26 U.S.C. §61
TITLE 26 > Subtitle A > CHAPTER
1 > Subchapter B > PART I > Sec. 61.
Sec. 61. - Gross
income defined
(a) General definition
Except as otherwise provided in this subtitle, gross income means all
income from whatever source derived, including (but not limited to) the
following items:
(1) Compensation for services, including fees, commissions, fringe benefits, and similar items;
(2) Gross
income derived from business;
(3) Gains
derived from dealings in property;
(4) Interest;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Alimony
and separate maintenance payments;
(9) Annuities;
(10) Income
from life insurance and endowment contracts;
(11) Pensions;
(12) Income
from discharge of indebtedness;
(13) Distributive
share of partnership gross income;
(14) Income
in respect of a decedent; and
(15) Income
from an interest in an estate or trust.
(b) Cross references For items specifically included in gross income,
see part II (sec. 71 and following). For items specifically excluded from
gross income, see part III (sec. 101 and following)
In re Marshall, 102 F. 323, 324 (9th Cir. 1900)
“'Life,' said Mr. Justice Swayne in the Slaughter-House Cases, 16 Wall. 127, 21 L.Ed. 425, 'is the gift of God, and the right to preserve it is the most sacred of the rights of man. Liberty is freedom from all restraints but such as are justly imposed by law. Beyond that line lies the domain of usurpation and tyranny. Property is everything which has an exchangeable value, and the right of property includes the power to dispose of it according to the will of the owner. Labor is property, and, as such, merits protection. The right to make it available is next in importance to the rights of life and liberty. It lies, to a large extent, at the foundation of most other forms of property. ' ”
[In re Marshall, 102 F. 323, 324 (9th Cir. 1900)]
Butchers' Union Co. v. Crescent City Co., 111 U.S. 746, 757 (1884)
“It has been well said that, "The property which every man has in his own labor, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of the poor man lies in the strength and dexterity of his own hands, and to hinder his employing this strength and dexterity in what manner he thinks proper, without injury to his neighbor, is a plain violation of this most sacred property. It is a manifest encroachment upon the just liberty both of the workman and of those who might be disposed to employ him. As it hinders the one from working at what he thinks proper, so it hinders the others from employing whom they think proper." Adam Smith's Wealth of Nations, Bk. I. Chap. 10.”)
[Butchers' Union Co. v. Crescent City Co., 111 U.S. 746, 757 (1884)]
[EDITORIAL: Your labor is your property. And the money your employer deducts from your checks and sends to IRS may also be RIGHTFULLY your property. Your primary claim of right is against the employer with whom you exchanged your labor. he is the one in breach of his agreement, if anyone is. Going to the IRS to get that money back is a whole different game. They have every right to refuse to return that money to you until/unless you make a proper claim for refund. This is partly because they know the employer is the one who is liable for the theft of your money, not them.]
ppellant places principal reliance on 4 U. S. C. § 111. In relevant part, that section provides:
"The United States consents to the taxation of pay or compensation for personal service as an officer or employee of the United States . . . by a duly constituted taxing authority having jurisdiction, if the taxation does not discriminate against the officer or employee because of the source of the pay or compensation."
As a threshold matter, the State argues that § 111 applies only to current employees of the Federal Government, not to retirees such as appellant. In our view, however, the plain language of the statute dictates the opposite conclusion. Section 111 by its terms applies to "the taxation of pay or compensation for personal services as an officer or employee of the United States." (Emphasis added). While retirement pay is not actually disbursed during the time an individual is working for the Government, the amount of benefits to be received in retirement is based and computed upon the individual's salary and years of service. 5 U. S. C. § 8339(a). We have no difficulty concluding that civil service retirement benefits are deferred compensation for past years of service rendered to the Government. See, e. g., Zucker v. United States, 758 F. 2d 637, 639 (CA Fed.), cert. denied, 474 U. S. 842 (1985); Kizas v. Webster, 227 U. S. App. D. C. 327, 339, 707 F. 2d 524, 536, (1983), cert. denied, 464 U. S. 1042 (1984); Clark v. United States, 691 F. 2d 837, 842 (CA7 1982). And because these benefits accrue to employees on account of their service to the Government, they fall squarely within the category of compensation for services rendered "as an officer or employee of the United States." Appellant's federal retirement benefits are deferred compensation earned "as" a federal employee, and so are subject to § 111.[3]
809*809 The State points out, however, that the reference to "compensation for personal services as an officer or employee" occurs in the first part of § 111, which defines the extent of Congress' consent to state taxation, and not in the latter part of the section, which provides that the consent does not extend to taxes that discriminate against federal employees. Instead, the nondiscrimination clause speaks only in terms of "discriminat[ion] against the officer or employee because of the source of the pay or compensation." From this the State concludes that, whatever the scope of Congress' consent to taxation in the first portion of § 111, the nondiscrimination clause applies only to current federal employees.
Although the State's hypertechnical reading of the nondiscrimination clause is not inconsistent with the language of that provision examined in isolation, statutory language cannot be construed in a vacuum. It is a fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme. See United States v. Morton, 467 U. S. 822, 828 (1984). When the first part of § 111 is read together with the nondiscrimination clause, the operative words of the statute are as follows: "The United States consents to the taxation of pay or compensation . . . if the taxation does not discriminate . . . because of the source of the pay or compensation." The reference to "the pay or compensation" in the last clause of § 111 must, in context, mean the same "pay or compensation" defined in the first part of the section. Since that "pay or compensation" includes retirement benefits, the nondiscrimination clause must include them as well.
810*810 Any other interpretation of the nondiscrimination clause would be implausible at best. It is difficult to imagine that Congress consented to discriminatory taxation of the pensions of retired federal civil servants while refusing to permit such taxation of current employees, and nothing in the statutory language or even in the legislative history suggests this result. While Congress could perhaps have used more precise language, the overall meaning of § 111 is unmistakable: it waives whatever immunity past and present federal employees would otherwise enjoy from state taxation of salaries, retirement benefits, and other forms of compensation paid on account of their employment with the Federal Government, except to the extent that such taxation discriminates on account of the source of the compensation.
III
Section 111 was enacted as part of the Public Salary Tax Act of 1939, the primary purpose of which was to impose federal income tax on the salaries of all state and local government employees. Prior to adoption of the Act, salaries of most government employees, both state and federal, generally were thought to be exempt from taxation by another sovereign under the doctrine of intergovernmental tax immunity. This doctrine had its genesis in McCulloch v. Maryland, 4 Wheat. 316 (1819), which held that the State of Maryland could not impose a discriminatory tax on the Bank of the United States. Chief Justice Marshall's opinion for the Court reasoned that the Bank was an instrumentality of the Federal Government used to carry into effect the Government's delegated powers, and taxation by the State would unconstitutionally interfere with the exercise of those powers. Id., at 425-437.
For a time, McCulloch was read broadly to bar most taxation by one sovereign of the employees of another. See Collector v. Day, 11 Wall. 113, 124-128 (1871) (invalidating federal income tax on salary of state judge); Dobbins v. Commissioners 811*811 of Erie County, 16 Pet. 435 (1842) (invalidating state tax on federal officer). This rule "was based on the rationale that any tax on income a party received under a contract with the government was a tax on the contract and thus a tax `on' the government because it burdened the government's power to enter into the contract." South Carolina v. Baker, 485 U. S. 505, 518 (1988).
In subsequent cases, however, the Court began to turn away from its more expansive applications of the immunity doctrine. Thus, in Helvering v. Gerhardt, 304 U. S. 405 (1938), the Court held that the Federal Government could levy nondiscriminatory taxes on the incomes of most state employees. The following year, Graves v. New York ex rel. O'Keefe, 306 U. S. 466, 486-487 (1939), overruled the Day-Dobbins line of cases that had exempted government employees from nondiscriminatory taxation. After Graves, therefore, intergovernmental tax immunity barred 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.
It was in the midst of this judicial revision of the immunity doctrine that Congress decided to extend the federal income tax to state and local government employees. The Public Salary Tax Act was enacted after Helvering v. Gerhardt, supra, had upheld the imposition of federal income taxes on state civil servants, and Congress relied on that decision as support for its broad assertion of federal taxing authority. S. Rep. No. 112, 76th Cong., 1st Sess., 5-9 (1939); H. R. Rep. No. 26, 76th Cong., 1st Sess., 2-3 (1939). However, the Act was drafted, considered in Committee, and passed by the House of Representatives before the announcement of the decision in Graves v. New York ex rel. O'Keefe, supra, which for the first time permitted state taxation of federal employees. As a result, during most of the legislative process leading to adoption of the Act it was unclear whether state taxation of federal employees was still barred by intergovernmental 812*812 tax immunity despite the abrogation of state employees' immunity from federal taxation. See H. R. Rep. No. 26, supra, at 2 ("There are certain indications in the case of McCulloch v. Maryland, 4 Wheat. 316 (1819), . . . that. . . Federal officers and employees may not, without the consent of the United States, be subjected to income taxation under the authority of the various States").
Dissatisfied with this uncertain state of affairs, and concerned that considerations of fairness demanded equal tax treatment for state and federal employees, Congress decided to ensure that federal employees would not remain immune from state taxation at the same time that state government employees were being required to pay federal income taxes. See S. Rep. No. 112, supra, at 4; H. R. Rep. No. 26, supra, at 2. Accordingly, § 4 of the proposed Act (now § 111) expressly waived whatever immunity would have otherwise shielded federal employees from nondiscriminatory state taxes.
By the time the statute was enacted, of course, the decision in Graves had been announced, so the constitutional immunity doctrine no longer proscribed nondiscriminatory state taxation of federal employees. In effect, § 111 simply codified the result in Graves and foreclosed the possibility that subsequent judicial reconsideration of that case might reestablish the broader interpretation of the immunity doctrine.
Section 111 did not waive all aspects of intergovernmental tax immunity, however. The final clause of the section contains an exception for state taxes that discriminate against federal employees on the basis of the source of their compensation. This nondiscrimination clause closely parallels the nondiscrimination component of the constitutional immunity doctrine which has, from the time of McCulloch v. Maryland, barred taxes that "operat[e] so as to discriminate against the Government or those with whom it deals." United States v. City of Detroit, 355 U. S. 466, 473 (1958). See also McCulloch v. Maryland, supra, at 436-437; Miller 813*813 v. Milwaukee, 272 U. S. 713, 714-715 (1927); Helvering v. Gerhardt, supra, at 413; Phillips Chemical Co. v. Dumas Independent School Dist., 361 U. S. 376, 385 (1960); Memphis Bank & Trust Co. v. Garner, 459 U. S. 392, 397, and n. 7 (1983).
In view of the similarity of language and purpose between the constitutional principle of nondiscrimination and the statutory nondiscrimination clause, and given that § 111 was consciously drafted against the background of the Court's tax immunity cases, it is reasonable to conclude that Congress drew upon the constitutional doctrine in defining the scope of the immunity retained in § 111. When Congress codifies a judicially defined concept, it is presumed, absent an express statement to the contrary, that Congress intended to adopt the interpretation placed on that concept by the courts. See Midlantic National Bank v. New Jersey Dept. of Environmental Protection, 474 U. S. 494, 501 (1986); Morissette v. United States, 342 U. S. 246, 263 (1952). Hence, we conclude that the retention of immunity in § 111 is coextensive with the prohibition against discriminatory taxes embodied in the modern constitutional doctrine of intergovernmental tax immunity. Cf. Memphis Bank & Trust, supra, at 396-397 (construing 31 U. S. C. § 742, which permits only " `nondiscriminatory' " state taxation of interest on federal obligations, as "principally a restatement of the constitutional rule").
On its face, § 111 purports to be nothing more than a partial congressional consent to nondiscriminatory state taxation of federal employees. It can be argued, however, that by negative implication § 111 also constitutes an affirmative statutory grant of immunity from discriminatory state taxation in addition to, and coextensive with, the pre-existing protection afforded by the constitutional doctrine. Regardless of whether § 111 provides an independent basis for finding immunity or merely preserves the traditional constitutional prohibition against discriminatory taxes, however, the inquiry 814*814 is the same. In either case, the scope of the immunity granted or retained by the nondiscrimination clause is to be determined by reference to the constitutional doctrine. Thus, the dispositive question in this case is whether the tax imposed on appellant is barred by the doctrine of intergovernmental tax immunity.
[Davis v. Michigan Dept. of Treasury, 489 U.S. 803 (1989)]
TITLE 5 > PART III > Subpart G > CHAPTER 85 > SUBCHAPTER I > § 8501
§ 8501. Definitions
For the purpose of this subchapter—
(4) “compensation”
means cash benefits payable to an individual with respect to his unemployment
including any portion thereof payable with respect to dependents;
(a) DEFINITION.
(1) The term compensation has the same meaning as the term wages
in section 3121(a), determined without regard to section 3121(b)(9),
except as specifically limited by the Railroad Retirement Tax Act
(chapter 22 of the Internal Revenue Code) or regulation. The Commissioner
may provide any additional guidance that may be necessary or appropriate
in applying the definitions of sections 3121(a) and 3231(e).
(2) A payment made by an employer
to an individual through the employer's payroll is presumed, in
the absence of evidence to the contrary, to be compensation for
services rendered as an employee of the employer. Likewise, a payment
made by an employee organization to an employee representative through
the organization's payroll is presumed, in the absence of evidence
to the contrary, to be compensation for services rendered by the
employee representative as such. For rules regarding the treatment
of deductions by an employer from remuneration of an employee, see
section 31.3123-1.
(3) The term compensation is not confined
to amounts paid for active service, but includes amounts paid for
an identifiable period during which the employee is absent from
the active service of the employer and, in the case of an employee
representative, amounts paid for an identifiable period during which
the employee representative is absent from the active service of
the employee organization.
(4) Compensation includes amounts
paid to an employee for loss of earnings during an identifiable
period as the result of the displacement of the employee to a less
remunerative position or occupation as well as pay for time lost.
(5) For rules regarding the treatment of reimbursement and other
expense allowance amounts, see section 31.3121(a)-3. For rules regarding
the inclusion of fringe benefits in compensation, see section 31.3121(a)-1T.
(b) SPECIAL RULES.
(1) If the amount of compensation earned in any calendar month
by an individual as an employee in the service of a local lodge
or division of a railway-labor-organization employer is less than
$25, the amount is disregarded for purposes of determining the employee
tax under section 3201 and the employer tax under section 3221.
(2) Compensation for service as a delegate to a national or international
convention of a railway-labor-organization employer is disregarded
for purposes of determining the employee tax under section 3201
and the employer tax under section 3221 if the individual rendering
the service has not previously rendered service, other than as a
delegate, which may be included in the individual's years of service
for purposes of the Railroad Retirement Act.
(3) For special
provisions relating to the compensation of certain general chairs
or assistant general chairs of a general committee of a railway-labor-organization
employer, see paragraph (c)(3) of section 31.3231(b)-1.
[T.D. 6515, 25 FR 13032, Dec. 20, 1960; 25 FR 14021, Dec. 31, 1960,
as amended by T.D. 7600, 44 FR 15485, Mar. 14, 1979; T.D. 8276, 54 FR
51027, Dec. 12, 1989; T.D. 8324, 55 FR 51696, Dec. 17, 1990; T.D. 8582,
59 FR 66188-66191, Dec. 23, 1994.]
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