Did the Supreme Court's Davis v. Michigan ruling make Maryland's tax break for volunteer firefighters unconstitutional?

Plain-English summary

In 1989, Maryland's Comptroller asked whether a recent U.S. Supreme Court decision, Davis v. Michigan Department of Treasury, had put a Maryland tax break at constitutional risk. The Maryland provision, Tax-General Article §10-207(o), let people subtract from their Maryland taxable income any payment received under a "length of service award program," a benefit paid to volunteer fire, rescue, or ambulance personnel who had put in enough years of service, funded by a county or municipality. Davis had struck down a Michigan law that exempted state and local government retirees' pensions from state income tax while taxing federal retirees' pensions, because that discriminated against the federal government and people who dealt with it. A U.S. Supreme Court Justice's dissent in Davis had specifically listed Maryland's §10-207(o) as an example of this kind of state favoritism. The Attorney General disagreed that the two situations were comparable. The opinion concluded that Maryland's exemption did not turn on whether someone had been a state or local government employee at all. It applied to volunteers, people with no employment relationship to the government funding the award. A retired federal employee who also volunteered for a fire company would get exactly the same tax break as a retired state or local employee who volunteered, so there was no discrimination between the federal government and Maryland that the Constitution's intergovernmental tax immunity doctrine could reach.

Currency note

This opinion was issued in 1989. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

In 1989, did the Supreme Court's Davis v. Michigan decision threaten Maryland's tax break for volunteer firefighters?
No, according to this opinion. It concluded Davis was inapplicable because Maryland's exemption in TG §10-207(o) applied to volunteer fire, rescue, and ambulance personnel regardless of whether they also happened to be a federal, state, or local government employee or retiree.

What did the Davis case actually decide?
The Supreme Court held that Michigan's income tax law violated intergovernmental tax immunity because it exempted state and local government retirees' pension benefits from tax while taxing federal retirees' pension benefits the same way it taxed private-sector retirees, discriminating against the federal government and those who dealt with it.

Why did a Supreme Court Justice single out Maryland's law in Davis?
Justice Stevens's dissent listed several states' special tax breaks for state and local retirement income that were not available to federal retirees, and included Maryland's §10-207(o) on that list. The opinion concluded this characterization did not fit, since §10-207(o) is not limited to state or local retirees; a federal retiree who volunteered for a fire company qualified for the same exemption.

Did the exemption cover the pensions of paid, career firefighters?
No. The opinion found that TG §10-207(o), by its wording and context, applied only to payments to volunteers under a "length of service award program," not to retirement allowances paid to career firefighters through a state or local retirement system.

Background and statutory framework

TG §10-207(o), enacted by Chapter 756 (Senate Bill 231) of the Laws of Maryland 1988, let a taxpayer subtract from federal adjusted gross income (the starting point for Maryland income tax under TG §10-204) "a payment received under a fire, rescue, or ambulance personnel length of service award program that is funded by any county or municipal corporation of the State." The opinion explained that "length of service award program" referred to specific programs the General Assembly or home rule jurisdictions had separately authorized, such as Article 25, §32.6, letting Washington County fund a volunteer length-of-service award program, and comparable provisions in Article 25, §§13A-13D and 32.5, and Article 38A, §43, all limited to volunteer fire, rescue, and ambulance personnel.

The opinion stressed that unpaid volunteer firefighters are neither public officers nor public employees, citing Macy v. Heverin's observation that a municipality may not even know a volunteer exists and cannot compel the volunteer to act, and Utica Mut. Ins. Co. v. Gaithersburg-Washington Grove Fire Dep't. It also pointed to Maryland's Good Samaritan Law, Courts Article §5-309(b)(2), which separately covers members of "any State, county, municipal, or volunteer" fire, ambulance, or rescue squad, as evidence the law consistently distinguishes paid career firefighters from volunteers. Based on this framework, the opinion concluded §10-207(o) did not reach retirement allowances paid to career firefighters through a state or local retirement system, and that the Comptroller's own published guidance (a Maryland Income Taxgram) confirmed that paid personnel did not qualify for the length-of-service program unless they also separately qualified as volunteers, an administrative interpretation the opinion found entitled to weight under Holy Cross Hospital v. Health Services Cost Review Commission.

Turning to the constitutional question, the opinion traced the intergovernmental tax immunity doctrine to Chief Justice Marshall's opinion in McCulloch v. Maryland, which struck down Maryland's discriminatory tax on the Bank of the United States, and explained that the doctrine as it had evolved by 1989 barred only taxes imposed directly on one sovereign by the other, or taxes that discriminated against a sovereign or those who dealt with it. In Davis, the Supreme Court found Michigan's tax law impermissibly favored state and local retirees over federal retirees, and rejected Michigan's justifications (retaining civil servants, offsetting less generous state benefits) under the standard from Phillips Chemical Co. v. Dumas Independent School Dist., which asks whether differential tax treatment is directly related to and justified by significant differences between the two groups being compared. The opinion reasoned that TG §10-207(o) did not draw any line between federal and state government retirees at all: it turned entirely on volunteer status with a fire or rescue company, so a federal retiree who volunteered received precisely the same benefit as a similarly situated state or local retiree who volunteered. Because the statute simply did not treat transactions between either sovereign and its own employees differently, the opinion concluded Davis's core teaching (that a state must tax federal compensation on the same terms as it taxes comparable state or local compensation) was not implicated, and TG §10-207(o) remained constitutional.

Citations and references

Statutes:

• Tax-General Article §10-207(o), the state income tax subtraction for volunteer fire, rescue, and ambulance length-of-service award payments
• Tax-General Article §10-204, setting federal adjusted gross income as the starting point for Maryland income tax
• Tax-General Article §10-207, the general list of subtractions from federal adjusted gross income
• Chapter 756 (Senate Bill 231), Laws of Maryland 1988, enacting TG §10-207(o)
• Article 25, §32.6, authorizing Washington County's volunteer length-of-service award program, enacted by Chapter 59, Laws of Maryland 1988
• Article 25, §§13A, 13B, 13C, 13D, and 32.5, and Article 38A, §43, comparable local length-of-service award program authorizations
• Courts Article §5-309(b)(2), Maryland's Good Samaritan Law covering State, county, municipal, and volunteer fire, ambulance, and rescue personnel
• 4 U.S.C. §111, the federal statute embodying intergovernmental tax immunity for compensation

Cases:

• Davis v. Michigan Department of Treasury, 109 S.Ct. 1500 (1989), holding Michigan's tax exemption for state and local retirees, denied to federal retirees, violated intergovernmental tax immunity
• McCulloch v. Maryland, 4 Wheat. 316 (1819), the origin of the intergovernmental tax immunity doctrine, striking down Maryland's discriminatory tax on the Bank of the United States
• Phillips Chemical Co. v. Dumas Independent School Dist., 361 U.S. 376, 383 (1960), the standard for whether differential tax treatment is justified by significant differences between the compared groups
• Macy v. Heverin, 44 Md. App. 358, 364, 408 A.2d 1067 (1979), holding volunteer firefighters are neither public officers nor public employees
• Utica Mut. Ins. Co. v. Gaithersburg-Washington Grove Fire Dep't, 58 Md. App. 589, 455 A.2d 987 (1983), a related case on volunteer fire company status
• Kaczorowski v. City of Baltimore, 309 Md. 505, 525 A.2d 628 (1987), cited on statutory construction to effectuate legislative purpose
• Holy Cross Hospital v. Health Services Cost Review Commission, 283 Md. 677, 685, 393 A.2d 181 (1978), on the persuasive weight given to an agency's contemporaneous interpretation of a new statute

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1989/Volume74_1989.pdf (this opinion appears at printed pages 275-280 of the bound annual volume; Maryland's site does not publish a standalone PDF of this opinion)

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

Taxation - Constitutional Law - Intergovernmental Tax Immunity -
Davis v. Michigan - State Tax Exemption For Length Of
Service Awards To Volunteer Fire and Rescue Personnel Is Not
Unconstitutional

                            April 7, 1989

The Honorable Louis L. Goldstein
Comptroller of the Treasury

You have requested our opinion on the constitutionality of §10-

207(o) of the Tax-General Article ("TG" Article), which exempts from
State income tax certain "length of service award payments" to fire,
rescue or ambulance personnel. The constitutionality of this provision
was called into question as a result of the Supreme Court's recent
decision in Davis v. Michigan Department of Treasury, 109 S.Ct. 1500
(1989).

For the reasons stated below, we conclude that the Davis case does

not affect TG §10-207(o). This provision is not unconstitutional.1

                                    I

         Tax Treatment of Length of Service Payments

As a general matter, the starting point in the computation of an

individual's Maryland income tax is that individual's adjusted gross
income for federal income tax purposes. TG §10-204. However, TG
§10-207 enumerates a number of circumstances under which an
individual may subtract amounts from federal adjusted gross income,
thus lowering the individual's Maryland tax liability. One of these
subtractions from federal adjusted gross income is TG §10-207(o):
"The subtraction [from federal adjusted gross income] includes a
payment received under a fire, rescue, or ambulance personnel length
of service award program that is funded by any county or municipal

 1 This opinion confirms advice previously provided to you by Assistant Attorney

General Gerald Langbaum.

corporation of the State." This provision was enacted by Chapter 756
(Senate Bill 231) of the Laws of Maryland 1988.

The term "length of service award program" in TG §10-207(o) has

a specific reference to various programs authorized by the General
Assembly or adopted by home rule jurisdictions. At the 1988 Session,
for example, the General Assembly enacted Article 25, §32.6: "The
Washington County Commissioners, by resolution or ordinance, may
establish and fund a volunteer length of service award program for
qualified members of volunteer fire departments, rescue squads, and
ambulance corps." Chapter 59, Laws of Maryland 1988. Comparable
provisions for other "length of service award programs" likewise are
limited to volunteer fire, rescue, and ambulance personnel. See Article
25, §§13A, 13B, 13C, 13D, and 32.5; Article 38A, §43.

 Unpaid volunteer firefighters are neither public officers nor public

employees. "The municipality may not even know that the volunteer
exists, much less is performing services in the fire company, and it
cannot compel the volunteer to act." Macy v. Heverin, 44 Md. App.
358, 364, 408 A.2d 1067 (1979). Although their voluntary efforts
certainly promote the public welfare, "[t]he giving by the citizens of
their time and effort does not ... make them public officers or public
employees." Id. See also Utica Mut. Ins. Co. v. Gaithersburg-
Washington Grove Fire Dep't, 58 Md. App. 589, 455 A.2d 987
(1983). The distinction between career firefighters paid by a
governmental entity and volunteer firefighters is also reflected in the
Good Samaritan Law, which applies to members of "any State, county,
municipal, or volunteer fire department, ambulance, or rescue squad
...." §5-309(b)(2) of the Courts Article. See generally Opinion No.
87-055 (November 17, 1987) (unpublished).

Given its wording and context, the tax exemption in TG §10-207(o)

does not apply to retirement allowances received by paid firefighting
personnel through any State or local retirement system. It applies only
to the payments made to volunteers. See Kaczorowski v. City of
Baltimore, 309 Md. 505, 525 A.2d 628 (1987).

Our construction of TG §10-207(o) is confirmed by your agency's
administration of the statute. As a recent publication explained:

    The Length of Service Awards Program (LOSAP) is a
  defined established program pertaining to volunteer fire,
  rescue, or ambulance personnel who have met the criteria
  established by the county. Generally, the criteria are that
  the individual is at least 60 years of age with 25 years of
  qualifying service as a volunteer fireman, rescue or
  ambulance person. In certain counties, an individual with
  25 years of qualifying service can begin receiving benefits
  at 50 years of age.

    Generally, paid firemen, rescue or ambulance personnel
  (county, city, government or private employees) do not
  qualify for LOSAP unless they are also volunteers and
  qualify for LOSAP as a volunteer.

Maryland Income Taxgram, vol. X, no. 3, at 1-2 (March 17, 1989)
(emphasis in original). "[T]he view taken of a statute by administrative
officials soon after its passage is strong, persuasive influence ... and
should not be disregarded except for the strongest and most urgent
reasons." Holy Cross Hospital v. Health Services Cost Review
Commission, 283 Md. 677, 685, 393 A.2d 181 (1978).

                               II

              Constitutionality of TG §10-207(o)

A. The Davis Case

 Under Michigan's income tax law, retirement benefits received by

former state and local government employees are tax-exempt;
retirement benefits received by former federal employees, as well as by
private sector employees, are not. Davis, a retired federal employee,
sued for a refund for the tax that he had paid on his retirement
benefits, claiming that a tax break afforded to state but not federal
retirees was impermissible under federal law.

The Supreme Court agreed. Davis v. Michigan Dep't of Treasury,

109 S.Ct. 1500 (1989).

"[T]he dispositive question in this case," the Court wrote, is

whether the tax imposed on [Davis] is barred by the doctrine of
intergovernmental tax immunity." 109 S.Ct. at 1507. This doctrine
originated in Chief Justice Marshall's opinion in McCulloch v.
Maryland, 4 Wheat. 316 (1819), in which the Supreme Court
invalidated a discriminatory tax imposed by Maryland on the Bank of
the United States. As it has evolved, the doctrine prohibits "only those
taxes that were imposed directly on one sovereign by the other or that
discriminated against a sovereign or those with whom it dealt ...."
Davis, 109 S.Ct. at 1505.2

 The Supreme Court found that the Michigan scheme "discriminates

in favor of retired state employees and against retired federal
employees." 109 S.Ct. at 1507. Such a discrimination could be
justified constitutionally only if "the inconsistent tax treatment is
directly related to and justified by 'significant differences between the
two classes.'" Id. (quoting Phillips Chemical Co. v. Dumas
Independent School Dist., 361 U.S. 376, 383 (1960)).3 Michigan's
asserted justifications, that the tax exemption served the state's interest
in hiring and retaining qualified civil servants, and that state retirement
benefits were less generous overall than federal retirement benefits,
were rejected by the Court. It concluded that "the Michigan Income
Tax Act violates principles of intergovernmental tax immunity by
favoring retired state and local government employees over retired
federal employees." 109 S.Ct. at 1508.

B. Application to TG §10-207(o)

Maryland has no tax exemption like Michigan's. Under this State's

income tax law, federal pensions and State and local government
pensions are taxed alike.

 2 With respect to the taxation of compensation, the doctrine of intergovernmental

tax immunity has been embodied in a statute, 4 U.S.C. §111. See 109 S.Ct. at 1506-
07.
3 The Court found irrelevant the fact that federal retirees and private sector
retirees were treated identically. The constitutionally relevant discrimination was
between federal and state retirees. 109 S.Ct. at 1507 n. 4.

However, in his dissenting opinion, Justice Stevens listed a number

of state laws that he characterized as "special tax exemptions for
retirement income to state and local government employees that [the
states] do not grant to federal employees." 109 S.Ct. at 1504 (Stevens,
J., dissenting). One statute on his list was TG §10-207(o). 109 S.Ct.
at 1504 n. 3.

As discussed in Part I above, however, TG §10-207(o) simply does

not address State and local government employees as such; rather, it
provides a tax break to anyone with sufficient service as a volunteer
with fire or rescue squads, if a local government has funded a "length
of service award program." That a volunteer might also have had an
employment relationship with the federal or State government is wholly
immaterial; the tax benefit does not discriminate on that basis. Indeed,
a federal employee or retiree who rendered volunteer service would
derive precisely the same benefit from TG §10-207(o) as would a
similarly situated State or local government employee or retiree. This
fact demonstrates the inapplicability of Davis to TG §10-207(o).

 The core teaching of the Davis case is this: When a person is

compensated by the federal government, a state may tax that
compensation only if it does so on the same terms as it taxes the same
kind of compensation from the state or a local government.4 As the
Supreme Court earlier put it: "[I]t does not seem too much to require
that the State treat those who deal with the Government as well as it
treats those with whom it deals itself." Phillips Chemical, 361 U.S. at
385.

TG §10-207(o) does not offend this principle, for it applies only to

persons who volunteer their services to nongovernmental fire and
rescue companies. It does not treat at all, and therefore does not treat
differently, transactions between either sovereign and its employees.

 4 We note that the proper comparison is between similarly situated groups

affected by the tax provision in question. Thus, in Davis, the comparison was
between federal and state retirees. In an earlier case, Phillips Chemical Co. v.
Dumas Independent School Dist., the comparison was between federal and state
lessees. 361 U.S. at 380. Even if, contrary to its actual intent and application, TG
§10-207(o) were viewed as a tax exemption for retired state fire and rescue personnel,
the legal issue would turn on the tax status of the comparable group of retired federal
employees, retired federal fire and rescue personnel, not retired federal employees
generally.

                       III

                    Conclusion

In summary, it is our opinion that TG §10-207(o) is not
unconstitutional.

                             J. Joseph Curran, Jr.
                             Attorney General

                             Jack Schwartz
                             Chief Counsel
                               Opinions & Advice