503 U.S. 594




CERTIORARI TO THE SUPREME COURT OF KANSAS No. 91-611. Argued March 3, 1992-Decided April 21, 1992

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. Mter Davis v. Michigan Dept. of Treasury, 489 U. S. 803, 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.

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, 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, referred to Tyler, it did not expressly approve Tyler's 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, post, p. 605.

Kevin M. Fowler argued the cause for petitioners. With him on the brief were Kenton C. Granger, Raymond L. Dahlberg, Angela K. Green, Roger M. Theis, John C. Frieden, and Terence A. Lober.

John F. Manning argued the cause for the United States as amicus curiae urging reversal. With him on the brief were Solicitor General Starr, Assistant Attorney General Peterson, Deputy Solicitor General Wallace, and David English Carmack.

James A. D. Bartle argued the cause for respondents.

With him on the brief were Mark A. Burghart and Michael M. Rehm.*

* Eugene O. Duffy filed a brief for the Retired Officers Association as amicus curiae urging reversal.

Briefs of amici curiae urging affirmance were filed for the State of Arizona et al. by Mary Sue Terry, Attorney General of Virginia, H. Lane Kneedler, Chief Deputy Attorney General, and Gail Starling Marshall, Deputy Attorney General, Peter W Low, and by the Attorneys General for their respective States as follows: Grant Woods of Arizona, Winston Bryant of Arkansas, Michael J. Bowers of Georgia, Bonnie J. Campbell of Iowa, Marc Racicot of Montana, Susan B. Loving of Oklahoma, Paul Van Dam of Utah, and James E. Doyle of Wisconsin; and for the National Conference of State Legislatures et al. by Richard Ruda and Michael G. Dzialo.

Full Text of Opinion