## Facts

- Virginia taxed federal retirement benefits while exempting state and local government retirement benefits from state income taxation.
- Federal retirees, led by Henry Harper, sought refunds of taxes paid under this discriminatory scheme.
- After the Supreme Court invalidated a materially similar tax scheme in Davis v. Michigan Department of Treasury, Virginia repealed its exemption for state and local retirement benefits prospectively.
- Virginia also enacted a special limitations statute governing refund claims based on Davis for certain prior tax years.
- Virginia trial and appellate courts denied the retirees’ requested relief, applying Chevron Oil’s civil retroactivity factors and state-law prospectivity doctrines to refuse retroactive application of Davis.
- After an intervening Supreme Court decision addressing civil retroactivity (James B. Beam Distilling Co. v. Georgia), the Supreme Court remanded for reconsideration, but the Virginia Supreme Court again refused retroactive relief.

## Issues

1. Whether, when the Supreme Court applies a rule of federal law to the parties before it, the same rule must be applied retroactively to all similar cases still open on direct review.
2. Whether a state court may use Chevron Oil or state-law retroactivity doctrines to deny retroactive application of such a federal rule in pending refund litigation.

## Decision

- The Supreme Court reversed and remanded.
- When the Court applies a rule of federal law to the parties before it, that rule is the controlling interpretation of federal law and must be given full retroactive effect in all cases still open on direct review, regardless of whether the relevant events occurred before the rule was announced.
- Virginia could not deny relief by confining the federal rule to prospective effect through Chevron Oil analysis or state-law prospectivity doctrines.
- The Court required Virginia’s remedial approach to conform to federal law but did not itself set a specific refund calculation; further proceedings were left to state courts subject to federal constraints.

## Legal Principles

- A Supreme Court rule of federal law, once applied to the parties in the deciding case, must be applied retroactively to all cases still pending on direct review.
- Selective prospectivity in civil cases is impermissible where the Supreme Court has already applied the rule to the litigants before it.
- The Supremacy Clause prevents state courts from displacing federal retroactivity doctrine with contrary state-law approaches.
- Chevron Oil’s equitable, factor-based approach cannot be used to deny retroactive effect to a federal rule that the Supreme Court has applied to the parties in the precedent-setting case.

## Conclusion

The Court held that Davis’s federal nondiscrimination rule could not be limited to prospective application in pending cases and that Virginia had to apply the rule retroactively to similarly situated litigants whose cases remained open on direct review, with remedies to be determined on remand under federal requirements.


Harper v. Va. Dep’t of Tax’n, 509 U.S. 86 (1993)