Virginia Supreme Court of Appeals did not upset that finding. By submitting that Mr. Dawson's former job responsibilities are also similar to those of other state law enforcement retirees who do not qualify for a tax exemption, the State mistakes the nature of the inquiry. The relevant question under §111 is not whether federal retirees are similarly situated to state retirees who do not receive a tax break; it is whether they are similarly situated to those who do. Finally, the State says that the real distinction may not be based on job duties at all but on the relative generosity of pension benefits. The statute as enacted, however, does not classify persons or groups on that basis. And an implicit but lawful distinction cannot save an express and unlawful one. See, e.g., id., at 817. Pp. 3-8.

         Reversed and remanded.

          OPINION

          GORSUCH JUSTICE

         If you spent your career as a state law enforcement officer in West Virginia, you're likely to be eligible for a generous tax exemption when you retire. But if you served in federal law enforcement, West Virginia will deny you the same benefit. The question we face is whether a State may discriminate against federal retirees in that way.

         For most of his career, James Dawson worked in the U.S. Marshals Service. After he retired, he began looking into the tax treatment of his pension. It turns out that his home State, West Virginia, doesn't tax the pension benefits of certain former state law enforcement employees. But it does tax the benefits of all former federal employees. So Mr. Dawson brought this lawsuit alleging that West Virginia violated 4 U.S.C. §111. In that statute, the United States has consented to state taxation of the "pay or compensation" of "officer[s] or employee[s] of the United States," but only if the "taxation does not discriminate against the officer or employee because of the source of the pay or compensation." §111(a).

         Section 111 codifies a legal doctrine almost as old as the Nation. In McCulloch v. Maryland, 4 Wheat. 316 (1819), this Court invoked the Constitution's Supremacy Clause to invalidate Maryland's effort to levy a tax on the Bank of the United States. Chief Justice Marshall explained that "the power to tax involves the power to destroy," and he reasoned that if States could tax the Bank they could "defeat" the federal legislative policy establishing it. Id., at 431-432. For the next few decades, this Court interpreted McCulloch "to bar most taxation by one sovereign of the employees of another." Davis v. Michigan Dept. of Treasury, 489 U.S. 803, 810 (1989). In time, though, the Court softened its stance and upheld neutral income taxes-those that treated federal and state employees with an even hand. See Helvering v. Gerhardt, 304 U.S. 405 (1938); Graves v. New York ex rel. O'Keefe, 306 U.S. 466 (1939). So eventually the intergovernmental tax immunity doctrine came to be understood to bar only discriminatory taxes. It was this understanding that Congress "consciously . . . drew upon" when adopting §111 in 1939. Davis, 489 U.S., at 813.

         It is this understanding, too, that has animated our application of §111. Since the statute's adoption, we have upheld an Alabama income tax that did not discriminate on the basis of the source of the employees' compensation. Jefferson County v. Acker, 527 U.S. 423 (1999). But we have invalidated a Michigan tax that discriminated "in favor of retired state employees and against retired federal employees." Davis, 489 U.S., at 814. We have struck down a Kansas law that taxed the retirement benefits of federal military personnel at a higher rate than state and local government retirement benefits. Barker v. Kansas, 503 U.S. 594, 599 (1992). And we have rejected a Texas scheme that imposed a property tax on a private company operating on land leased from the federal government, but a "less burdensome" tax on property leased from the State. Phillips Chemical Co. v. Dumas Independent School Dist., 361 U.S. 376, 378, 380 (1960).

         Mr. Dawson's own attempt to invoke §111 met with mixed success. A West Virginia trial court found it "undisputed" that "there are no significant differences btween Mr. Dawson's powers and duties as a U.S. Marshal and the powers and duties of the state and local law enforcement officers" that West Virginia exempts from income tax. App. to Pet. for Cert. 22a. In the trial court's judgment, the State's statute thus represented "precisely the type of favoritism" §111 prohibits. Id., at 23a. But the West Virginia Supreme Court of Appeals saw it differently. In reversing, the court emphasized that relatively few state employees receive the tax break denied Mr. Dawson. The court stressed, too, that the statute's "intent . . . was to give a benefit to a narrow class of state retirees," not to harm federal retirees. Id., at 15a. Because cases in this field have yielded inconsistent results, much as this one has, we granted certiorari to afford additional guidance. 585 U.S. (2018).

         We believe the state trial court had it right. A State violates §111 when it treats retired state employees more favorably than retired federal employees and no "significant differences between the two classes" justify the differential treatment. Davis, 489 U.S., at 814-816 (1989) (internal quotation marks omitted); Phillips Chemical Co., 361 U.S., at 383. Here, West Virginia expressly affords state law enforcement retirees a tax benefit that federal retirees cannot receive. And before us everyone accepts the trial court's factual finding that there aren't any "significant differences" between Mr. Dawson's former job responsibilities and those of the tax-exempt state law enforcement retirees. Given all this, we have little difficulty ...


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