Sims v. United States

Background

Three West Virginia state employees had unpaid federal income tax assessments. The local Director of Internal Revenue served notices of levy on the State of West Virginia to seize the employees’ accrued salaries. The state auditor (the petitioner) refused to honor those levies and instead issued payroll warrants paying the employees a total of $519.71. The Government sued the auditor under the federal statute that requires persons in possession of property subject to levy to surrender it. The District Court and Court of Appeals ruled for the Government, and the case reached the Court to decide the legal questions.

Reasoning

The Court addressed two main questions in plain terms: whether federal tax levies can attach to accrued salaries of state employees, and whether the auditor was a person “obligated with respect to” those salaries and thus personally responsible. The Court concluded that the federal levy statute and Treasury regulations allow levy on state employees’ accrued pay. It explained that the statute’s use of the word “person,” together with a general rule in the tax code about definitions, includes states and their officers in this context. The Court also found that under West Virginia law the auditor had the sole power and duty to control payment of those salaries, including statutory authority to withhold for taxes and to respond to garnishments, and therefore he was an obligated person who defeated the levy by paying employees instead of the Government.

Real world impact

The ruling affirms that federal tax levies may seize accrued state salaries and that state payroll officials who refuse valid levies can be held personally liable for amounts they pay out instead of turning over. The Court affirmed the lower courts’ judgment against the auditor.