Barker v. Kansas

• Citation: 118 L.Ed.2d 243,112 S.Ct. 1619,503 U.S. 594
• Decision Date: 21 April 1992
• Docket Number: No. 91-611,91-611
• Parties: Keyton E. BARKER and Pauline Barker, et al., Petitioners v. KANSAS et al
• Court: United States Supreme Court

503 U.S. 594

112 S.Ct. 1619

118 L.Ed.2d 243

Keyton E. BARKER and Pauline Barker, et al., Petitioners

v KANSAS et al.

No. 91-611.

Argued March 3, 1992.

Decided April 21, 1992.

Syllabus

Title 4 U.S.C. § 111 authorizes the States to tax federal employees' compensation if the taxation does not discriminate against the employees because of the compensation's source. After Davis v. Michigan Dept. of Treasury, 489 U.S. 803, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989), invalidated, under § 111 and the doctrine of intergovernmental tax immunity, the Michigan income tax imposed on the benefits of federal, but not state and local, civil service retirees, petitioners filed suit in a Kansas state court challenging that State's imposition of an income tax on federal military retirement benefits but not on the benefits received by retired state and local government employees. In affirming the trial court's grant of summary judgment for the state defendants, the State Supreme Court concluded that military retirement benefits constitute reduced pay for reduced current services, in contrast to the deferred compensation for past services embodied in state and local government retirement benefits, and that this "significant differenc[e]" justified the State's differential treatment of the two classes of retirees under Davis, supra, at 816, 109 S.Ct., at 1508.

Held: The Kansas tax on military retirees is inconsistent with § 111. The State Supreme Court's conclusion that, for purposes of state taxation, military retirement benefits may be characterized as current compensation for reduced current services does not survive analysis on several bases. First, there are no "significant differences" between military retirees and state and local government retirees in terms of calculating retirement benefits. The amount of retired pay a service member receives is computed not on the basis of the continuing duties he actually performs, but on the basis of years served on active duty and the rank obtained prior to retirement. Military benefits thus are determined in a manner very similar to that of the Kansas Public Employee Retirement System. Second, this Court's precedents discussing military retirement pay provide no support for the state court's holding. The statement in United States v. Tyler, 105 U.S. 244, 245, 26 L.Ed. 985, that such pay is effectively indistinguishable from current compensation at a reduced rate was made in the context of the particular holding of that case, and cannot be taken as establishing that retirement benefits are for all purposes the equivalent of current compensation for reduced current services. And, although McCarty v. McCarty, 453 U.S. 210, 222, 101 S.Ct. 2728, 2736, 69 L.Ed.2d 589 (1981), referred to Tyler, it did not expressly approve Tyler § description of mili- tary retirement pay, but specifically reserved the question whether federal law prohibits a State from characterizing such pay as deferred compensation and urged the States to tread with caution in this area. Third, an examination of other federal statutes treating military retirement pay indicates that Congress for many purposes does not consider such pay to be current compensation for reduced current services. See, e.g., 10 U.S.C. § 1408(c)(1); 26 U.S.C. § 219(f)(1). Thus, military retirement benefits, like the benefits paid to Kansas government retirees, are to be considered deferred pay for past services for purposes of § 111. Pp. 597-605.

249 Kan. 186, 815 P.2d 46, reversed and remanded.

WHITE, J., delivered the opinion for a unanimous Court. STEVENS, J., filed a concurring opinion, in which THOMAS, J., joined.

Kevin M. Fowler, Topeka, Kan., for petitioners.

John F. Manning, Washington, D.C., for U.S. as amicus curiae by special leave of Court.

James A.D. Bartle, Topeka, Kan., for respondents.

Justice WHITE delivered the opinion of the Court.

The State of Kansas taxes the benefits received from the United States by military retirees but does not tax the benefits received by retired state and local government employees. Kan.Stat.Ann. § 79-3201 et seq. (1989).¹ The issue before us is whether the tax imposed on the military retirees is inconsistent with 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, a territory or possession or political subdivision thereof, the government of the District of Columbia, or an agency or instrumentality of one or more of the foregoing, 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."

Shortly after our decision in Davis v. Michigan Dept. of Treasury, 489 U.S. 803, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989), which invalidated under § 111 the Michigan income tax imposed on federal civil service re- tirees, two class actions were filed in Kansas District Court challenging the state income tax imposed on military retirement benefits. Together the classes comprised some 14,000 military retirees, who received federal armed forces retirement benefits and were subject to the Kansas income tax for one or more of the tax years from 1984 through 1989. The classes also included spouses of the retirees, where applicable. Plaintiff taxpayers sought a declaratory judgment that the Kansas income tax discriminates against them in favor of state and local government retirees, in violation of § 111 and the constitutional principles of intergovernmental tax immunity applied in Davis. They also requested a permanent injunction to prohibit assessment of the tax against military retirees, as well as refunds of any taxes paid by class members for the tax years 1984 through 1989.² The District Court granted summary judgment for the defendants, and the Supreme Court of Kansas affirmed. We granted certiorari because the holding below is arguably inconsistent with our decision in Davis and conflicts with decisions of other state courts of last resort. 502 U.S. ----, 112 S.Ct. 576, 116 L.Ed.2d 602 (1991).³

Our approach to deciding this case is controlled by Davis, which invalidated a Michigan law that imposed taxes on federal civil service retirees' benefits but not on benefits received by state and local government retirees. In reaching that decision, we traced the history of 4 U.S.C. § 111 and concluded that "the retention of immunity in § 111 is coextensive with the prohibition against discriminatory taxes embodied in the modern constitutional doctrine of intergovernmental tax immunity." 489 U.S., at 813, 109 S.Ct., at 1506. Under that doctrine, we evaluate a state tax that is alleged to discriminate against federal employees in favor of state employees by inquiring "whether the inconsistent tax treatment is directly related to, and justified by, 'significant differences between the two classes.' " Id., at 816, 109 S.Ct., at 1508 (quoting Phillips Chemical Co. v. Dumas Independent School Dist., 361 U.S. 376, 383, 80 S.Ct. 474, 479, 4 L.Ed.2d 384 (1960)).

Well aware of Davis, the State Supreme Court undertook such an inquiry and concluded that significant differences existed between military retirees, who are taxed by Kansas, and state and local government retirees, who are not. The court proceeded to consider the State's six proffered distinctions between military retirees and state and local government pensioners:

"(1) [F]ederal military retirees remain members of the armed forces of the United States after they retire from active duty; they are retired from active duty only; (2) federal military retirees are subject to the Uniform Code of Military Justice (UCMJ) and may be court martialed for offenses committed after retirement; (3) they are subject to restrictions on civilian employment after retirement; (4) federal military retirees are subject to involuntary recall; (5) federal military retirement benefits are not deferred compensation but current pay for continued readiness to return to duty; and (6) the federal military retirement system is noncontributory and funded by annual appropriations from Congress; thus, all benefits received by military retirees have never been subject to tax." 249 Kan. 186, 196, 815 P.2d 46, 53 (1991).

The court deemed the first four differences significant, not because in themselves they justified disparate tax treatment, but because they supported the fifth distinction—that military retirement benefits constitute reduced pay for reduced current services, rather than deferred compensation for past services. Id., at 197, 815 P.2d, at 53. By contrast, "state and local government retirement benefits are deferred compensation," the court found, and "not current pay." Ibid. The court concluded that this principal distinction between military retirees and state and local government retirees justified their differential treatment under the State's tax laws. Accordingly, it held that a military retiree's benefits were as legally subject to state taxation as the income of active military personnel, whose pay was liable for state taxation pursuant to the United States' consent, as expressed in 4 U.S.C. § 111.

Military retirees unquestionably remain in the service and are subject to restrictions and recall; in these respects they are different from other retirees, including the state and local government retirees whom Kansas does not tax. But these differences, standing alone, do not justify the differential tax treatment at issue in this case. Nor do these differences persuasively indicate that, for purposes of 4 U.S.C. § 111, Kansas may treat military retirement pay as reduced pay for reduced services. As a general matter, a military retiree is entitled to a stated percentage of the pay level achieved at retirement, multiplied by the years of creditable service. Brief for United States as Amicus Curiae 11, n. 16. In this respect, "retired [military]...