Harper and Its Aftermath

Abstract

In Davis v. Michigan Department of Treasury, the Supreme Court ruled that states may not tax the pensions of former federal workers without imposing a like tax on the retirement income of former state employees. Noting that Michigan had agreed to refund the state income taxes Paul Davis had paid on his federal pension over the years in controversy, the Court stated that he was entitled to a refund. It then remanded the case to allow the Michigan courts and state lawmakers to determine how state and federal retirees were to be treated equally in the future-both taxed according to the same schedule or exempted from tax-and to resolve the thousands of refund claims by federal pensioners that had been or might be filed.
Davis provoked a whirlwind of activity in state courts and legislatures across the country, because two dozen states taxed state retirement income more lightly than federal pensions, contrary to the Supreme Court's understanding of the doctrine of intergovernmental tax immunity. Davis left no doubt that states must equalize the taxation of federal and state retirees following the issuance of the Court's opinion. But the Court's bare mention of Michigan's concession to refund Davis's taxes failed to answer clearly the question of whether states owed some form of retroactive relief to all similarly situated federal retirees who had paid higher taxes than had state pensioners. Not surprisingly, in view of the number of courts that issued rulings, the enormous sums at stake, and the confusion swirling around the Supreme Court's recent retroactivity rulings, state courts disagreed over whether the Fourteenth Amendment's Due Process Clause mandates a remedy for past wrongs. Many, including Virginia's Supreme Court, concluded that Davis established a requirement of equal treatment solely for the future. Accordingly, they refused to order refunds to federal retirees or to impose a retroactive tax on state pensions to secure equality after the fact.