[17-419] Dawson v. Steager

Dawson v. Steager

Justia (with opinion) · Docket · oyez.org

Argued on Dec 3, 2018.
Decided on Feb 20, 2019.

Petitioner: James Dawson, et ux..
Respondent: Dale W. Steager, West Virginia State Tax Commissioner.

Advocates:

• Lawrence D. Rosenberg (for the petitioners)
• Michael R. Huston (Assistant to the Solicitor General, Department of Justice, for the United States as amicus curiae, supporting the petitioners)
• Lindsay S. See (for the respondent)

Facts of the case (from oyez.org)

West Virginia Code 11-21-12(c)(6) (“Section 12(c)(6)”) exempts from state taxation the retirement income of many state and local firefighters and law enforcement officers, but not federal marshals. Plaintiffs James and Elaine Dawson allege that this differential treatment is proscribed by 4 U.S.C. § 111, which allows for state taxes on federal retirement benefits only if “the taxation does not discriminate...because of the source of the pay or compensation.” James Dawson spent most of his career with the US Marshal Service and retired in 2008. Dawson and his wife sought to exempt Dawson’s federal retirement income from his state income tax, but the tax commissioner refused to allow the exemption.

The Office of Tax Appeals affirmed the tax commissioner’s denial of the Dawsons’ 12(c)(6) exemption, and the Dawsons timely appealed. The Circuit Court of Mercer County found that the tax scheme does violated 4 U.S.C. § 111 and reversed the Office of Tax Appeals. The tax commissioner appealed the circuit court’s decision, and on appeal, the state supreme court reversed.

Question

Does the provision of the West Virginia Code that exempts from state taxation the retirement income of many state and local firefighters and law enforcement officers, but not federal marshals, violate 4 U.S.C. § 111?

Conclusion

The West Virginia law that taxes the retirement income of federal marshal but exempts from taxation state and local law enforcement officers unlawfully discriminates against federal employees, in violation of 4 U.S.C. § 111. In a unanimous opinion authored by Justice Neil Gorsuch, the Court found that the state law confers a benefit to state and local retirees that federal retirees cannot receive and that there are no “significant differences between the two classes” of employees that justify differential treatment. The Court found unpersuasive the state’s arguments that the law affects too few people to meaningfully interfere with federal government operations and that the statute is not intended to harm federal retirees. The prohibition on discrimination, 4 U.S.C. § 111, applies to any state tax, not only those that are cumbersome, and the state’s purpose in adopting the discriminatory tax is irrelevant. With no meaningful distinction between retired federal marshals and state law enforcement retirees, the state cannot treat the two classes of retirees differently for purposes of taxation.