Legal Document

489 U.S. 803 109 S.Ct. 1500 103 L.Ed.2d 891 Paul S. DAVIS, Appellantv.MICHIGAN DEPARTMENT OF TREASURY. No. 87-1020. Argued Jan. 9, 1989. Decided March 28, Syllabus In each of the years 1979 through 1984, appellant, a Michigan resident and former federal employee, paid state income tax on his retirement benefits in accordance with Income Tax Act, which exempts from taxation all by State or its political § bdivisions, but taxes other employers, including Federal Government. After denied appellant's request for refunds, he filed suit Court Claims, alleging that State's inconsistent treatment violated 4 U.S.C. 111, authorizes States to "pay compensation personal services as [a federal] officer employee . ., if does not discriminate against because source pay compensation." The Claims relief, Appeals affirmed, ruling appellant is an "annuitant" under law rather than "employee" within meaning section therefore has no application him. also held doctrine intergovernmental immunity did render discriminatory scheme unconstitutional, since discrimination was justified rational-basis test: interest attracting retaining qualified employees legitimate objective rationally achieved plan offering economic inducements. Held: 1. Section 111 applies retirees such appellant. contention limited current refuted plain language statute's first clause. Since amount civil service based computed upon individual's salary service, it represents deferred Government, constitutes employee" that, this quoted occur second, nondiscrimination clause, clause only employees, hypertechnical fails read context overall statutory scheme. reference "the compensation" latter must, context, mean same defined section's thus includes benefits. reading implausible unlikely Congress consented retired servants' pensions while refusing permit there nothing legislative history suggest result. Pp. 808-810. 2. 111's language, purpose, establish scope clause's grant retention coextensive with, must be determined to, prohibition embodied modern constitutional immunity. 810-814. 3. Michigan's violates principles favoring local government over employees. 814-817. (a) entitled claim protection without merit. Although need protect sovereign's governmental operations undue interference another sovereign, Court's precedents private entities individuals who are subjected account their dealings sovereign can themselves receive doctrine. See, example, Phillips Chemical Co. v. Dumas Independent School Dist., 361 376, 387, 80 474, 481, 384. 814-815. (b) determining whether permissible, relevant inquiry inconsistency directly related "significant differences between two classes." Phillips, supra, at 384-385, S.Ct., 479-480. claimed hiring servants inducement exemption irrelevant inquiry, merely demonstrates rational reason discriminating similar groups demonstrating any those themselves. Moreover, significantly less munificent terms vesting requirements, rate accrual, benefit computations insufficient justify type blanket issue here. A truly intended would basis benefits, would, rather, received individual retirees. 815-817. 4. Because concedes refund appropriate these circumstances, extent pursuant invalid However, additional prospective relief should decided courts, whose special expertise puts them better position fashion remedy most comply mandate equal treatment. 817-818. 160 Mich.App. 98, 408 N.W.2d 433 (1987), reversed remanded. KENNEDY, J., delivered opinion Court, REHNQUIST, C.J., BRENNAN, WHITE, MARSHALL, BLACKMUN, O'CONNOR, SCALIA, JJ., joined. STEVENS, dissenting opinion, post, p. 818. Davis, Michael K. Kellogg, Washington, D.C., U.S., amicus curiae, supporting leave Court. Thomas L. Casey, Lansing, Mich., appellee. Justice KENNEDY 1 subdivisions, levies question presented case law. 2 * Appellant resident, United He receives Civil Service Retirement 5 8331 et seq. Mich.Comp.Laws Ann. 206.30(1)(f) (Supp.1988).1 That statute defines taxable manner excludes forms benefits.2 effect definition exempt not. 3 petitioned refunds 1983. denied, Claims. Appellant's complaint, amended include 1984 year, averred were "not legally Law" discriminated violation preserves employees' taxation. See Public Salary Act 1939, ch. 59, 4, 53 Stat. 575, codified, amended, 111. however, relief. 84-9451 (Oct. 30, 1985), App. Juris. Statement A10. affirmed. (1987). court rejected invalidated Noting "employees," status employee. As consequence, concluded "has [Davis], [he] cannot considered act." Id., 104, N.W.2d, 435. next rendered unconstitutional. Conceding "a may operates whom deals," id., 436, examined justifications test. Ibid. "attracting employees" "legitimate inducements," upheld statute. 105, 436. 6 Supreme appeal. 429 Mich. 854, 412 220 We noted probable jurisdiction. 487 1217, 108 2868, 101 904 (1988). II 7 places principal reliance part, provides: 8 "The consents duly constituted taxing authority having jurisdiction, 9 threshold matter, argues our view, dictates opposite conclusion. States." (Emphasis added). While actually disbursed during time working service. 8339(a). have difficulty concluding past e.g., Zucker States, 758 F.2d 637, 639 (CA Fed ), cert. 474 842, 106 129, 88 105 (1985); Kizas Webster, 227 U.S.App.D.C. 327, 339, 707 524, 536 (1983), 464 1042, 104 709, 79 173 (1984); Clark 691 837, 842 (CA7 1982). And accrue they fall squarely category "as earned "as" so subject 111.3 10 points out, "compensation occurs part Congress' consent taxation, section, provides extend Instead, speaks "discriminat[ion] From concludes whatever portion 11 provision isolation, construed vacuum. It fundamental canon construction words view place Morton, 467 822, 828, 2769, 2773, 81 680 (1984). When together operative follows: last section. well. 12 Any interpretation best. difficult imagine even suggests could perhaps used more precise unmistakable: waives present otherwise enjoy salaries, employment except discriminates compensation. III 13 enacted primary purpose impose salaries Prior adoption both federal, generally thought This had genesis McCulloch Maryland, Wheat. 316, L.Ed. 579 (1819), Maryland Bank States. Chief Marshall's reasoned instrumentality Government carry into Government's delegated powers, unconstitutionally interfere exercise powers. 425-437. 14 For time, broadly bar one another. Collector Day, Wall. 113, 124-128, 20 122 (1871) (invalidating judge); Dobbins Com- missioners Erie County, 16 Pet. 435, 1022 (1842) officer). rule "was rationale party contract 'on' burdened government's power enter contract." South Carolina Baker, 485 505, 518, 1355, 1364, 99 592 15 subsequent cases, began turn away expansive applications Thus, Helvering Gerhardt, 304 405, 58 969, 82 1427 (1938), levy nondiscriminatory incomes following Graves New York ex rel. O'Keefe, 306 466, 486-487, 59 595, 601-602, 83 927 (1939), overruled Day- line cases exempted Graves, therefore, barred imposed dealt. midst judicial revision after imposition servants, relied decision support broad assertion authority. S.Rep. 112, 76th Cong., 1st Sess., 5-9 (1939); H.R.Rep. 26, 2-3 (1939). drafted, Committee, passed House Representatives before announcement permitted result, process leading unclear still despite abrogation ("There certain indications 316 [4 579] officers not, various States"). 17 Dissatisfied uncertain affairs, concerned considerations fairness demanded ensure remain immune being required taxes. ; Accordingly, proposed (now 111) expressly waived shielded 18 By enacted, course, been announced, longer proscribed effect, simply codified result foreclosed possibility reconsideration might reestablish broader 19 waive aspects immunity, however. final contains exception closely parallels component has, "operat[e] deals." City Detroit, 355 473, 78 478, 424 (1958). Wheat., 436-437; Miller Milwaukee, 272 713, 714-715, 47 280, 280-281, 71 (1927); 413, 972; 385, 480, 384 (1960); Memphis & Trust Garner, 459 392, 397, n. 7, 692, 696, 74 562 (1983). similarity principle given consciously drafted background reasonable conclude drew defining retained codifies judicially concept, presumed, absent express statement contrary, adopt placed concept courts. Midlantic National Jersey Dept. Environmental Protection, 494, 501, 755, 759-760, 859 (1986); Morissette 342 246, 263, 72 240, 249-250, 96 288 (1952). Hence, we Cf. Trust, 396-397, 695-696 (construing 31 742, permits " 'nondiscriminatory' obligations, "principally restatement rule"). 21 On face, purports partial congressional argued, negative implication affirmative addition pre-existing afforded Regardless independent finding traditional taxes, same. either case, granted dispositive IV 22 undisputed system dis riminates favor argues, doctrine, event meaningful classes. A. 23 contention, out governments individuals. long challenged ability perform functions, violated. 24 true other. 598; 435-436. But follow Indeed, precedent contrary. Co., corporation's lessees land. "discriminate[d] lessee," accordingly exacted. 481 (emphasis supra; Moses Lake Homes, Inc. Grant 365 744, 870, 66 (1961); (1871); Commissioners (1842). offers reasons departing settled rule, decline do so.4 B 25 Under precedents, "[t]he heavier burden [those deal sovereign] other] significant 383, 479. standard justification met, inappropriate rely solely mode analysis developed cases. previously observed "our decisions [the protection] field necessarily controlling where problems involved," interests weighed balance." 480. by, 383-385, 26 allegedly First, sufficient preferential argument wholly beside point, demonstrate classes" themselves; adopting tax, matter how substantial, nature classes receiving 384, 27 Second, offered computation amounts. substantial value should, 28 Even assuming estimate relative correct, believe difference suffices case. average servant larger pension counterpart, undoubtedly many instances holds true. does; 479-480 (rejecting proffered unfavorable property, evenhanded resulted inclusion some property disfavored class well). V 29 reasons, conceded see Brief Appellee 63, scheme, refund. Iowa-Des Moines Bennett, 284 239, 247, 52 133, 136, 76 265 (1931). 30 seeks pros ective With respect claim, best ascertain remedy. invalidation entirety obviously eliminate violation, Constitution require drastic solution. recognized, involving classifications distribution "is treatment, accomplished withdrawal favored well extension excluded class." Heckler Mathews, 465 728, 740, 1387, 1395, 646 Bank, 136; Welsh 398 333, 361, 90 1792, 1807, 308 (1970) (Harlan, concurring judgment). resolved extending (or employees), eliminating approach, direct beyond court. 752, 874 ("Federal courts assess taxes"). permissibility moreover, depends severability remainder Louis Liggett Lee, 517, 540-541, 77 929 (1933). follows determine judgment reversed, remanded further proceedings opinion. 32 ordered. 33 dissenting. 34 parties business 523, 1366, (1988); County Fresno, 452, 462, 97 699, 704, 50 683 (1977). today strikes down equally vast majority residents, treats differently holding supported compelled previous decisions. I join unjustified, court-imposed restriction administer own affairs. 35 Frankfurter explained, "finds explanation avoiding potentialities friction furthering smooth operation complicated machinery." Detroit Murray Corp., 489, 504, 458, 491, 441 To dual system, necessary prohibit (1842), officials. (1871). forsworn "wooden formalism." Washington 460 536, 544, 1344, 1349, 75 264 36 recognizes fact voice policy made several singles agencies burdens provided Supremacy Clause Constitution, statutes 111.1 shared agents citizens, applicable necessary. explained Fresno: derived recent decisions, then, function unconstitutional similarly situated constituents State. returns original intent M'Culloch Maryland. check abuse found lacking M'Culloch, imposes artificially owned entities; foresaw unfairness forcing beneficial others property. 'the citizens hold [in instrumentality] common description throughout State.' 436." 462-464, 704-706.2 37 If imposing like others, plainly 425-437, (1819). hand, residents equally, tax. SeeUnited 468, (STEVENS, dissenting). here approximately 41/2 million taxpayers State, 24,000 130,000 Tr. Oral Arg. 35-36. Once understands underlying theMcCulloch holding, 38 reaches examining discrete group residents—retired states: "It employees." Ante, 814. "discriminate[s] [federal] elect preference, exemption, small percentage make sense obligation judge affected choose few taxpayers—whether judges, select citizens. Such "in spite of" "because adverse Personnel Administrator Massachusetts Feeney, 442 256, 279, 2282, 2296, 60 870 (1979). least exemptions employees.3 draws distinction voters concern about kind "discrimination" provisions make. constitute nation requiring accord contractors greatest give 39 sure, taxpayers—if exemption. size remains same—say, 10% populace—the same, regardless defined. Whether school teachers, church handicapped persons, indifference fairly said treated ordinary 40 comparing peculiarly focus always compensate what assesses Thus nonetheless reflect disparate forbids adjust avoid them. 468-469, 707-708 trivializes interpret prohibiting providing unquestionable right provide increased bene its.4 41 Arguably, logical (1960), were, disagree it. Those are, different. 42 involved applied Article 5248 Texas Code lands measured fee 7173 Code, authorized lessees, public taxed lower rate. Lessees privately all.5 company argued users reason, more." 382, 478. argument, reasoning "necessary treated." then "similarly situated" 7173. Within narrow focus, district's justified. confined us employees; hypothesis, exempted, 43 troublesome aspect failure attach significance landlords presumably indirect heavy 5248. note "[u]nder appears property." 381, But—possibly unwise case6—the never owners save singled burden.7 44 lawfulness Tennessee net earnings banks doing "include bank obligations instrumentalities, bonds Tennessee, [to] exclude subdivisions." 394, 694. large source, members unrepresented Legislature. There was, out-of-state issuers, precisely itself, terms, single treatment; "all Banks, branches thereof, chartered legislature." 317-318. nonresidents, clearly protected saved (1977), 45 employee's wrote separately explain "seductive cliche" infected "moving realm Lincoln called 'pernicious abstractions.' correctly "web unreality" "[f]ailure functionaries universal duties citizenship costs hypothetically transmuted hostile action other." 489-490, 603. 46 Today, great Justice's dictum destroy obscures web unreality; virtually automatic rejection anything labeled "discriminatory." deserves careful consideration mere use label. answered considering ratio decidendi quite different I, respectfully dissent. series amendments, subsection variously designated (1)(f), (1)(g), (1)(h) times litigation. will refer designation, 206.30(1)(f). pertinent "(1) 'Taxable income' means adjusted gross internal revenue code adjustments: "(f) Deduct included income: "(i) created act subdivision state. "(iv) "(A) return, sum $7,500.00. "(B) joint $10,000.00." An (Supp.1988). Subsection (f)(iv) income, nonstate sources exceeded pointing statements Committee Reports describe using phrase "service employee." leaves room doubt attempt minor detain us. Legislative unambiguous Air Lines, McMann, 434 192, 199, 98 444, 448, 54 402 dissent nondiscriminatory, constitutional, "draws State." Post, 823. faced situation: private, tax-exempt lesser circumstances none all. property," consistent danger engaging impermissible when acts itself privity "it seem too much treat deals itself." take dissent's taxes." 824. order after-tax payments instead increase outlays cost higher circumstances. serves illustrate impact Taxes reduce expense treasury legislation bar. describes "[t]o aimed at, threatens efficient of, Government." quotation text omits footnote, footnote relevant: "11A possessory houses, them, escalated performed making unable hire anyone causing prohibitively high salaries. arise, 463, 705. repeatedly emphasized met excessive 526, 15, 1368, (1988) ("[T]he safeguard (and manageable) requirement fashion. judges term 'excessive' second-guessing people themselves, threat destroying realized willing constituents"); 545, 1350, (1983) ("A 'political check' falls counted votes keep raising excessively, placing unfair legislatures"). Ariz.Rev.Stat.Ann. §§ 43-1022(3) (4) (Supp.1988) (benefits, annuities, plan, judges' fund, safety personnel county city entirety; up $2500); Colo.Rev.Stat. 39-22-104(4)(f) (g) (amounts annuities $20,000 amounts member Armed Forces 55 age $2000); Ga.Code 48-7-27(a)(4)(A) (income exempt); La.Rev.Stat. 42:545, 47:44.1 (West Supp.1989) (annuities, allowances municipal entirety, mpt $6000); Md.Tax-Gen.Code 10-207(o ) (fire, rescue, ambulance length award funded corporation Mo.Rev.Stat. 169.587 (Supp.1989) (retirement allowance, benefit, funds, rights Mont.Code 15-30-111(2)(c)-(f) (1987) (benefits teachers law, highway patrol Employees $3600); N.Y.Tax Law 612(c)(3) (McKinney 1987) (pensions subdivisions N.C.Gen.Stat. 105-141(b)(13) (14) funds established firemen enforcement federal-employee-retirement program $4000); Ore.Rev.Stat. 316.680(1)(c) (d) (payments Fund $5000); S.C.Code 12-7-435(a), (d), (e) systems police plans annuity $3000); Va.Code 58.1-322(C)(3) Commonwealth, agencies, surviving spouses Commonwealth agency thereof W.Va.Code 11-21-12(c)(5) (6) allowances, contributions department death, disability, teachers' firemen's Wis.Stat. 71.05(1)(a) (Supp.1988-1989) Milwaukee sheriff's fund firefighters' trust exempt). compensating reducing ante, 815, alone subsidy Michigan, industries groups. 205.54a(g) 1986 Supp.1988) (industrial processing), 205.54a(p) (1986) (pollution control). chooses proceed subsidy, Clause. "Although is, lease three more, Texas. real organizations—charities, churches, entities—do survive lessee. full leased becomes owner, lessee's consequently 5248." 380-381, 477-478 original; omitted). District addresses problem, essentially, protection, uphold classification, though apparently discriminatory, 'if facts reasonably conceived sustain it.' Allied Stores Bowers, 358 522, 528 [79 437, 441, 480 (1959) ]." interesting feature (1958), school-owned property—and "against" way "This misconceives decide—in fact, asked decide—whether discriminatory. Neither nor applicable, character." 386, classified. Black described "But every uses connection conducted gain. persons charitable organizations host entities. arbitrary invidiously one."

Classification Label: 9