436
Opinion of the Court
County, 92 F. 3d, at 1576. That ruling extends the doctrine beyond the tight limits this Court has set and is inconsistent with the controlling federal statute. The county's Ordinance lays no "demands directly on the Federal Government," United States v. New Mexico, 455 U. S. 720, 735 (1982); it is, and operates as, a tax on employees' compensation. The Public Salary Tax Act allows a State and its taxing authorities to tax the pay federal employees receive "if the taxation does not discriminate against the [federal] employee because of the source of the pay or compensation." 4 U. S. C. § 111. We hold that Jefferson County's tax falls within that allowance.
A
Until 1938, the intergovernmental tax immunity doctrine was expansively applied to prohibit Federal and State Governments from taxing the salaries of another sovereign's employees. See, e. g., Dobbins v. Commissioners of Erie Cty., 16 Pet. 435, 450 (1842); Collector v. Day, 11 Wall. 113, 124 (1871). In Graves v. New York ex rel. O'Keefe, 306 U. S. 466, 486-487 (1939), the Court expressly overruled prior decisions and held that a State's imposition of a tax on federal employees' salaries "lays [no] unconstitutional burden upon [the Federal Government]." 6 Although taxes "upon the incomes of employees of a government, state or national, . . . may be passed on economically to that government," the Court reasoned, the federal design tolerates such "indirect [and] incidental" burdens. Id., at 487. Since Graves, we
6 Graves carried out the doctrinal contraction presaged in Helvering v. Gerhardt, 304 U. S. 405, 424 (1938), which held that the Federal Government could tax the salaries of employees of the Port of New York Authority. See also James v. Dravo Contracting Co., 302 U. S. 134, 138, 149, 159-161 (1937) (in determining that a state "privilege ta[x]" on federal contractors did not violate the intergovernmental tax immunity doctrine, the Court rejected the theory that a tax on income is a tax on its source (internal quotation marks omitted)).
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