Davis v. Michigan, 489 U.S. 803 (1989), is a case in the Supreme Court of the United States holding that states may not tax federal pensions if they exempt their own state pensions from taxation. In the 1930s, the federal and state governments began to charge income tax on salaries paid to each other's employees. However, reciprocal treatment was required under the doctrine of intergovernmental immunity. The Court's ruling extended the reciprocity to pensions, since they are a form of deferred compensation for services previously rendered by an employee. Background Intergovernmental immunity In McCulloch v. Maryland (1819), the Supreme Court held that Maryland could not tax the Second Bank of the United States, as it would interfere with the bank's right to exist under federal law. The decision gave rise to the principle of intergovernmental immunity, which was gradually extended from government agencies to their employees. In Dobbins v. Commissioners of Erie (1842), the Court held that states could not tax the salaries of federal officials. In Collector v. Day (1870), the Court also held that the federal government could not tax the salaries of state officials. In 1938, President Franklin Delano Roosevelt asked Congress to remove the reciprocal tax exemption for federal and state employees. The Supreme Court subsequently overturned its precedents from the 19th century. In Helvering v. Gerhardt (1938), the Court ruled that state salaries would not be exempt from federal income tax unless it caused an "actual and substantial" burden on the governmental functions of the state. Exempting state employees from federal taxation would intrude on the "national sovereign power to tax" and create "a privileged class of taxpayers." In Graves v. New York (1939), the Court held that federal salaries were also subject to "nondiscriminatory" taxation by the states. In the Public Salary Tax Act (1939), which was codified as , Congress clarified the circumstances in which governmental salaries could be taxed. The Act stated that federal salaries could only be taxed if the state tax "does not discriminate against such officer or employee because of the source of such compensation." If the state exempted its own employees from taxation, then it cannot tax discriminate against federal employees by subjecting federal salaries to taxation. Case background Paul S. Davis served the federal government as a lawyer for the Securities and Exchange Commission and an administrative law judge. He retired from the federal government in 1980.