## Facts

- James Dawson, a retired U.S. Marshals Service law-enforcement officer, lived in West Virginia and received a federal pension.
- West Virginia exempted from state income tax the pension benefits of certain state and local law-enforcement retirees under W. Va. Code Ann. § 11-21-12(c)(6).
- West Virginia did not provide a comparable exemption for federal law-enforcement retirees’ pensions, including Dawson’s.
- A state trial court found “no significant differences” between Dawson’s powers and duties and those of the favored state and local officers whose pensions were exempt.
- Dawson challenged the tax scheme under 4 U.S.C. § 111, which permits state taxation of federal employees’ compensation only if it does not discriminate because of the source of the pay.

## Issues

1. Whether taxing a federal law-enforcement pension while exempting pensions of similarly situated state and local law-enforcement retirees discriminates “because of the source” of compensation in violation of 4 U.S.C. § 111.
2. Whether the small size of the favored state-retiree class or a legislature’s asserted intent to benefit state retirees can defeat a § 111 discrimination claim.
3. Whether any “significant differences” between Dawson’s position and the exempt state positions justified the differential tax treatment.

## Decision

- The Supreme Court unanimously reversed the West Virginia Supreme Court of Appeals and remanded.
- West Virginia’s scheme violated 4 U.S.C. § 111 by taxing Dawson’s federal pension while exempting pensions of similarly situated state and local law-enforcement retirees.
- The size of the favored class did not affect whether the scheme was discriminatory under § 111.
- Legislative purpose to benefit state retirees, rather than to harm federal retirees, did not cure discrimination based on the source of pay.
- The trial court’s finding of no “significant differences” between Dawson’s duties and those of the exempt officers left the source of compensation as the operative basis for unequal treatment.

## Legal Principles

- Under 4 U.S.C. § 111, a state may tax federal employees’ pay or compensation only if the tax does not discriminate against them because of the federal source of that compensation.
- The core inquiry is comparative: whether similarly situated state and federal employees are treated differently, and if so, whether the difference is justified by “significant differences” between the positions.
- Discrimination prohibited by § 111 does not depend on the breadth of the favored state class; a narrowly drawn exemption can still be unlawful.
- Discriminatory effect, not asserted legislative motive, controls; preferential treatment for state employees that results in worse treatment of comparable federal employees violates § 111 absent a valid, non-source-based justification.

## Conclusion

The Court held that West Virginia unlawfully discriminated against a retired federal law-enforcement officer by taxing his pension while exempting pensions of comparable state and local law-enforcement retirees, and it rejected defenses based on the exemption’s limited scope and claimed benign legislative intent.


Dawson v. Steager, 139 S. Ct. 698 (2019)