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Graves v. New York ex rel. O’Keefe


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306 U.S. 466 (1939), argued 6 Mar. 1939, decided 27 Mar. 1939 by vote of 7 to 2; Stone for the Court, Hughes and Frankfurter concurring, Butler and McReynolds in dissent. Until this case, there had been an explicit immunity of state employees from federal taxation and federal employees from state taxes, going back to the 1871 decision in Collector v. Day. This immunity had been reinforced in the famous Income Tax Cases (see Pollock v. Farmers’ Loan & Trust, 1895), in which the Court had held that a tax on income was a tax on the source of that income.

New York imposed an income tax on a New York resident employed by the Federal Home Owners Loan Corporation, who paid the tax and then appealed on the basis of intergovernmental tax immunity. The Court held that nothing in the Constitution required such an immunity, nor did any act of Congress specifically grant immunity to federal employees. The Court thus concluded that salaries of federal employees were subject to regular state taxes.

Justice Harlan Fiske Stone's opinion specifically overruled Collector v. Day and other cases supporting immunity as well as the doctrine that a tax on income constitutes a tax on the source of that income.

Later in the year Congress enacted the Public Salary Tax Act, specifically extending federal income taxes to state employees and also consenting to state taxes on the incomes of federal employees, although under the ruling in this case such consent was no longer necessary.

Melvin I. Urofsky

Subjects: Law.


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