Opinion ID: 1120875
Heading Depth: 1
Heading Rank: 4

Heading: the law of intergovernmental taxation

Text: It has been unconstitutional, at least since McCulloch v. Maryland, 4 Wheat 316, 4 L.Ed. 579 (1819), for a state to tax an instrumentality of the federal government. This rule, which came to be known as the doctrine of intergovernmental tax immunity, was expanded over time to the point that it was presumed impermissible either for a state to tax the salary of a federal officer or for the federal government to tax the salary of a state official. See, e.g., The Collector v. Day, 78 U.S. (11 Wall.) 113, 124-28, 20 L.Ed. 122 (1871) (invalidating federal taxation of state judge's salary); Dobbins v. Erie County, 41 U.S. (16 Pet.) 435, 10 L.Ed. 1022 (1842) (invalidating state tax on federal officer). These cases later were substantially limited. See Helvering v. Gerhardt, 304 U.S. 405, 58 S.Ct. 969, 82 L.Ed. 1427 (1938) (nondiscriminatory taxation of state employees' income permissible); Graves v. N.Y. ex rel. O'Keefe, 306 U.S. 466, 486-87, 59 S.Ct. 595, 601-02, 83 L.Ed. 927 (1939) (nondiscriminatory state taxation of federal employees permissible). However, the requirement that any such intergovernmental tax be nondiscriminatory survives. Moreover, and at roughly the same time as the Gerhardt and O'Keefe cases were being decided, Congress enacted 4 U.S.C. § 111, which provides: 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. Thereafter, the State of Michigan created an income taxing system that substantially resembled the Oregon income tax system involved in this case. Certain Michigan residents who were federal retirees receiving federal pensions challenged the Michigan system as offending both the intergovernmental tax immunity doctrine and 4 U.S.C. § 111. The case eventually reached the Supreme Court of the United States. Davis v. Michigan Dept. of Treasury, 489 U.S. 803, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989). The Court held that 4 U.S.C. § 111 embodied the same concept as the intergovernmental tax immunity doctrine, and that both prohibited the State of Michigan from taxing the retirement benefits of former federal employees while exempting from taxation retirement benefits paid by the state and its political subdivisions. Id. at 817, 109 S.Ct. at 1508. Armed with Davis, Taxpayers here assert that Defendants refuse to follow Davis with respect to the Oregon income taxing system and that such refusal violates their rights under the United States Constitution and laws and is, therefore, actionable under 42 U.S.C. § 1983. The Oregon Tax Court, they contend, should have reached the merits of their case and so declared.