Graves v. New York ex rel. O’Keefe
Graves v. New York ex rel. O’Keefe is a significant Supreme Court case addressing the issue of taxation between federal and state governments. In this 1939 decision, the Court ruled on the constitutionality of New York's tax on the salary of a federal employee living in the state, which sparked a discussion on intergovernmental immunity. Prior to this ruling, there was a mutual tax immunity that protected both federal and state employees from being taxed by the opposing government. The Court, in a 7-2 vote, overruled earlier precedents, most notably Collector v. Day, affirming that states could tax the salaries of federal workers. This decision marked a shift in the legal landscape, as it allowed states to impose taxes on federal employees while simultaneously permitting the federal government to tax state employees' incomes. Justice Harlan Fiske Stone's opinion clarified that taxing income does not equate to taxing the source of that income. This case has had lasting implications on the relationship between state and federal taxation powers, influencing how salaries are taxed across different levels of government.
Graves v. New York ex rel. O’Keefe
Date: March 27, 1939
Citation: 306 U.S. 466
Issue: Tax immunities
Significance: The Supreme Court gave the authority to the federal government to tax the salaries of state employees.
New York imposed a tax on the salary paid to a federal worker who resided in that state. The worker paid the tax and appealed, arguing intergovernmental immunity. The Supreme Court, by a 7-2 vote, overruled Collector v. Day (1871) and established the right of the federal government to collect taxes on the salaries paid to state employees. Until Graves, state employees had been immune from federal taxes and federal employees immune from state taxes. This mutual tax immunity was reinforced by the Court in Pollock v. Farmers’ Loan and Trust Co. (1895). However, in his opinion for the Court, Justice Harlan Fiske Stone rejected the idea that a tax on income is equivalent to a tax on the income’s source. The Public Salary Tax Act of 1939 specifically allowed the states to tax the salaries of federal employees and permitted the federal government to tax the incomes of state employees.
