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22. May the state collect this tax on the fair rental value of the personal use of the automobiles furnished by the federal government to these employees?
Assume there is no federal legislation on this subject.
A state imposes a tax on the «income» of each of its residents. As defined in the taxing statute, «income» includes the fair rental value of the use of any automobile provided by the taxpayer's employer for personal use. The federal government supplies automobiles to some of its employees who are residents of the state so that they may perform their jobs properly. A federal government employee supplied with an automobile for this purpose may also use it for the employee's own personal business.
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C is correct. The state may collect taxes on the personal use of automobiles given to federal employees by the federal government because: (i) it is not a tax directly imposing a burden on the federal government; and (ii) it does not discriminate against the government or its employees. The tax does not affect federal employees' use of the automobiles for work purposes, only personal use, which means it does not impact government operations. The tax on personal use is essentially like an income tax on wages or benefits, which is permissible if it is non-discriminatory.
A is incorrect. This is an incorrect statement. The tax imposed upon federal employees is on their personal use of automobiles only, not on their use of the automobiles for work purposes. As such, not only is the tax not directly aimed at the federal government, but it has no impact on the work activities of federal employees.
B is incorrect. As stated above, the tax is not a tax on activities performed by or on behalf of the United States because it only applies to personal use of the automobiles, not to any use in the capacity of their official duties.
D is incorrect. This answer reaches the correct answer with the wrong reasoning. The state may collect these taxes, but not because exempting federal employees from the tax would violate the equal protection rights of others. Such an exemption would be permissible if it was rationally related to a legitimate government interest. Nevertheless, the state may collect the tax because, as explained above, it is non-discriminatory against the government or its employees, nor is it burdensome on the federal government itself.