Article IV, Section 2, Clause 1:

The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.

In the exercise of its taxing power, a state may not discriminate substantially between residents and nonresidents without violating the Privileges and Immunities Clause.1 In the 1871 case Ward v. Maryland, the Court invalidated a state law that imposed taxes only upon nonresidents who sold within the state goods that were produced in other states.2 The Court similarly held unconstitutional a Tennessee license tax that varied based on whether the person taxed had his chief office within the state or outside it.3 In Travis v. Yale & Towne Mfg. Co.,4 the Court, while sustaining a state’s right to tax income accruing within its borders to nonresidents, held the particular tax void because it denied to nonresidents exemptions that were allowed to residents.5 In contrast, because it did not discriminate between citizens and noncitizens, the Court sustained a state statute taxing businesses hiring persons within the state for labor outside the state.6

In Lunding v. New York Tax Appeals Tribunal, the Court addressed a New York law denying nonresidents any deduction from taxable income for alimony payments, although it permitted residents to deduct such payments.7 Although the Court observed that “the Privileges and Immunities Clause affords no assurance of precise equality in taxation between residents and nonresidents,” 8 the state must show a “substantial reason” for the disparity, and the discrimination must bear a “substantial relationship” to that reason.9 Under this analysis, the Court read its precedents to prohibit a state from denying nonresidents a general tax exemption provided to residents, but permitting limits on “nonresidents’ deductions of business expenses and nonbusiness deductions based on the relationship between those expenses and in-state property or income.” 10 In Lunding, as the state flatly denied the deduction to nonresidents, the Court found that New York had “not presented a substantial justification for the categorical denial of alimony deductions to nonresidents.” 11

What at first glance may appear to be a discrimination may turn out not to be when a state’s entire system of taxation is considered. On the basis of overall fairness, the Court has sustained a Connecticut statute that required nonresident stockholders to pay a state tax measured by the full market value of their stock while resident stockholders were subject to local taxation on the market value of that stock reduced by the value of the real estate owned by the corporation.12 Moreover, occasional or accidental inequality to a nonresident taxpayer is not sufficient to defeat a scheme of taxation whose operation is generally equitable.13 In an early case the Court dismissed the contention that a state violated the Privileges and Immunities Clause by subjecting its own citizens to a property tax on a debt due from a nonresident secured by real estate situated where the debtor resided.14

Footnotes

1

A territorial government, if authorized by Congress, may impose a discriminatory license tax on nonresident fishermen operating within its waters consistent with the Privileges and Immunities Clause. See Haavik v. Alaska Packers Ass’n, 263 U.S. 510 (1924). The Court in Haavik reasoned that “citizens of every state are treated alike” under the tax because “[o]nly residents of the territory are preferred.” Id.

2

79 U.S. (12 Wall.) 418, 424 (1871); see also Downham v. Alexandria Council, 77 U.S. (10 Wall.) 173, 175 (1870).

3

Chalker v. Birmingham & N.W. Ry., 249 U.S. 522 (1919).

4

252 U.S. 60 (1920).

5

Id. at 62–64; see also Shaffer v. Carter, 252 U.S. 37 (1920). In Austin v. New Hampshire, 420 U.S. 656 (1975), the Court held void a state commuter income tax because the State imposed no income tax on its own residents; thus, the tax fell exclusively on nonresidents’ income and was not offset even approximately by other taxes imposed upon residents alone. Id. at 665–66.

6

Williams v. Fears, 179 U.S. 270, 274 (1900).

7

522 U.S. 287 (1998).

8

Id. at 297.

9

Id. at 298.

10

Id. at 302.

11

Id. at 315.

12

Travellers’ Ins. Co. v. Connecticut, 185 U.S. 364, 371 (1902).

13

Maxwell v. Bugbee, 250 U.S. 525 (1919).

14

Kirtland v. Hotchkiss, 100 U.S. 491, 499 (1879).