Appellants Brief — Davis v. Michigan Dept. of Treasury

f i GC)

NO. 87-1020

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1987

PAUL S. DAVIS,

Appellant

Vv.

STATE OF MICHIGAN,

DEPARTMENT OF THE TREASURY,

Appellee

ON APPEAL FROM THE

COURT OF APPEALS OF MICHIGAN

BRIEF FCR APPELLANT

PAUL S. DAVIS

Attorney for Appellant,

appearing pro se

241 Rampart Way

East Lansing, Michigan 48823

Telephone: (517) 337-1854

UESTION PRESENTED

Whether Section 30(1)(h) of the

Michigan Income Tax Act [MCLA 206.30(1) (h);

MSA 7.557(130) (1) (h)] ,which completely

exempts from Michigan income tax retirement

benefits paid to retirees of the State and

its political subdivisions, but gives no

equivalent exemption to retirement benefits

paid to retirees of the Federal Government,

is invalid, as applied to Federal retirees,

as being in violation of the Federal statute

(4 U.S.C. 111), which permits State taxation

of compensation of Federal employees only if

the taxation does not discriminate against

the employee because of the source of the

compensation.

PARTIES

The names of all parties to the

Proceeding are set forth in the caption.

I

II

III

TABLE OF CONTENTS

QUESTION PRESENTED

TABLE OF CONTENTS

| TABLE OF AUTHORITIES

INTRODUCTION

OPINIONS AND JUDGMENTS BELOW

GROUND FOR JURISDICTION

STATUTES INVOLVED

STATEMENT OF THE CASE

SUMMARY OF ARGUMENT

ARGUMENT

THE FEDERAL STATUTE, 4 U.S.C.

111, PERMITS STATE TAXATION OF

10

FEDERAL CIVIL SERVICE RETIREMENT

BENEFITS, BUT ONLY IF THE STATE

DOES NOT DISCRIMINATE BECAUSE OF

THE SOURCE OF THE COMPENSATION.

FEDERAL RETIREMENT BENEFITS

ARE WITHIN THE SCOPE OF

4 U.S.C. lll.

THE MICHIGAN INCOME TAX ACT

DISCRIMINATES AGAINST FEDERAL

RETIREES BECAUSE OF THE SOURCE

OF THEIR COMPENSATION, IN VIO-

LATION OF 4 U.S.C. 11l.

CONCLUSION

10

14

18

27

TABLE OF AUTHORITIES

Page

CASES:

City of Manassas v. United States,

U.S. , 108 S.Ct. 1586, 99

L.Ed.2d 884 (April 25, 1988) 25

Clark v. United States, 691 F.2d

837 (7th Cir. 1982) 16-17

Collector v. Day, 11 Wall. (78

U.S.) 113 (1870) 41.32,13

Dobbins v. Commissioners of Erie

County, 16 Pet. (41 U.S.)435 (1842) 11

Graves v. New York ex rel. O'Keefe,

306 U.S. 466 (1939) 12

Helvering v. Gerhardt, 304 U.S. 405

(1938) 12

Helvering v. Powers, 293 U.S. 214

(1934) 1l

v. United Ststes, 513 F.2d

170 (6th Cir. 1975) 15

Kizas v. Webster, 707 F.2d 524

(D.C.Cir. 1983) 17

McCulloch v. Maryland, 4 Wheat.

(17 U.S.) 316 (1819) 10

Memphis Bank & Trust Co. v. Garner,

459 U.S. 392 (1983) 21-23

' Moses Lake Homes v. Grant County,

365 U.S. 744 (1961) 24

- iii -

CASES (continued): Page

Phillips Chemical Co. v. Dumas

Independent School District,

361 U.S. 376 (1960) 24

South Carolina v. Baker, 8.8.

, 108 S.ct. 1355, 99 L.Ed.2d

592, 56 L.W. 4311 (April 20, 1988) 26

South Carolina v. United States,

199 U.S. 437 (1905) ll

United States v. City of Manassas,

830 F.2d 530 (4th Cir. 1987) 25

Zucker v. United States, 758 F.2d

637 (Fed.Cir. 1985), cert. den.

474 U.S. 842 (1985) 17

STATUTES:

Civil Service Retirement Act (Act

of July 31, 1956, as amended),

5 U.S.C. 8339 (a) 4,5,14,15

Michigan Income Tax Act (1967 Pub-

OOD. ee ee MM

lic Act 281), Section 30(1) (h)

(M.C.L.A. 206.30(1) (h); M.S.A.

7.557(130) (1) (h)) 4,9,20,21,23,27

4 U.S.C. 111(Codification of Sec-

tion 4 of Public Salary Tax Act

of 1939; 53 Stat.575; codified

September 6, 1966, 80 Stat. 898)

3,7-10, 13-15,18,20,23,24,26, 27

28 U.S.C. 1257(2) 2,3

31 U.S.C. 3124 22

LEGISLATIVE MATERIALS:

Presidential Messages:

April 25, 1938 (83 Cong. Rec.

5693)

January 19, 1939 (84 Cong.

Rec. 467)

Congressional Committee Hearing:

Senate Finance Committee, Hear-

ing on Public Salary Tax Act,

February 21, 1939

Congressional Committee Reports:

House of Representatives, Ways

and Means Committee, 76 Con-

gress, lst Session, Report No.

26 on H.R. 3790 (Feb. 7, 1939)

Senate Finance Committee, 76th

Congress, lst Session, Report

No. 112 on H.R. 3790

(February 24, 1939)

11-12

12

19

19

20

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1987

PAUL S. DAVIS, Appellant

Vv.

STATE OF MICHIGAN, DEPARTMENT

OF THE TREASURY,,. Appellee

ON APPEAL FROM THE

COURT OF APPEALS OF MICHIGAN

BRIEF FOR APPELLANT

Paul S. Davis, Appellant herein,

a member of the Bar of this Court, appear-

ing pro se, appeals to this Court from the

final judgment of the Court of Appeals of

Michigan, dated May 5, 1987.

i

y

-

3

OPINIONS AND JUDGMENTS BELOW

Davis v. Department of Treasury,

160 Mich. App. 98, 408 N.W. 2d 433 (May

5, 1987), set forth in the Jurisdictional

Statement (hereafter abbreviated "J.S."),

Appendix A, pages Al to A8.

Davis v. Department of Treasury,

429 Mich. 854 (September 28, 1987),

leave to appeal denied; no opinion.

Copy of Order is set forth in J.S.,

Appendix B, page A9.

Davis v. Department of Treasury,

Michigan Court of Claims, Case No. 84-

9451 (not reported). Oral Opinion is

set forth in J.S., Appendix C, pages

AlO to All; Order is set forth in

J.S., Appendix D, pages Al2 to Al3.

GROUND FOR JURISDICTION

| Appellant invokes the jurisdiction

| of this Court pursuant to 28 U.S.C.

1257(2). The issue in this case in-

volves the validity of the Michigan

Income Tax as applied to Federal

retirement benefits, in the light

of the Federal statute (4 U.S.C. 11l).

This issue was specifically raised in

the Complaint (Joint Appendix, here-

after referred to as "J.A.", pages

8-10). It was expressly considered

and decided by the Michigan Court of

Claims and the Michigan Court of

Appeals (J.S. pages Al0-1l and

Al-8, especially A6-7).

Accordingly, since the case has

drawn into question the validity of

the Michigan law on the ground of its

repugnancy to the Federal statute,

and the Court” @? Appeals decision was

in favor of the validity of the

Michigan law, this Court has juris-

diction under 28 U.S.C. 1257(2).

Appellant filed his Notice of

Appeal on December 4, 1987 (J.S.

Al4-15). He docketed the case in

this Court by filing his Jurisdictional

Statement on December 21, 1987. Both

of these dates are prior to 90 days

from September 28, 1987, the date of

the Michigan Supreme Court's order

denying leave to appeal (J.S. AQ).

STATUTES INVOLVED

Michigan Income Tax Act, Section 30(1) (h)

[1967 Public Act No. 281; M.C.L.A. 206.30

(1) (h); M.S.A. 7.557(130) (1) (h)].

4 U.S.C. 111 (Section 4 of Act of

April 12, 1939, codified on September

6, 1966; 80 Stat. 808).

Federal Civil Service Retirement

Act (5 U.S.C. 8331 et seg.),

Section 8339(a).

The foregoing statutory provisions

are set forth in J.S., Appendix F, pages

Al6-17. 4 U.S.C. 111 is also set forth

in the text below, page 14.

STATEMENT OF THE CASE

Appellant is a former employee of

the United States Government, and

served as such from 1938 to 1942,

from 1946 to 1956, and from 1974 to

1980 (J.A. 4). Based on his Govern-

ment service, Appellant receives Fed-

eral Civil Service Retirement bene-

fits, authorized pursuant to the Fed-

eral Civil Service Retirement Act

(Act of July 31, 1956, as amended;

5 U.S.C. 8331 et seg.) (J.A. 4).

In filing his Michigan Income Tax

returns for each of the tax years 1979

to 1984, inclusive, Appellant followed

the instructions accompanying the

forms prescribed by the Michigan

Department of the Treasury, Appellee

herein, and included all of his Fed-

eral retirement benefits in his taxable

income (J.A. 5). Subsequently Appel-

lant filed amended tax returns for

each of these years, in which he excluded

his Federal retirement benefits from his

taxable income (J.A. 6, 10). In the

amended returns and accompanying peti-

tions and claims to the Michigan Revenue

Commissioner Appellant petitioned for

refunds of his Michigan income tax paid

for those years, in so far as based on

his Federal retirement benefits (J.A. 6,

10). The Revenue Commissioner denied

Appellant's claims for refund. The

amounts of such claims for refund for

the years 1979 to 1984 aggregated

$4,299.53 (J.A. 10, 11).

Following denial of his claims

for refund, Appellant filed in the

Michigan Court of Claims his Complaint

seeking recovery of the Michigan income

taxes paid on his Federal retirement

benefits (J.A. 1,3-11). In his claims

for refund and in tne Court of Claims

Appellant relied on the Federal statute,

4 U.S.C. 111, and took the position that

the Michigan Income Tax Act, by complete-

ly exempting Michigan retirement benefits

while taxing Federal retirement benefits,

was invalid as being inconsistent with

the Federal statute (J.A. 7-11).

In the Court of Claims the case

was heard on motions for summary dis-

position, since there was no dispute on

the facts (J.A. 1). After the filing of

briefs and argument, the Judge of the

Court of Claims rendered an Oral Opin-

ion, on October 30, 1985, in favor of

the Appellee (J.S., Appendix C, pages

Al0-11). The Michigan Court of Appeals

affirmed the Court of Claims (J.S.,

Appendix A, pages Al-8). The Michigan

Supreme Court denied leave to appeal

(J.S., Appendix B, page AQ).

Thereafter Appellant filed his

Notice of Appeal (J.S., Appendix E,

pages Al4-15; J.A. 1), and docketed

his appeal in this Court.

—

SUMMARY OF ARGUMENT

Under the doctrine of intergovern-

mental tax immunity, developed by this

Court in the 19th Century, it was

established that States could not

tax Federal salaries and that the

Federal Government could not tax

State salaries. Decisions of the

Court in this Century gradually

limited these principles.

In the Public Salary Tax Act of

1939 Congress specifically applied

the Federal Income Tax to State and

municipal salaries. Section 4 of

that Act (now codified as 4 U.S.C.

lll) authorized States to tax the

salaries and compensation of Federal

officers and employees. However, the

latter provision specifically stated

that any such State tax must not dis-

criminate because of the source of

the pay or compensation.

The present case involves the Mich-

igan Income Tax as applied to Appellant's

Federal retirement benefits. Although

the State contends that the Federal law

applies only to salaries of present

Federal employees, Appellant submits

that since the statute refers to pay

or compensation, and since Federal

retirement benefits are based on years

of service and past compensation, they

are a form of deferred compensation and

are within the scope of the statute.

Michigan's Income Tax Act exempts

the full amount of the retirement bene-

fits of State and municipal ‘retirees,

but taxes Federal retirement benefits

subject only to a limited exemption.

Accordingly the Michigan Income Tax Act

discriminates because of the source of

the compensation, and therefore is

in violation of 4 U.S.C. lll.

ARGUMENT

I. THE FEDERAL STATUTE, 4 U.S.C.

111, PERMITS STATE TAXATION OF

FEDERAL CIVIL SERVICE RETIREMENT

BENEFITS, BUT ONLY IF THE STATE

DOES NOT DISCRIMINATE BECAUSE OF

THE SOURCE OF THE BENEFITS.

The governing statute in this case

is 4 U.S.C. 111, which permits non-dis-

criminatory State taxation of Federal

compensation. This law was originally

enacted in 1939 as Section 4 of the

Public Salary Tax Act (53 Stat. 574,

575; Chapter 59, Public Laws of the

76th Congress, First Session, approved

April 12, 1939).

Under earlier principles of

intergovernmental tax immunity, estab-

lished by this Court commencing in 1819

in McCulloch v. Maryland, 4 Wheat. (17

U.S.) 316, Federal obligations and com-

pensation were considered constitution-

ally exempt from State taxation, and

° 16 -

reciprocally State and municipal obliga-

tions and compensation were exempt from

Federal taxation (Dobbins v. Commissioners

of Erie County, 16 Pet. (41 U.S.) 435

(1842) and Collector v. Day, 11 Wall. (78

U.S.) 113 (1870)).

Decisions of this Court in the 20th

Century gradually limited the scope of

intergovernmental tax immunity. Thus in

South Carolina v. United States, 199 U.S.

437 (1905), it was held that the immunity

did not extend to a State-operated liquor

business, and in Helvering v. Powers, 293

U.S. 214 (1934), the Court sustained ap-

plication of the income tax to the salary

of a transportation utility executive

where the utility was owned by a State.

On April 25,1938 President Franklin

D. Roosevelt sent a Message to Congress

urging legislation applying the Federal

Income Tax to income from State and

municipal securities and to salaries of

ae

State and local employees (83 Cong. Rec.

5693). A few weeks later, on May 23,

1938, this Court decided Helvering v.

Gerhardt, 304 U.S. 405, which upheld

applying the Federal Income Tax to an

employee of the Port of New York

Authority,

Early in the next session of

Congress, on January 19, 1939, President

Roosevelt sent another Message to Con-

gress reaffirming his earlier Message

(84 Cong. Rec. 467). Legislation to

carry out his recommendations with res-

pect to Federal and State salaries was

promptly introduced and was the subject

of hearings and debates in Congress.

While the bill was pending, this

Court decided Graves v. New York ex rel.

O'Keefe, 306 U.S.466 (March 27, 1939).

In that case the Court specifically

overruled Collector v. Day, supra, and

held that the Federal Income Tax applied

to all State and municipal officers and

employees. It may be noted that in the

o 13 «

Graves case Solicitor General Jackson

appeared for the United States as amicus

curiae, and presented a strong argument

favoring State taxation of Federal

employees' salaries and urging that

Collector v. Day be overruled (306 U.S.

at pages 472-75).

The Public Salary Tax Act (cited

above, page 10) was approved on April

12, 1939. It specifically subjected

compensation paid by State and local

governments to the Federal Income Tax.

However, Congress did not accept the

President's recommendation to tax the

income from State and municipal bonds.

Section 4 of this Act, which is

involved in the present case, granted

the consent of Congress to the State

taxation of Federal pay or compensation,

provided that the tax does not discri-

minate against the officer or employee

because of the source of the pay or

compensation. In effect, Congress in

» 13 -

this legislation confirmed the principles

of the Graves case, but specified that

any State tax must not be discriminatory.

The text of Section 4, codified

(with minor changes not here material)

in the United States Code as 4 U.S.C.

lll, is as follows:

"The United States consents to

the taxation of pay or compensation

for personal service as an officer

or employee of the United States, a

territory or ssession or political

subdivision thereof, the government

of the District of Columbia, or an

agency or instrumentality of one

or more of the foregoing, 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." (Under-

scoring added).

Application of 4 U.S.C. 111 to the

present case will next be discussed.

II. FEDERAL RETIREMENT BENEFITS ARE

WITHIN THE SCOPE OF 4 U.S.C. lll.

Appellant's Civil Service Retirement

benefits are paid pursuant to the Civil

Service Retirement Act (Act of July 3l,

1956, as amended; 5 U.S.C. 8331 et seq.).

© 14

The amount of Appellant's retirement bene-

fit is computed under the provisions of

5 U.S.C. 8339(a), and is based on salary

and years of service (see J.S..App. F). As

stated by the Court of Appeals for the

Sixth Circuit in Hogan v. United States,

513 F. 2d 170, 172 (1975), “the amount

of the annuity payable on retirement is

"directly related to the earnings and

years of service of the individual

employee." (Underscoring added).

Appellee argued in the Michican

courts that since Appellant is no

longer an officer or employee of the

Federal Government the provisions of

4 U.S.C. 111 do not apply to him. The

Court of Claims and the Court of Appeals

accepted that argument. It is submitted

that such an interpretation is incorrect,

Since the scope of the statute is not

limited to current Federal rmployees.

The consent expressed in 4 U.S.C.

o 18 «

111 is not phrased in terms of the pay

or compensation of a present officer

or employee. On the contrary, it

expressly covers the “pay or compen-

sation for personal services as an

officer or employee of the United

States." (Underscoring added). Appel-

lant's retirement annuity is clearly

a part of his compensation for his

past Government work as an employee

of the United States.

The word "compensation" is a

broad concept, and is not limited to

current salary. In Clark v. United

States, 691 F. 2d 837 (1982), the

Court of Appeals for the Seventh

Circuit reviewed the history and

purposes of the Federal Retirement

law. The Court stated that the pur-

pose of this statute "is to allow

the federal government to compete

with the private sector by offering

» 16

federal employees an attractive retire-

ment plan." (691 F. 2d at page 842). The

Court's opinion went on to refer to the

retirement system as "a deferred compen-

sation plan,” designed to encourage

employees to enter and remain in Govern-

ment service (page 842; underscoring added).

Similarly, in Kizas v. Webster,

707 F. 2d 524, 536 (D.C. Circuit, 1983),

the Court referred to retirement benefits

as being one incident of employee compen-

Sation. Again, in the recent decision

of the Court of Appeals for the Federal

Circuit in Zucker v. United States, 758

F. 2d 637, 639 (1985), cert. den. 474 U.S.

842 (1985), the Court referred to the

legislative history of the Retirement

Act, during which the pension benefits

were characterized as "deferred wages."

The foregoing authorities demon-

strate that Federal Retirement benefits

constitute additional compensation for

Past services to the-Government. Accor-

-17-<-

dingly they are clearly within the scope

of the language of 4 U.S.C. lll, covering

"compensation for personal service as

an officer or employee of the United

States," even though not actually paid

until after retirement.

III. THE MICHIGAN INCOME TAX ACT

DISCRIMINATES AGAINST FEDERAL

RETIREES BECAUSE OF THE SOURCE

OF THEIR COMPENSATION, IN VIOLA-

TION OF 4 U.S.C. 111.

As set forth above, 4 U.S.C. lll

authorizes State taxation of Federal

compensation only when the tax “does

not discriminate” because of the "source"

of the compensation. The legislative

history of this Act shows that Congress

was concerned that its consent to State

taxation would be granted only where

the tax was non-discriminatory.

The House of Reprentatives Committee

Report emphasized that the consent of

Congress to State taxation of Federal

- 18 -

compensation was “expressly confined to

taxation which does not discriminate

against such officers or employees be-

cause of the source of their compensa-

tion." (House of Representatives, Com-

mittee on Ways and Means, 76th Congress,

lst Session, Report No. 26, on H.R.

3790, February 7, 1939, page 5).

When the bill was before the Senate

Committee Senator Gerry of Rhode Island

asked for an explanation of the non-dis-

crimination language in this provision.

Senator Prentiss Brown, the Senator in

charge of the legislation, stated in

reply (Senate Hearings on Public Salary

Tax Act, H.R. 3790, February 21, 1939,

at page 21):

"I would say, Senator Gerry, that

it is an analogous to the subject of

the taxation of national bank stock

by a State. We authorized taxation

by the State of Rhode Island of any

stock held by citizens of Rhode Is-

land in a national bank, and we pro-

vide in it that that taxation must

be on the same terms and conditions

e $8 «@

as taxation of State bank stock by

the State of Rhode Island, and I

think the idea in this bill is to

permit that kind of income tax

_ legislation."

The Report of the Senate Committee

stated that the Federal consent to such

taxation was to apply only "if such

taxation does not discriminate against

such officer or employee because of

the source of such compensation."

(Senate Committee on Finance, 76th

Congress, lst Session, Report No. 112,

February 24, 1939, page 11). a

The Michigan Income Tax Act

discriminates against Federal retirees

because of the source of their compen-

sation, in violation of the express

language of 4 U.S.C. 111. The Michigan

Act taxes Federal retirement benefits,

*/

—" The Senate Committee Report contains

an extensive discussion of the constitu-

tional aspects of the legislation, and

reviews the various Supreme Court cases

on intergovernmental tax immunities as

of that time (pages 4-10).

» 36 «

subject only to a limited exemption set

forth in subparagraph (iv) of Section

30(1) (h) of that Act (J.S. App. F, page

Al6). On the other hand, the Michigan

Act expressly exempts the full amount

of retirement benefits received from a

public retirement system of the State

or any of its political subdivisions

(subparagraph (i) of Section 30(1)(h)).

Clearly this constitutes a discrimina-

tion against Federal retirees based on

the source of their compensation.

In Memphis Bank & Trust Co. v. Gar-

ner, 459 U.S. 392 (1983), this Court

held invalid a Tennessee statute taxing

bank earnings, which was defined to in-

clude interest on United States obliga-

tions but did not include interest on

State obligations. The Court held that

this statute discriminated "in favor

of securities issued by Tennessee and

its political subdivisions and against

e 21 «

federal obligations," and that this con-

stituted an unconstitutional discrimi-

nation. The Court concluded that "the

Tennessee bank tax impermissibly dis-

criminates against the Federal Govern-

ment and those with whom it deals."

(459 U.S. at 399).

Appellant had cited the Memphis

case before the Michigan Court of Claims

and the Michigan Court of Appeals. In

its opinion below the Michigan Court

of Appeals suggested that this precedent

was inapplicable in the present case

because Federal obligations are not in-

volved. Appellee has made a similar

argument in this Court in his Motion to

Dismiss or Affirm (pages 14-18).

Appellant does not contend that his

retirement benefits are to be treated

as a Government security of which the

interest is specifically exempt under

another Federal statute (31 U.S.C.

3124), quoted in Appellee's Motion

eo 22 «

to Dismiss (pages 16-17). Appellant

does assert, however, that the Memphis

case is a clear precedent showing a

discrimination against Federal retirees,

in violation of 4 U.S.C. lll.

The Michigan Court of Appeals in

its Opinion in this case discussed the

distinction in the Michigan Tax Act

"between State retirees and all other

retirees," and treated it in terms of

the equal protection clause (160 Mich.

App. at pages 104-05; J.S., pages A6-A7).

The Court found a "legitimate state

objective" (page 105; J.S.,page A7).

Appellee in his Motion to Dismiss or

Affirm has also argued that the case

is one of "reasonable classification"

and "not a discrimination case" (Motion,

pages 18-21).

However, the language of 4 U.S.C.

lll does not permit classifying State

and Federal retirees differently.

- 23 -

Appellant does not question the right

of the State to favor its own retirees

as against non-Federal retirees. But

Appellant submits that the Federal law

(4 U.S.C. 111) forbids discrimination

against Federal retirees.

Other decisions of this Court

emphasize that a State may not discri-

Minate against Federal activities.

Phillips Chemical Co. v. Dumas Inde-

pendent School District, 361 U.S. 376

(1960), cited in the Memphis case,

Supra, invalidated a tax which was

imposed on lessees of property owned

by the Federal Government, but which

exempted lessees of property owned

by the State and its political sub-

divisions. The Court considered this

to be a “substantial and transparent"

discrimination against the Government

and its lessees (361 U.S. at page 387).

Similarly, in Moses Lake Homes Vv.

Grant County, 365 U.S. 744 (1961),

~ Bim

this Court held invalid a tax on lessees

of Federal property, where their lease-

holds were assessed at the full value

of the land and improvements, but

other leaseholds were assessed at

their fair market value excluding the

value of the improvements.

In the recent case of City of

Manassas v. United States, U.S. ’

108 S.Ct. 1586, 99 L.Ed.2d 884 (April

25, 1988; No. 87-1117) this Court

affirmed the decision of the Court of

Apvea.s for the Fourth Circuit in

United States v. City of Manassas, 830

F.2d 530 (1987). That case held invalid

personal property taxes imposed by a

Virginia municipality on property

furnished by the United States for

use by a Government contractor. The

Virginia statute expressly exempted

from this tax property owned by the

Virginia Port Authority and some local

oe 2% «

transportation districts. The Court of

Appeals relied particularly on the Phil-

lips case, supra, and held that the

discrimination was not justified and

that the tax was invalid.

In South Carolina v. Baker, U.S.

__, 108 S.Ct. 1355, 99 L.Ed.2d 592;56 L.W.

4311 (April 20, 1988; No. 94, orig.), the

Opinion of the Court analyzed past cases

on intergovernmental tax immunity (Part

III). In summarizing the current law,

the Court pointed out that taxes may be

imposed against parties doing business

with the Government "as long as the

tax does not discriminate against the

United States or those with whom it

deals" (99 L.Ed.2d at page 610; 56 L.W.

at page 4316).

The foregoing authorities demon-

strate that the Michigan Income Tax

Act unlawfully discriminates against

Federal retirees, and is therefore

in violation of 4 U.S.C. lll.

—=—

CONCLUSION

On the basis of the facts and the

law, it is submitted that the Michigan

Income Tax Act, in taxing Federal re-

tirement benefits while exempting those

of State retirees, creates an unlawful

discrimination because of source, in

violation of 4 U.S.C. 11ll.

Accordingly this Court should re-

verse the decision of the Michigan Court

of Appeals and remand the case with

directions to (1) decree that the Mich-

igan Income Tax Act is invalid in so

far as it taxes Federal retirement

benefits; and (2) enter judgment for

Appellant against Appellee, for the

taxes paid on such benefits, commencing

with the tax year 1979, together with

statutory interest.

Respectfully submitted,

PAUL S. DAVIS

Attorney for Appellant, pro se

August 1988

@ 29 «