Austin v. New Hampshire 8212 2060

Decision Date19 March 1975
Docket NumberNo. 73,73
Citation95 S.Ct. 1191,43 L.Ed.2d 530,420 U.S. 656
PartiesCarl M. AUSTIN et al., Appellants, v. State of NEW HAMPSHIRE et al. —2060
CourtU.S. Supreme Court

The New Hampshire Commuters Income Tax imposes a tax on nonresidents' New Hampshire-derived income above $2,000 at a 4% rate, except that if the nonresident's State of residence would impose a lesser tax had the income been earned in that State, the New Hampshire tax is reduced to that amount. The Commuters Income Tax contains provisions that in practical effect exempt from tax income earned by New Hampshire residents outside the State, and New Hampshire imposes no tax on its residents' domestic earned income. Held: Under the rule requiring substantial equality of treatment for the citizens of the taxing State and nonresident taxpayers, the New Hampshire Commuters Income Tax violates the Privileges and Immunities Clause, since the tax falls exclusively on nonresidents' incomes and is not offset even approximately by other taxes imposed upon residents alone. Pp. 665-668.

(a) The State's contention that the tax's ultimate burden is not effect more onerous on nonresidents because their total tax liability is unchanged once the tax credit received from their State of residence is taken into account, cannot be squared with the underlying policy of comity that the Privileges and Immunities Clause requires. Pp. 665-666.

(b) The possibility that in this case Maine, the appellant taxpayers' State of residence, could shield its residents from the New Hampshire tax by amending its credit provisions does not cure, but in fact compounds, the constitutional defect of the discrimination in the New Hampshire tax, since New Hampshire in effect invites appellants to induce their representatives to retaliate against such discrimination. The constitutionality of one State's statutes affecting nonresidents cannot depend upon the present configuration of another State's statutes. Pp. 666-668.

114 N.H. 137, 316 A.2d 165, reversed.

Charles W. Smith, Washington, D.C., for appellants.

Charles G. Cleaveland, Nashua, N.H., for appellee, pro hac vice, by special leave of Court.

Mr. Justice MARSHALL delivered the opinion of the Court.

Appellants are residents of Maine who were employed in New Hampshire during the 1970 tax year and as such were subject to the New Hampshire Commuters Income Tax. On behalf of themselves and others similarly situated, they petitioned the New Hampshire Superior Court for a declaration that the tax violates the Privileges and Immunities and Equal Protection Clauses of the Constitutions of New Hampshire and of the United States. The cause was transferred directly to the New Hampshire Supreme Court, which upheld the tax. 114 N.H. 137, 316 A.2d 165 (1974). We noted probable jurisdiction of the federal constitutional claims, 419 U.S. 822, 95 S.Ct. 38, 42 L.Ed.2d 46 (1974), and on the basis of the Privileges and Immunities Clause of Art. IV, we now reverse.


The New Hampshire Commuters Income Tax imposes a tax on nonresidents' New Hampshire-derived income in excess of $2,000.1 The tax rate is 4% except that if the nonresident taxpayer's state of residence would impose a lesser tax had the income been earned in that State, the New Hampshire tax is reduced to the amount of the tax that the State of residence would impose. Employers are required to withhold 4% of the nonresident's income, however, even if his home State would tax him at less than the full 4%. Any excess tax withheld is refunded to the nonresident upon his filing a New Hampshire tax return after the close of the tax year showing that he is entitled to be taxed at a rate less than 4%.

The Commuters Income Tax initially imposes a tax of 4% as well on the income earned by New Hampshire residents outside the State. It then exempts such income from the tax, however: (1) if it is taxed by the State from which it is derived; (2) if it is exempted from taxation by the State from which it is derived; or (3) if the State from which it is derived does not tax such income. 2 The effect of these imposition and exemption features is that no resident of New Hampshire is taxed on his out-of-state income. Nor is the domestic earned income of New Hampshire residents taxed. In effect, then, the State taxes only the incomes of nonresidents working in New Hampshire;3 it is on the basis of this disparate treatment of residents and nonresidents that appellants challenge New Hampshire's right to tax their income from employment in that State.4


The Privileges and Immunities Clause of Art. IV, § 2, cl. 1, provides: 'The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.' The Clause thus establishes a norm of comity without specifying the particular subjects as to which citizens of one State coming within the jurisdiction of another are guaranteed equality of treatment. The origins of the Clause do reveal, however, the concerns of central import to the Framers. During the preconstitutional period, the practice of some States denying to outlanders the treatment that its citizens demanded for themselves was widespread. The fourth of the Articles of Confederation was intended to arrest this centrifugal tendency with some particularity. It provided that:

'The better to secure and perpetuate mutual friendship and intercourse among the people of the different States in this Union, the free inhabitants of each of these States, paupers, vagabonds and fugitives from justice excepted, shall be entitled to all privileges and immunities of free citizens in the several States; and the people of each State shall have free ingress and regress to and from any other State, and shall enjoy therein all the privileges of trade and commerce, subject to the same duties, impositions and restrictions as the inhabitants thereof respectively.'

The discriminations at which this Clause was aimed were by no means eradicated during the short life of the Confederation,5 the provision was carried over into the comity article of the Constitution in briefer form but with no change of substance or intent,6 unless it was to strengthen the force of the clause in fashioning a single nation.7 Thus, in the first, and long the leading, explication of the Clause, Mr. Justice Washington, sitting as Circuit Justice, deemed the fundamental privileges and immunities protected by the Clause to be essentially coextensive with those calculated to achieve the purpose of forming a more perfect Union, including 'an exemption from higher taxes or impositions than are paid by the other citizens of the state.' Corfield v. Coryell, 6 F.Cas. pp. 546, 552 (No. 3,230) (CCED Pa. 1825).

In resolving constitutional challenges to state tax measures this Court has made it clear that 'in taxation, even more than in other fields, legislatures possess the greatest freedom in classification.' Madden v. Ken tucky, 309 U.S. 83, 88, 60 S.Ct. 406, 408, 84 L.Ed. 590 (1940). See Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 93 S.Ct. 1001, 35 L.Ed.2d 351 (1973). Our review of tax classifications has generally been concomitantly narrow, therefore, to fit the broad discretion vested in the state legislatures. When a tax measure is challenged as an undue burden on an activity granted special constitutional recognition, however, the appropriate degree of inquiry is that necessary to protect the competing constitutional value from erosion. See id., at 359, 93 S.Ct., at 1003.

This consideration applies equally to the protection of individual liberties, see Grosjean v. American Press Co., 297 U.S. 233, 56 S.Ct. 444, 80 L.Ed. 660 (1936), and to the maintenance of our constitutional federalism. See Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 U.S. 157, 164, 74 S.Ct. 396, 399, 98 L.Ed. 583 (1954). The Privileges and Immunities Clause, by making noncitizenship or nonresidence8 an improper basis for locating a special burden, implicates not only the individual's right to nondiscriminatory treatment but also, perhaps more so, the structural balance essential to the concept of federalism. Since nonresidents are not represented in the taxing State's legislative halls, cf. Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. 522, 532—533, 79 S.Ct. 437, 443—444, 3 L.Ed.2d 480 (1959) (Brennan, J., concurring), judicial acquiescence in taxation schemes that burden them particularly would remit them to such redress as they could secure through their own State; but 'to prevent (retaliation) was one of the chief ends sought to be accomplished by the adoption of the Constitution.' Travis v. Yale & Towne Mfg. Co., 252 U.S. 60, 82, 40 S.Ct. 228, 233, 64 L.Ed. 460 (1920). Our prior cases, therefore, reflect an appropriately heightened concern for the integrity of the Privileges and Immunities Clause by erecting a standard of review substantially more rigorous than that applied to state tax distinctions among, say forms of business organizations or different trades and professions.

The first such case was Ward v. Maryland, 12 Wall. 418, 20 L.Ed. 449 (1871), challenging a statute under which nonresidents were required to pay $300 per year for a license to trade in goods not manufactured in Maryland, while resident traders paid a fee varying from $12 to $150, depending upon the value of their inventory. The State attempted to justify this disparity as a response to the practice of 'runners' from industrial States selling by sample in Maryland, free from local taxation and other overhead expenses incurred by resident merchants. It portrayed the fee as a 'tax upon a particular business or trade, carried on in a particular mode,' rather than a discrimination against traders from other States. Although the tax may not have been 'palpably arbitrary,' see Allied Stores of Ohio, Inc. v. Bowers, supra, 358 U.S. at 530, 79 S.Ct. at 442, the discrimination could not be denied and the Court held that it violated the guarantee...

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