Supreme Court seems to lean against West Virginia in tax case

By Jessica Gresko
Associated Press

WASHINGTON (AP) - The Supreme Court seemed inclined Monday to side with a retired U.S. marshal who argues West Virginia is discriminating against former federal law enforcement officers like him by giving a more generous tax break to former state law enforcement officers.

James Dawson says West Virginia currently exempts the vast majority of state law enforcement retirees - including police and firefighters - from paying income tax on their retirement benefits. But retired U.S. Marshals Service employees like him don't get that perk. Dawson has to pay income tax on his retirement benefits except for the first $2,000 annually, which is tax free.

Dawson says federal law prohibits West Virginia from taxing his retirement income more heavily than it taxes the retirement income of those who did a similar job working for the state.

During arguments before the Supreme Court on Monday, both conservative and liberal justices seemed more willing to side with Dawson. Justice Neil Gorsuch asked West Virginia's attorney Lindsay See why looking at the text of the federal law wasn't "game over," ending the case in Dawson's favor. And Justice Stephen Breyer listed a number of those getting better tax treatment than Dawson.

"It's not just the state police. It's also the local police. It's everybody in law enforcement almost. And they can get into it and the feds can't. Why isn't that just the end of it?" Breyer said.

West Virginia argues it's not doing anything wrong. It says Dawson is getting the same benefit, the $2,000 income tax exemption, that applies to virtually all retired federal, state and local employees in West Virginia. The state says only a "surpassingly small" number people who participate in specific, state-managed retirement plans get the exemption Dawson wants to claim.

The U.S. government is backing Dawson, who served in the U.S. Marshals Service from 1987 to his retirement in 2008. He led the Marshals Service in the Southern District of West Virginia for the last six years.

In 2013, he filed paperwork seeking to amend his tax returns for two years and claim the more favorable tax exemption. Dawson said the state owed him $2,174 for 2010 and $2,111 for 2011. State tax officials disagreed, so Dawson took his case to court. A lower court sided with Dawson, but West Virginia's highest court reversed that decision.

A group that represents federal employees, the National Active and Retired Federal Employee Association, has warned the Supreme Court against siding with West Virginia. The group said in a brief filed with the high court that siding with West Virginia would allow states nationwide to discriminate against some 2.6 million federal retirees.

The case is 17-419, Dawson v. Steager.

Published: Wed, Dec 05, 2018