Amicus Curiae Brief — James Dawson, et ux., Petitioners v. Dale W. Steager, West Virginia State Tax Commissioner

No. 17-419

In the Supreme Court of the United States

JAMES DAWSON AND ELAINE DAWSON, PETITIONERS

v.

DALE W. STEAGER, WEST VIRGINIA STATE TAX

COMMISSIONER

ON WRIT OF CERTIORARI

TO THE SUPREME COURT OF APPEALS OF WEST VIRGINIA

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE SUPPORTING PETITIONERS

JEFFREY B. WALL

Acting Solicitor General

Counsel of Record

RICHARD E. ZUCKERMAN

Principal Deputy Assistant

Attorney General

MALCOLM L. STEWART

Deputy Solicitor General

MICHAEL R. HUSTON

Assistant to the Solicitor

General

GILBERT S. ROTHENBERG

BRUCE R. ELLISEN

NATHANIEL S. POLLOCK

Attorneys

Department of Justice

Washington, D.C. 20530-0001

SupremeCtBriefs@usdoj.gov

(202) 514-2217

QUESTION PRESENTED

Whether the doctrine of intergovernmental tax

immunity, as codified in 4 U.S.C. 111, prohibits the

State of West Virginia from exempting from state taxation the retirement benefits of certain former state lawenforcement officers, without providing the same exemption for the retirement benefits of former employees of

the United States Marshals Service.

(I)

TABLE OF CONTENTS

Page

Interest of the United States....................................................... 1

Statement ...................................................................................... 1

Summary of argument ................................................................. 8

Argument:

West Virginia may not tax retirement benefits of

federal law-enforcement officers more heavily than

it taxes retirement benefits of comparable state

law-enforcement officers ....................................................... 9

A. Section 111 prohibits a State from subjecting

federal employees to heavier taxation than

similarly situated state employees ........................... 10

B. Unless respondent can identify significant

differences between Mr. Dawson and the state

law-enforcement officers who receive a total

state-tax exemption, the inconsistent treatment

between them violates Section 111 ........................... 16

C. The West Virginia Supreme Court of Appeals

identified no sound reason for finding Section

111 to be inapplicable here ........................................ 19

Conclusion ................................................................................... 28

TABLE OF AUTHORITIES

Cases:

Barker v. Kansas, 503 U.S. 594 (1992) ....................... passim

Brown v. Mierke, 443 S.E.2d 462 (W. Va.),

cert. denied, 513 U.S. 877 (1994) ..................................... 6, 7

Davis v. Michigan Dep’t of the Treasury,

489 U.S. 803 (1989)..................................................... passim

Graves v. New York, 306 U.S. 466 (1939) ........................ 2, 12

Helvering v. Gerhardt, 304 U.S. 405 (1938) .................... 2, 12

Illinois Commerce Comm’n v. United States,

292 U.S. 474 (1934).............................................................. 22

(III)

IV

Cases—Continued:

Page

Jefferson Cnty. v. Acker, 527 U.S. 423 (1999) ............ passim

McCulloch v. Maryland,

17 U.S. (4 Wheat.) 316 (1819) ..................................... 1, 2, 21

Memphis Bank & Trust Co. v. Garner,

459 U.S. 392 (1983).......................................12, 13, 23, 25, 27

Phillips Chem. Co. v. Dumas Indep. Sch. Dist.,

361 U.S. 376 (1960)..................................................... passim

Ross v. Blake, 136 S. Ct. 1850 (2016) ................................... 20

South Carolina v. Baker, 485 U.S. 505 (1988) ................ 2, 21

The Tap Line Cases, 234 U.S. 1 (1914) ................................ 22

United States v. City of Detroit, 355 U.S. 466 (1958) ........ 26

United States v. County of Fresno,

429 U.S. 452 (1977).............................................................. 16

United States v. Illinois Cent. R.R.,

263 U.S. 515 (1924).............................................................. 25

Werner Co. v. Director of Div. of Taxation,

350 U.S. 492 (1956).............................................................. 13

Constitution and statutes:

U.S. Const. Art. VI, Cl. 2 (Supremacy Clause) .................... 1

Civil Rights Act of 1964, Tit. VII, 42 U.S.C. 2000e

et seq. .................................................................................... 27

Interstate Commerce Act of 1887, ch. 104, Pt. I, § 2,

24 Stat. 379-380 ................................................................... 22

Public Salary Tax Act of 1939, ch. 59, § 4, 53 Stat. 575........ 3

4 U.S.C. 111 ................................................................... passim

4 U.S.C. 111(a) .............................................................. passim

31 U.S.C. 742 (1976) (31 U.S.C. 3124) ............................ 12, 27

W. Va. Code Ann. (LexisNexis 2016):

§ 16-5V-4 ............................................................................. 5

§ 51-9-1 ............................................................................... 5

V

Statutes—Continued:

Page

W. Va. Code Ann. (LexisNexis 2017):

§ 11-21-12(c) ....................................................................... 5

§ 11-21-12(c)(5)............................................................... 4, 6

§ 11-21-12(c)(6)........................................................ passim

§ 11-21-12(c)(7)(B) ............................................................. 5

§ 11-21-12(c)(8)................................................................... 5

W. Va. Code Ann. (LexisNexis Supp. 2018):

§ 11-21-12(c)(7)(C) ............................................................. 5

Miscellaneous:

Baldwin’s Century Edition of Bouvier’s Law

Dictionary (1926)................................................................ 22

Black’s Law Dictionary (3d ed. 1933) ................................. 25

Webster’s New Int’l Dictionary of the English

Language (reprint 1942) (2d ed. 1934) ............................. 24

In the Supreme Court of the United States

No. 17-419

JAMES DAWSON AND ELAINE DAWSON, PETITIONERS

v.

DALE W. STEAGER, WEST VIRGINIA STATE TAX

COMMISSIONER

ON WRIT OF CERTIORARI

TO THE SUPREME COURT OF APPEALS OF WEST VIRGINIA

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE SUPPORTING PETITIONERS

INTEREST OF THE UNITED STATES

This case presents the question whether the doctrine

of intergovernmental tax immunity, as codified in 4 U.S.C.

111, prohibits the State of West Virginia from exempting from taxation the retirement benefits of certain former state law-enforcement officers, without allowing

the same exemption for the retirement benefits of former officers of the United States Marshals Service. The

United States has a substantial interest in ensuring that

its employees and retirees receive equitable tax treatment from the States. At the Court’s invitation, the

United States filed a brief as amicus curiae at the petition stage of this case.

STATEMENT

1. In McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316

(1819), this Court held that the Supremacy Clause,

U.S. Const. Art. VI, Cl. 2, barred the State of Maryland

(1)

2

from taxing the Bank of the United States while

exempting from taxation banks chartered by the State.

17 U.S. (4 Wheat.) at 320, 436. Chief Justice Marshall

concluded that permitting a State to apply such a tax to

a federal entity would threaten “clashing sovereignty”

and “interfer[ence]” with the federal government’s functions. Id. at 430.

“For a time, McCulloch was read broadly to bar most

taxation by one sovereign of the employees of another,”

on the theory that “any tax on income a party received

under a contract with the government was a tax ‘on’ the

contract and thus a tax on the government because it

burdened the government’s power to enter the contract.”

Davis v. Michigan Dep’t of the Treasury, 489 U.S. 803,

810-811 (1989) (citation omitted). By the late 1930s,

however, “the Court began to turn away from its more

expansive applications of the immunity doctrine,” holding instead that “intergovernmental tax immunity

barred only those taxes that were imposed directly on

one sovereign by the other or that discriminated against

a sovereign or those with whom it dealt.” Id. at 811 (citing Helvering v. Gerhardt, 304 U.S. 405 (1938), and

Graves v. New York, 306 U.S. 466 (1939)). The Court

explained in 1939 that, when a State’s tax is “nondiscriminatory,” the application of that tax to employees of the federal government will not result in the sort

of intergovernmental strife or “undue interference”

with federal operations that the Constitution forbids.

Graves, 306 U.S. at 484-486; cf. Gerhardt, 304 U.S. at

420 (holding that the federal government may impose a

nondiscriminatory income tax on employees of the

States). See also South Carolina v. Baker, 485 U.S. 505,

526 n.15 (1988) (“[W]here a government imposes a nondiscriminatory tax, * * * the threat of destroying another

3

government can be realized only if the taxing government is willing to impose taxes that will also destroy

itself or its constituents.”).

“[C]ongressional action coincided” with that shift in

the Court’s constitutional jurisprudence. Jefferson Cnty.

v. Acker, 527 U.S. 423, 437 (1999); see ibid. (holding that

intergovernmental tax immunity is an area “over which

Congress is the principal superintendent”). When

“Congress decided to extend the federal income tax to

state and local government employees,” it also determined “that federal employees would not remain immune

from state taxation” so long as any state taxation of federal employees was nondiscriminatory. Davis, 489 U.S.

at 811-812. To achieve that goal, Congress enacted Section 4 of the Public Salary Tax Act of 1939, ch. 59, 53

Stat. 575, the predecessor to 4 U.S.C. 111. Today (as at

all times relevant to this case) that provision states:

The United States consents to the taxation of pay or

compensation for personal service as an officer or

employee of the United States, * * * by a duly constituted taxing authority having jurisdiction, if the

taxation does not discriminate against the officer or

employee because of the source of the pay or compensation.

4 U.S.C. 111(a).

This Court has understood the United States’ “retention of immunity” in Section 111’s last clause to be

“coextensive with the prohibition against discriminatory

taxes embodied in the modern constitutional doctrine of

intergovernmental tax immunity.” Davis, 489 U.S. at

4

813.1 Under that interpretation of Section 111, a State

unlawfully “discriminate[s]” against a federal employee

“because of ” his source of income, 4 U.S.C. 111(a), when

the State “ ‘impos[es] a heavier tax burden’ ” on the federal employee than on comparable state workers, and

when that disparate treatment is not “directly related

to, and justified by, ‘significant differences between the

two classes.’ ” 489 U.S. at 815-816 (quoting Phillips Chem.

Co. v. Dumas Indep. Sch. Dist., 361 U.S. 376, 383 (1960));

see Barker v. Kansas, 503 U.S. 594, 596, 598 (1992).

2. West Virginia provides a total exemption from

state income taxation for benefits from four stateemployee retirement plans: (1) the Municipal Police

Officer and Firefighter Retirement System (MPFRS);

(2) the Deputy Sheriff Retirement System (DSRS);

(3) the State Police Death, Disability and Retirement

Fund (Trooper Plan A); and (4) the West Virginia State

Police Retirement System (Trooper Plan B). W. Va. Code

Ann. § 11-21-12(c)(6) (LexisNexis 2017) (Section 12(c)(6)).

Most other state retirees, and all federal non-military

retirees (including retired federal law-enforcement

officers), receive a less generous exemption. Those taxpayers may exempt from taxation the first $2000 in benefits received each year under the West Virginia Public

Employees Retirement System (PERS), the West Virginia State Teachers Retirement System, or “any federal retirement system to which Title 4 U.S.C. § 111

applies.” Id. § 11-21-12(c)(5) (LexisNexis 2017). See

generally Pet. App. 2a-4a.2

1

This brief therefore refers to the constitutional and statutory

nondiscrimination requirements interchangeably. See Pet. 8 n.2;

Br. in Opp. 5 n.1.

2

Respondent, the West Virginia State Tax Commissioner, has

identified three classes of former state law-enforcement officers

5

West Virginia generally does not exempt from state

income taxation benefits received under the State’s

Emergency Medical Services Retirement System or

its Judges’ Retirement System. W. Va. Code Ann.

§§ 11-21-12(c) (LexisNexis 2017); id. §§ 16-5V-4, 51-9-1

(LexisNexis 2016); Pet. App. 13a-15a & nn.8 and 11.

At all relevant times, West Virginia has exempted a

taxpayer’s “first [$20,000] of military retirement income,”

i.e., “retirement income from the regular armed forces,

reserves and National Guard.” W. Va. Code Ann.

§ 11-21-12(c)(7)(B) (LexisNexis 2017); Pet. App. 3a.3

And West Virginia exempts from taxation $8000 of

income “received from any source” by individuals who

are age 65 or older, or who are “permanently and totally

disabled.” W. Va. Code Ann. § 11-21-12(c)(8) (LexisNexis

2017). See generally Pet. App. 2a-4a.

3. In 2008, petitioner James Dawson retired from

the United States Marshals Service. Pet. App. 4a. Mr.

Dawson had served for most of his career as a deputy

U.S. Marshal before the President appointed him as the

U.S. Marshal for the Southern District of West Virginia. Ibid. During his tenure with the Marshals Service, Mr. Dawson was enrolled exclusively in the Federal Employees Retirement System (FERS), and he

currently receives benefits from FERS. Ibid. Under

who are not entitled to the unlimited exemption in Section 12(c)(6).

Those include certain deputy sheriffs (those who began to work

before DSRS was created in 1998 and who elected to keep their pensions with PERS), officers employed by the Department of Natural

Resources, and Capitol Police officers. Pet. App. 13a-14a. The record does not disclose the total percentage of West Virginia lawenforcement officers who are entitled to the exemption.

3

For taxable years beginning after December 31, 2017, West Virginia exempts from state income taxation all military retirement income.

W. Va. Code Ann. § 11-21-12(c)(7)(C) (LexisNexis Supp. 2018).

6

West Virginia law, Mr. Dawson may exempt $2000 of his

FERS benefits from his state taxable income. W. Va.

Code Ann. § 11-21-12(c)(5) (LexisNexis 2017); Pet. App.

4a. When he turns 65, he will be able to exempt $8000.

Pet. App. 4a.

In October 2013, Mr. Dawson and his wife, petitioner

Elaine Dawson, filed amended tax returns for 2010 and

2011. Pet. App. 4a; see Pet. 3. Petitioners claimed an

adjustment exempting all of Mr. Dawson’s FERS retirement income from state taxation pursuant to Section

12(c)(6), the provision that fully exempts state retirement

benefits paid under MPFRS, DSRS, Trooper Plan A,

and Trooper Plan B. Ibid. Respondent disallowed the

exemption, Pet. App. 4a, and the West Virginia Office of

Tax Appeals denied petitioners’ appeal, id. at 4a-5a.

4. The Circuit Court of Mercer County reversed,

holding that petitioners had been subjected to unlawful

discrimination. Pet. App. 17a-25a. The court relied on

this Court’s holding in Davis that 4 U.S.C. 111 requires

any imposition of a heavier tax burden on federal

employees than on comparable state employees to be

“justified by significant differences between the two classes.” Pet. App. 20a-21a (quoting 489 U.S. at 815-816).

The circuit court acknowledged the holding of the West

Virginia Supreme Court of Appeals in Brown v. Mierke,

443 S.E.2d 462, cert. denied, 513 U.S. 877 (1994), that

federal military retirees were not entitled to claim the

unlimited state-tax exemption in Section 12(c)(6). Pet.

App. 21a. The circuit court found Brown distinguishable, however, because the federal military retirees who

had sought the unlimited exemption in that case “did

not have a state counterpart.” Ibid.; see id. at 23a.

Here, by contrast, the circuit court found it “undisputed * * * that there are no significant differences

7

between Mr. Dawson’s powers and duties as a US Marshal and the powers and duties of the state and local law

enforcement officers” who receive the full tax exemption. Pet. App. 22a. The court concluded that Section

12(c)(6) imposes “inconsistent tax treatment * * * based

on the source of one’s retirement income,” in violation

of 4 U.S.C. 111. Pet. App. 23a. The court rejected

respondent’s contention that Section 12(c)(6) was consistent with federal law because it was meant “to benefit

[a] narrow class of state law enforcement officers.”

Ibid. The court found that rationale to be “precisely the

type of favoritism the doctrine of intergovernmental tax

immunity prohibits.” Ibid.

5. The West Virginia Supreme Court of Appeals

reversed. Pet. App. 1a-16a. The court did not dispute

the circuit court’s finding “that there are no significant

differences between the powers and duties of state and

local law enforcement officers and those of federal marshals.” Id. at 12a. Nevertheless, the state supreme court

read its opinion in Brown to mean that a state tax statute complies with 4 U.S.C. 111 so long as “there is no

intent in the [state] scheme to discriminate against federal retirees.” Pet. App. 10a (quoting 443 S.E.2d at 466).

The state supreme court observed that Mr. Dawson

had “received more favorable tax treatment than state

civilian retirees” and certain state judges, and had

received “the same tax treatment as the * * * vast

majority of all state retirees,” who also may exempt

$2000 of retirement benefits from their taxable income.

Pet. App. 14a-15a. The court further explained that “only

some law enforcement officers * * * are permitted to rely

upon the Section 12(c)(6) exemption,” and the exemption

covers only “two percent of all state-pension recipi-

8

ents.” Id. at 15a-16a. Based on the “totality of the circumstances,” the court concluded that Section 12(c)(6)

“was not intended to discriminate against former federal marshals,” but instead was “inten[ded] * * * to

give a benefit to a narrow class of state retirees.” Id. at

14a-16a.

SUMMARY OF ARGUMENT

The West Virginia Supreme Court of Appeals misapplied the doctrine of intergovernmental tax immunity

that is codified in 4 U.S.C. 111.

A. Section 111 permits a State to tax the income of

federal employees or retirees only so long as the State

“does not discriminate against the [federal] officer or

employee because of the source of the pay or compensation.” 4 U.S.C. 111(a). A State violates that nondiscrimination requirement when it imposes more burdensome taxation on those who deal with the federal government (including federal retirees), because of their

federal status, than on similarly situated persons who

deal with the State. In a variety of contexts, both before

and after Section 111 was enacted in 1939, this Court

has held that a State may not accord more favorable tax

treatment to persons with whom it deals than to persons

who have comparable relationships with the federal

government.

B. West Virginia’s Section 12(c)(6) exempts from

state taxation the retirement benefits of participants in

four retirement plans that serve state and local lawenforcement officers. That state-law exemption does

not apply, however, to any federal law-enforcement

officer’s retirement benefits. The courts below did not

identify any significant difference between Mr. Dawson

and the retired state law-enforcement officers who

9

receive the exemption. In the absence of such a showing, West Virginia’s inconsistent treatment violates Section

111 by “discriminat[ing]” against Mr. Dawson “because

of ” the federal source of his pay. 4 U.S.C. 111(a).

C. Rather than determine whether significant differences exist between Mr. Dawson and the state retirees

who receive the total state-tax exemption, the state

supreme court applied a “totality of the circumstances”

analysis. The court concluded that Section 12(c)(6) is

permissible because the State intends to favor its own

employees but does not intend to disadvantage federal

employees; because the State gives preferential treatment to only a narrow class of state retirees; and

because Mr. Dawson is treated the same as or better

than other classes of state and private employees in

West Virginia. Because those rationales for rejecting

Mr. Dawson’s claim do not speak to whether Mr. Dawson has suffered “discriminat[ion] * * * because of ” the

federal source of his pay, 4 U.S.C. 111(a), they cannot

be reconciled with the text of Section 111 or with this

Court’s intergovernmental-tax-immunity precedents.

ARGUMENT

WEST VIRGINIA MAY NOT TAX RETIREMENT BENEFITS

OF FEDERAL LAW-ENFORCEMENT OFFICERS MORE

HEAVILY THAN IT TAXES RETIREMENT BENEFITS OF

COMPARABLE STATE LAW-ENFORCEMENT OFFICERS

The doctrine of intergovernmental tax immunity,

now codified in 4 U.S.C. 111, permits a State to tax the

income (including the retirement benefits) of federal

employees so long as the State “does not discriminate

against the [federal] officer or employee because of the

source of the pay or compensation.” 4 U.S.C. 111(a); see

Davis v. Michigan Dep’t of the Treasury, 489 U.S. 803,

808-809 (1989). Construing Section 111 in Davis, this

10

Court held that a State unlawfully “discriminate[s]

against” a federal employee “because of ” his federal

source of pay, 4 U.S.C. 111(a), when the State taxes the

federal employee more heavily than comparable state

employees, and the inconsistent treatment is not

“directly related to, and justified by, ‘significant differences between the two classes.’ ” 489 U.S. at 816 (quoting

Phillips Chem. Co. v. Dumas Indep. Sch. Dist., 361 U.S.

376, 383 (1960)); see Barker v. Kansas, 503 U.S. 594,

596, 598 (1992).

West Virginia taxes Mr. Dawson’s federal retirement benefits more heavily than it taxes benefits for

certain state law-enforcement officers whom Mr. Dawson alleges are similarly situated. The West Virginia

Supreme Court of Appeals did not dispute the circuit

court’s finding that “no significant differences” exist

between the duties that Mr. Dawson performed as a

U.S. Marshal and the duties performed by the state and

local law-enforcement officers who receive the full tax

exemption. Pet. App. 22a. The state supreme court nevertheless held that West Virginia’s taxing scheme does

not violate Section 111 because it treats Mr. Dawson as

well as or better than most state and private retirees.

Id. at 14a-16a. That view is contrary to the text of Section 111 and inconsistent with the reasoning of this

Court’s intergovernmental-tax-immunity decisions.

A. Section 111 Prohibits A State From Subjecting Federal

Employees To Heavier Taxation Than Similarly Situated

State Employees

1. This Court in Davis held that a federal employee

suffers unlawful “discriminat[ion] * * * because of ” the

source of his compensation, in violation of 4 U.S.C.

111(a), when state law subjects him to heavier taxation

than similarly situated state employees. 489 U.S. at

11

816; see Phillips Chemical, 361 U.S. at 383 (stating that,

in applying principles of intergovernmental tax immunity, it is “necessary to determine how other taxpayers

similarly situated are treated”). Any “ ‘imposition of a

heavier tax burden on [those who deal with the federal

government] than is imposed on [those who deal with

the State] must be’ ” “directly related to, and justified

by, ‘significant differences between the two classes.’ ”

Davis, 489 U.S. at 815-816 (quoting Phillips Chemical,

361 U.S. at 383).

The determination whether a tax “discriminate[s]” in

violation of Section 111 does not turn on the same “mode

of analysis developed in [the Court’s] equal protection

cases.” Davis, 489 U.S. at 816. When a State legislates

concerning economic matters unrelated to the activities

of the federal government, its “power to classify is * * *

extremely broad, and [the State’s] discretion is limited

only by constitutional rights and by the doctrine that a

classification may not be” arbitrary. Phillips Chemical,

361 U.S. at 385. But when a State taxes federal employees, Congress has enacted—and the Constitution

demands—a much stronger mandate of equal treatment. That nondiscrimination rule “require[s] that the

State treat those who deal with the [Federal] Government as well as it treats those with whom it deals itself.”

Davis, 489 U.S. at 815 n.4 (quoting Phillips Chemical,

361 U.S. at 385). Applying that rule in Davis, this Court

struck down a Michigan statute that exempted from

taxation the retirement benefits of all former state

employees while taxing the retirement benefits paid by

“all other employers, including the Federal Government.” Id. at 805; see id. at 816-817.

12

2. The Davis Court’s description of Section 111

accords with this Court’s precedents applying constitutional principles of intergovernmental tax immunity.

Congress “consciously” drafted Section 111 “against

the background of,” and “drew upon,” the nondiscrimination requirement that the Constitution imposes on

the States. Davis, 489 U.S. at 813. Shortly before Congress enacted the original version of Section 111 in

1939, the Court upheld against constitutional challenge

two income-tax statutes—one state and one federal—on

the ground that they drew no distinction between

income received from state and federal employers. See

Graves v. New York, 306 U.S. 466, 480 (1939) (describing New York’s tax as one “applied to salaries at a specified rate”); Helvering v. Gerhardt, 304 U.S. 405, 420

(1938) (federal tax was “laid on [state employees’] net

income, in common with that of all other members of the

community”).

The Court has since adhered to its view that the

States may not give more favorable tax treatment to

persons with whom they deal than to those who have

similar relationships with the federal government. In

Phillips Chemical, for example, the Court struck down

a Texas tax that “impose[d] a distinctly lesser burden

on similarly situated lessees of * * * property owned

by the State and its political subdivisions” than on lessees of property owned by the federal government or by

private parties. 361 U.S. at 379; see id. at 381, 387. In

Memphis Bank & Trust Co. v. Garner, 459 U.S. 392

(1983), the Court applied 31 U.S.C. 742 (1976) (currently

31 U.S.C. 3124)—which establishes a nondiscrimination

requirement similar to Section 111—and struck down a

Tennessee bank tax that applied to “income from federal obligations while excluding income from otherwise

13

comparable state and local obligations.” 459 U.S. at

398; cf. Werner Mach. Co. v. Director of Div. of Taxation, 350 U.S. 492, 493-494 (1956) (per curiam) (rejecting a constitutional challenge to the imposition of New

Jersey’s franchise tax on the value of federal bonds held

by a corporate taxpayer, on the ground that the tax

“remain[ed] the same whatever the character of the corporate assets may be”).

Since Davis, this Court has continued to require that

state taxing schemes treat federal employees no worse

than state workers. In Barker v. Kansas, the Court

struck down a Kansas tax statute that exempted benefits paid to retired state and local employees but taxed

federal retirees’ benefits, including benefits received

by military retirees. 503 U.S. at 596, 605. The Court

explained that, “[f ]or purposes of 4 U.S.C. § 111, military retirement benefits are to be considered deferred

pay for past services,” and “[i]n this respect they are

not significantly different from the benefits paid to Kansas state and local government retirees.” Id. at 605.

In Jefferson County v. Acker, 527 U.S. 423 (1999), by

contrast, the Court held that a county’s occupational

tax, which exempted persons who were subject to

another state or county license fee, did not violate Section 111. Id. at 429, 442-443. Federal judges sitting in

the county argued that the tax discriminated against

them because they could never hold other state or local

licenses. Id. at 443. The Court rejected that contention,

explaining that there was “no discrimination * * *

between similarly situated federal and state employees”

because “[t]he tax is paid by all State District and Circuit Court judges in Jefferson County and the three

State Supreme Court justices who have satellite offices

14

in the county.” Ibid.4 The Court observed that, if the

State or county adopted a tax regime “exempting state

officials while leaving federal officials (or a subcategory

of them) subject to the tax, that would indeed present a

starkly different case.” Ibid.

3. It may sometimes be difficult to determine

whether there are “significant differences” between

state employees (or retirees) who receive a state tax

exemption and the federal employees (or retirees) who

do not. But this Court’s decisions have established several guiding principles. First, the conditional structure

of Section 111—through which the federal government

consents to state taxation of its own employees only if

the State’s taxes are nondiscriminatory—requires the

State to “justif y” any inconsistent treatment. Davis,

489 U.S. at 816 (considering only the “allegedly significant differences” proffered by the State); see Barker,

503 U.S. at 598 (same); see also Phillips Chemical,

361 U.S. at 383-384 (same applying the Constitution).

Second, while the most natural comparison for purposes of Section 111 is typically between state and federal employees who perform similar work, see Jefferson

County, 527 U.S. at 443, job duties are not the only

potentially relevant difference under Section 111. See

Barker, 503 U.S. at 598-600. The determination for purposes of Section 111 of which federal workers or retirees are similarly situated to the state employees receiving more favorable tax treatment will depend on how

the State has defined the favored class. If that class is

defined by reference to employees who perform specified job duties, the similarly situated federal employee

Respondent is thus incorrect (Br. in Opp. 26) in describing

Jefferson County as “uph[o]ld[ing] a tax exemption that the county

made available to some state and local judges, but no federal judges.”

4

15

will be one who performs (or formerly performed) comparable duties. By contrast, if a State exempts from tax

all benefits paid to state retirees age 75 or older, the

comparable federal retiree would be a person of that age.

Third, courts will not credit supposed differences

that are not actually incorporated into the State’s tax

statute, or that the State does not consistently apply. In

Davis, the Court held that Michigan’s inconsistent tax

treatment of federal and state retirees could not be justified on the ground that Michigan’s “retirement benefits [were] significantly less munificent than those offered

by the Federal Government.” 489 U.S. at 816. The

Court explained that “[a] tax exemption truly intended

to account for differences in retirement benefits would

not discriminate on the basis of the source of those benefits, as Michigan’s does; rather, it would discriminate

on the basis of the amount of benefits received by individual retirees.” Id. at 817. Similarly in Barker, the

Court held that Kansas’s disparate tax treatment could

not be justified on the ground that state retirees had

“contributed to their retirement benefits” while federal

military retirees had not, because the State applied its

income tax “to other federal retirees who contributed to

their benefits.” 503 U.S. at 605 n.5; see id. at 604-605

(stating that courts must ensure that a State’s “articulated rationale” for inconsistent tax treatment is not “a

cloak for discrimination”).

Finally, the State must identify a significant difference between state and federal employees in order to

justify inconsistent tax treatment. The Court in Barker

concluded, for example, that the fact that military retirees, unlike state retirees, “remain in the service and are

subject to restrictions and recall” did not constitute a

16

“significant difference[ ]” that could justify the State’s

inconsistent taxation. 503 U.S. at 599-600.5

B. Unless Respondent Can Identify Significant Differences

Between Mr. Dawson And The State Law-Enforcement

Officers Who Receive A Total State-Tax Exemption,

The Inconsistent Treatment Between Them Violates

Section 111

1. Under this Court’s precedents interpreting and

applying Section 111, and the constitutional principles

on which that statute is based, this case is straightforward. West Virginia Section 12(c)(6) fully exempts from

income taxation the retirement benefits of multiple

classes of state law-enforcement officers, while providing a lesser exemption for the retirement benefits

received by federal law-enforcement officers like Mr.

Dawson. The state circuit court found it “undisputed

* * * that there are no significant differences between

Mr. Dawson’s powers and duties as a US Marshal and

the powers and duties of the state and local law enforce-

Some state tax exemptions will be unproblematic even though

they result in particular federal retirees receiving less favorable tax

treatment than particular state retirees who previously performed

comparable duties. See United States v. County of Fresno, 429 U.S.

452, 464 (1977) (holding that a facially neutral state tax whose burden falls predominantly on federal employees is not discriminatory

for that reason alone). West Virginia’s more generous tax exemption for disabled persons (see p. 5, supra), for example, raises no

meaningful concern under Section 111. Although a disabled state

retiree would receive the exemption, and a non-disabled federal

retiree who had performed the same duties would not, that disparity

would not constitute discrimination “because of ” the federal retiree’s

source of income. 4 U.S.C. 111(a). Rather, the disparity would be

“because of ” the employees’ respective disabled and non-disabled

status.

5

17

ment officers listed in [Section 12(c)(6)]” that would justify the discriminatory treatment. Pet. App. 22a. The

West Virginia Supreme Court of Appeals did not dispute that view of the record, and the court did not identify any other significant differences that would justify

higher state taxation of federal law-enforcement officers than of comparable West Virginia law-enforcement

officers. See id. at 12a-16a.

Respondent contends (Br. in Opp. 28) that “Davis’s

significant difference standard is a means by which a

state tax law may withstand scrutiny even if it discriminates based on source of pay; it is not itself necessary in

determining whether such discrimination has occurred.”

That is incorrect. The Court in Davis held that “discriminat[ion]” under 4 U.S.C. 111(a) refers simply to

“inconsistent” tax treatment, and that, whenever a state

tax statute subjects federal employees to heavier taxation than comparable state workers, the significantdifferences test is “the relevant inquiry” to determine

whether that discrimination is (impermissibly) “because

of ” the federal employee’s source of pay or (permissibly) because of something else. 489 U.S. at 816; see

Barker, 503 U.S. at 598.

If this Court vacates the judgment of the state

supreme court, respondent will be entitled to assert on

remand any preserved arguments that Mr. Dawson is

sufficiently unlike those state law-enforcement officers

who receive a total income-tax exemption to justify

differential treatment. But in the absence of such a

justification—i.e., if the only salient difference between

Mr. Dawson and the employees who pay lower taxes

under Section 12(c)(6) is that Mr. Dawson worked for

the federal government and the tax-exempt employees

worked for the State—then West Virginia’s denial of

18

Mr. Dawson’s request for the same complete tax

exemption constitutes prohibited “discriminat[ion] * * *

because of ” his federal source of pay. 4 U.S.C. 111(a).

2. In the West Virginia Supreme Court of Appeals,

respondent argued that, even if Mr. Dawson’s job

responsibilities were substantially similar to those of

former state law-enforcement officers who receive a

total tax exemption, the difference in tax treatment is

still “related to and justified by a significant difference

between Dawson and the narrow class of state government retirees who qualify for the exemption.” Resp.’s

Br. to W. Va. S. Ct. of App. at 20. Respondent identified, as the asserted salient difference between Mr.

Dawson and the tax-exempt state retirees, “the significantly more munificent retirement benefits Dawson

receives than the state retirees who qualify for the

exemption.” Ibid; see id. at 20-23; Br. in Opp. 29-30.

The state supreme court did not address that argument.

If this Court vacates the decision below and respondent raises this argument on remand, it will be necessary

for respondent to demonstrate that the State applies

“evenhanded[ly]” this asserted rationale for its differential tax treatment. Davis, 489 U.S. at 817. In defending the blanket tax exemption for state retirees that was

at issue in Davis, and the failure to provide a comparable exemption for federal retirees, the State of Michigan “argue[d] that its retirement benefits [were] significantly less munificent than those offered by the Federal Government,” and that “[t]he substantial differences in the value of the retirement benefits paid the

two classes should * * * justify the inconsistent treatment.” Id. at 816. The Court rejected that proffered

justification, explaining that “[a] tax exemption truly

19

intended to account for differences in retirement benefits would not discriminate on the basis of the source of

those benefits, as Michigan’s statute does; rather, it

would discriminate on the basis of the amount of benefits received by individual retirees.” Id. at 817. Similarly, in Phillips Chemical, the Court explained that

Texas’s discriminatory treatment of leases of stateowned versus federally owned property could not be

sustained on the ground that the State does not lease

property that is “exactly comparable” in “size, value, or

number of employees involved,” because the statutory

tax rate “was not based on such factors,” but rather on

“the identity of the * * * lessor.” 361 U.S. at 384-385.

Thus, in order for respondent to invoke an asserted

benefits differential as a ground for rejecting Mr. Dawson’s Section 111 claim, respondent would be required

to show that West Virginia law actually “discriminate[s]

on the basis of the amount of benefits received by individual retirees,” Davis, 489 U.S. at 817, rather than

simply on the basis of the retirees’ source of pay. To

make that showing, respondent would need to demonstrate that West Virginia treats the amount of benefits

received as a determinative factor in distinguishing the

state retirees who receive a total tax exemption from the

state retirees who do not. See pp. 14-15, supra.

C. The West Virginia Supreme Court Of Appeals Identified

No Sound Reason For Finding Section 111 To Be

Inapplicable Here

The state supreme court offered several rationales

for rejecting Mr. Dawson’s claim of unlawful tax discrimination. None is persuasive.

1. The court below stated that “tax exemptions are

strictly construed against the taxpayer.” Pet. App. 14a.

That principle of West Virginia law has no application

20

to this case, because there is no dispute about the meaning of Section 12(c)(6) that would call for “constru[ction].”

Rather, the statute to be construed is 4 U.S.C. 111,

whose interpretation presents “a question of federal

law.” Jefferson County, 527 U.S. at 439. And there is

no sound reason to resolve any ambiguities in that provision against the taxpayer, particularly given Section

111’s purpose “to protect” the federal government’s

operations against “undue interference” by the States.

Davis, 489 U.S. at 814.

2. The state supreme court also observed that this

Court has found a violation of Section 111 only when a

State’s law provided a “blanket exemption to all state

retirees.” Pet. App. 10a. The state court found Section

12(c)(6) to be permissible because it “applies to a narrow but diverse class of state retirees” that as of 2010

was “less than two percent” of all state-government

retirees. Id. at 13a. That focus on the “narrow[ness]”

of the State’s exemption is inconsistent with the text of

Section 111, and with this Court’s reasoning in Davis

and in other intergovernmental-tax-immunity cases.

a. Section 111 provides that a State must “not discriminate against” a federal employee “because of ” his

federal source of pay. 4 U.S.C. 111(a). A State therefore may not impose any form of “inconsistent tax treatment” that is not “ directly related to, and justified by,

‘significant differences between the two classes’ ” of taxpayers. Davis, 489 U.S. at 816 (quoting Phillips Chemical, 361 U.S. at 383-385). The statute does not allow

some discrimination based on source of pay, so long as

the State confines the inconsistent treatment to a narrow class of taxpayers. Cf. Ross v. Blake, 136 S. Ct. 1850,

21

1857 (2016) (“Time and again, this Court has taken [mandatory] statutes at face value—refusing to add unwritten limits onto their rigorous textual requirements.”).

To be sure, the breadth or narrowness of a state tax

exemption will affect the scope of the State’s resulting

obligations under Section 111. If a State exempts from

taxation benefits paid to all state retirees, it must likewise exempt all federal retirees’ benefits in order to

comply with Section 111’s nondiscrimination mandate.

By contrast, if the state exemption is limited to a narrow

subset of state retirees, the State can comply with Section 111 by exempting only the comparable class of federal retirees. See pp. 14-15, 16 n.5, supra. But the narrowness of the exemption conferred by Section 12(c)(6)

provides no sound basis for concluding that Section 111

does not apply at all.

When Congress enacted the original version of Section 111, it drew on this Court’s constitutional precedents in Gerhardt and Graves. See Davis, 489 U.S. at

812-813. The Court in those cases had not suggested

that it would permit distinctions based on the source of

the taxpayer’s pay if the exempted classes were relatively small. On the contrary, in McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819), Chief Justice Marshall found it essential to draw clear lines constraining

the States’ authority to tax the federal government precisely in order to avoid “the perplexing inquiry, so unfit

for the judicial department, what degree of taxation is

the legitimate use, and what degree may amount to the

abuse of the power.” Id. at 430. See also South Carolina v. Baker, 485 U.S. 505, 526 n.15 (1988) (“[T]he best

safeguard against excessive taxation (and the most judicially manageable) is the requirement that the government tax in a nondiscriminatory fashion.”).

22

Analogous statutes, which would have been familiar

to the 1939 Congress that enacted Section 111, likewise

established categorical bans on particular types of “discrimination.” Under the Interstate Commerce Act of

1887, ch. 104, Pt. I, § 2, 24 Stat. 379-380, for example, a

common carrier would be “guilty of unjust discrimination” if it charged “a greater or lesser compensation

* * * in the transportation of a like kind of traffic under

substantially similar circumstances and conditions.”

See Baldwin’s Century Edition of Bouvier’s Law Dictionary 305 (1926) (“discrimination” is “generally

applied in law to a breach of the statutory or commonlaw duty of a carrier to treat all customers alike”). This

Court construed that statute as categorically barring

any preferential treatment for particular shippers. See,

e.g., Illinois Commerce Comm’n v. United States,

292 U.S. 474, 485 (1934) (“maintaining a lower rate [for

one shipper] * * * is necessarily discriminatory wherever the two classes of traffic * * * are carried on * * *

under substantially the same conditions”); The Tap

Line Cases, 234 U.S. 1, 28-29 (1914) (holding that the

Act prohibits “practices resulting in rebating or preferences, whatever form they take and in whatsoever guise

they may appear”).

b. The West Virginia Supreme Court of Appeals’

attempt to confine Davis to its facts ignores the reasoning of this Court’s opinions. The Court in Davis did not

strike down the Michigan statute because of the number

of state employees who were exempt, but rather because

the Court saw no “significant differences” between the

exempt state and non-exempt federal employees that

“justified” the differential treatment. 489 U.S. at 816.

The Court took the same approach in Barker, finding

“no significant differences between military retirees

23

and state and local government retirees that justify disparate tax treatment by the State.” 503 U.S. at 600.

Jefferson County involved a tax exemption that benefitted a relatively small class of persons—those holding a state or county professional license—that was

estimated to be eight percent of the county’s workforce.

527 U.S. at 428-429, 442 n.12. But while the Court

rejected the plaintiffs’ Section 111 challenge to the

exemption, it did not base that holding on the number

of persons affected. Instead, the Court held that the

county law was nondiscriminatory because it produced

the same results “between similarly situated federal

and state employees.” Id. at 443. All judges who

worked in the county paid the tax, whether they were

employed by the State or by the federal government,

ibid.; and federal employees in licensed professions

(e.g., attorneys) received the same exemption as their

state-employed counterparts, id. at 442 n.12. In other

intergovernmental-tax-immunity cases, the Court has

concluded that the challenged state tax statutes were

discriminatory because they treated taxpayers differently based on the sources of their income, not because

of the breadth or narrowness of the state exemptions.

See, e.g., Phillips Chemical, 361 U.S. at 387 (“The differences between the two classes * * * seem too impalpable to warrant such a gross differentiation.”); Memphis Bank, 459 U.S. at 398 n.8 (rejecting the State’s

defense that “the impact of ” its discriminatory tax

“[w]as de minimis,” and noting the adverse consequences

to the United States “if all 50 States enacted [similar]

provisions”).

3. The state supreme court also emphasized that the

“ ‘intent of the scheme’ ” for Section 12(c)(6) was not “to

discriminate against employees or former employees of

24

the federal government,” but instead “to give a benefit

to” certain state retirees. Pet. App. 14a-15a (citation

omitted). That reasoning closely tracks the analysis of

the dissent in Davis. In the dissent’s view, “[t]he fact

that a State may elect to grant a preference, or an

exemption, to a small percentage of its residents does

not make the tax discriminatory in any sense that is relevant to the doctrine of intergovernmental tax immunity.” Davis, 489 U.S. at 821 (Stevens, J., dissenting).

The Court rejected that position as inconsistent with

“the underlying rationale for the doctrine of intergovernmental tax immunity.” Id. at 815 n.4 (majority op.).

The Davis Court found it “wholly beside the point”

that Michigan wished to “hir[e] and retain[ ] qualified

civil servants through the inducement of a tax exemption for retirement benefits,” since that fact did nothing

to negate the existence of discrimination, but “merely

demonstrate[d] that the State ha[d] a rational reason

for discriminating between two similar groups of retirees.” 489 U.S. at 816. The Court explained that the

“State’s interest in adopting the discriminatory tax, no

matter how substantial, is simply irrelevant” to the dispositive “inquiry into the nature of the two classes

receiving inconsistent treatment.” Ibid. Indeed, the

Davis Court concluded that “[t]he danger that a State

is engaging in impermissible discrimination against the

Federal Government is greatest when the State acts to

benefit itself and those in privity with it.” Id. at 815 n.4.

When Section 111 was enacted in 1939, dictionaries

referred to “discrimination” as unequal treatment of

persons similarly situated whether that treatment was

motivated by favoritism or by malice. See Webster’s New

Int’l Dictionary of the English Language 745 (reprint

25

1942) (2d ed. 1934) (to “discriminate” is “[t]o make a difference in treatment or favor * * * ; as, to discriminate

in favor of one’s friends; to discriminate against a

special class”); Black’s Law Dictionary 588 (3d ed.

1933) (“discrimination” is a “failure to treat all alike

under substantially similar conditions,” such as by “confer[ring] particular privileges on a class arbitrarily

selected from a large number of persons” when “no reasonable distinction can be found”). In the context of

common carriers who were subject to an analogous nondiscrimination mandate, it was settled by 1939 that

“preferences may inflict undue prejudice, though the

carrier’s motives in granting them are honest,” and that

“[s]elf-interest of the carrier may not override the

requirement of equality in rates.” United States v. Illinois Cent. R.R., 263 U.S. 515, 524 (1924).

With respect to taxes imposed on other types of

income as well, the Court has invalidated state laws that

were intended to benefit narrow classes of persons dealing with the State, rather than to disadvantage the federal government or those with whom it interacted. See

Phillips Chemical, 361 U.S. at 383-384 (holding that

Texas’s preferential tax treatment for leases of stateowned property could not be justified on the ground

that the State sought to “foster its own interests by

adopting measures which facilitate the leasing of its

property”); see also Memphis Bank, 459 U.S. at 398 (holding that a Tennessee tax impermissibly favored “securities issued by Tennessee and its political subdivisions”).

By the same token, when the Court upheld the statutes challenged in Gerhardt, Graves, and Jefferson

County, it did not suggest that those laws were nondiscriminatory because they were based on a benevolent

motive. Instead, in each case, the Court considered

26

whether the state law produced disparate tax treatment

of “similarly situated federal and state employees.” Jefferson County, 527 U.S. at 443; cf. United States v. City

of Detroit, 355 U.S. 466, 473 (1958) (holding that a State’s

tax on leased property was nondiscriminatory because

it applied equally to “persons who use property owned

by the Federal Government, the State, its political subdivisions, * * * and a great host of other entities”).

West Virginia’s intent is not relevant to this case

because Section 12(c)(6) discriminates on its face: it

provides a complete tax exemption to certain state lawenforcement retirees, without providing a comparable

exemption to any class of retired federal law-enforcement

officers. A statute like this one violates Section 111

because, regardless of motive, a State must “treat those

who deal with the [Federal] Government as well as it

treats those with whom it deals itself.” Davis, 489 U.S.

at 815 n.4 (quoting Phillips Chemical, 361 U.S. at 385).

4. The state supreme court also concluded that Section 12(c)(6) is not discriminatory because the statute

affords Mr. Dawson “more favorable tax treatment

than” certain state judges, and treats him the same “as

the vast majority of all state retirees.” Pet. App. 15a.

But Section 111 prohibits any discrimination between

federal and state employees “because of ” their different

source of income. If Mr. Dawson has received less favorable tax treatment than West Virginia accords to the

most comparable state retirees, the fact that state law

treats him better than some other state workers cannot

defeat Mr. Dawson’s claim of unlawful discrimination.

See Jefferson County, 527 U.S. at 442-443 & n.12 (applying Section 111 by comparing the treatment of state and

federal employees who perform similar job duties).

27

It is likewise irrelevant that West Virginia treats

federal retirees like Mr. Dawson no worse than private

retirees. Pet. App. 15a. That was true of the state laws

that the Court struck down in both Davis and Barker.

See Davis, 489 U.S. at 815 n.4 (rejecting the dissent’s

position that the tax was constitutional because it drew

no distinction between the federal retirees and the vast

majority of voters in the State). The state law declared

invalid in Memphis Bank under the analogous nondiscrimination rule established by 31 U.S.C. 742 (1976)

(currently 31 U.S.C. 3124) also treated persons dealing

with the federal government the same as those dealing

with private entities. See 459 U.S. at 394 (Tennessee

tax exempted only “interest on obligations of Tennessee

and its political subdivisions”). And while the Texas law

at issue in Phillips Chemical likewise made “no discrimination between the [Federal] Government’s lessees and lessees of private property,” 361 U.S. at 381,

the Court struck down the statute under the Constitution because it discriminated in favor of state property.

Id. at 383.6

5. Finally, the state supreme court relied on the fact

that “only some [West Virginia] law enforcement officers * * * are permitted to” claim the Section 12(c)(6)

exemption. Pet. App. 15a-16a. Mr. Dawson’s claim could

The West Virginia Supreme Court of Appeals’ analysis is also

inconsistent with the typical understanding of what it means to “discriminate * * * because of ” a prohibited criterion. 4 U.S.C. 111(a).

An employer that paid its female executives less than its male executives, for example, could not escape liability under Title VII of the

Civil Rights Act of 1964, 42 U.S.C. 2000e et seq., simply by showing

that executives formed a small percentage of the company’s overall

workforce, or that female executives were paid as well as or better

than male rank-and-file employees.

6

28

properly be rejected on that ground if he were demonstrably more comparable to the West Virginia officers

who do not receive the state tax exemption than to those

who do. But the state supreme court identified only

three classes of state law-enforcement officers who fall

outside the exemption: deputy sheriffs who started

working before 1998 and who chose not to convert their

pension to DSRS, Department of Natural Resources

officers, and Capitol Police officers. See id. at 13a-14a.

The court did not suggest, or identify any reason to

believe, that Mr. Dawson is more similarly situated to

any of those officers than to the several other categories

of West Virginia officers who receive more favorable tax

treatment.

CONCLUSION

The judgment of the West Virginia Supreme Court

of Appeals should be vacated, and the case should be

remanded for further proceedings consistent with this

Court’s decision.

Respectfully submitted.

JEFFREY B. WALL

Acting Solicitor General*

RICHARD E. ZUCKERMAN

Principal Deputy Assistant

Attorney General

MALCOLM L. STEWART

Deputy Solicitor General

MICHAEL R. HUSTON

Assistant to the Solicitor

General

GILBERT S. ROTHENBERG

BRUCE R. ELLISEN

NATHANIEL S. POLLOCK

Attorneys

SEPTEMBER 2018

*

The Solicitor General is recused in this case.