Dawson v. Steager

Justia Summary

After Dawson retired from the U.S. Marshals, his home state, 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, W. Va. Code 11–21–12(c)(6). Dawson alleged that the state statute violates the intergovernmental tax immunity doctrine, 4 U.S.C. 111, under which the United States consents to state taxation of the pay or compensation of federal employees, only if the state tax does not discriminate on the basis of the source of the pay or compensation. The West Virginia Supreme Court of Appeals rejected Dawson’s argument.

A unanimous U.S. Supreme Court reversed. A state violates section 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. West Virginia expressly affords state law enforcement retirees a tax benefit that federal retirees cannot receive. The state’s interest in adopting the discriminatory tax is irrelevant. The Court noted that the West Virginia statute does not draw lines involving job responsibilities and that the state courts agreed that there are no “significant differences” between Dawson’s former job responsibilities and those of the tax-exempt state law enforcement retirees.