Dawson v. Steager, 139 S. Ct. 698

James Dawson, a retired U.S. Marshal and West Virginia resident, was taxed by West Virginia on his federal pension while certain West Virginia state and local law enforcement retirees receive an exemption.
West Virginia Code §11–21–12(c)(6) exempts retirement benefits of specified state police, firefighters, and deputy sheriffs from state income tax.
Dawson sued under 4 U.S.C. §111, which permits state taxation of federal pay only if the tax does not discriminate based on the source of pay.
The West Virginia trial court found no "significant differences" between Dawson’s duties as a U.S. Marshal and those of the exempted state law-enforcement retirees and held the statute discriminatory.
The West Virginia Supreme Court of Appeals reversed, emphasizing the exemption’s narrow scope and asserted non‑discriminatory intent.
The U.S. Supreme Court granted certiorari and reversed the state high court, holding the statute violates §111 because it discriminates against federal retirees similarly situated to the exempted state retirees.

Issue	Plaintiff's Argument (Dawson)	Defendant's Argument (Steager/State)	Held
Whether WV’s tax exemption for specified state law‑enforcement retirees unlawfully discriminates against retired federal employees under 4 U.S.C. §111	WV’s exemption treats similarly situated federal retirees (e.g., U.S. Marshals) worse solely because their pay is federal, violating §111’s ban on source‑based discrimination	The exemption is narrow, benefits few state retirees, is intended to help state employees (not harm federal ones), and does not meaningfully interfere with federal operations; alternatively, any relevant differences (e.g., pension generosity) justify the distinction	Reversed: §111 forbids any state tax that disfavors federal employees when there are no significant differences between the favored state class and the federal employees; West Virginia’s law discriminates based on source of pay and is unlawful

McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819) (States cannot tax or otherwise unduly interfere with federal instrumentalities; power to tax may be power to destroy)
Davis v. Michigan Dept. of Treasury, 489 U.S. 803 (1989) (§111 forbids state tax schemes that favor retired state employees over retired federal employees absent significant differences)
Phillips Chemical Co. v. Dumas Indep. School Dist., 361 U.S. 376 (1960) (state tax discrimination against federal lessees invalid where it favors state lessees)
Barker v. Kansas, 503 U.S. 594 (1992) (invalidated state tax discriminating against federal military retirement benefits)
Jefferson County v. Acker, 527 U.S. 423 (1999) (upheld non‑discriminatory state taxation of federal employees)
Helvering v. Gerhardt, 304 U.S. 405 (1938) (early recognition that neutral state income taxes could be permissible)
Graves v. New York ex rel. O’Keefe, 306 U.S. 466 (1939) (same)