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Statutory Interpretation – Intergovernmental Tax Immunity

By: Derek Hawkins//March 27, 2019//

Statutory Interpretation – Intergovernmental Tax Immunity

By: Derek Hawkins//March 27, 2019//

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United States Supreme Court

Case Name: Dawson et ux. V. Steager

Case No.: 17-419

Focus: Statutory Interpretation – Intergovernmental Tax Immunity

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 antidiscrimination 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.

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 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.

Reversed and remanded

Dissenting:

Concurring:

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Derek A Hawkins is trademark corporate counsel for Harley-Davidson. Hawkins oversees the prosecution and maintenance of the Harley-Davidson’s international trademark portfolio in emerging markets.

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