In the exercise of its taxing power, a state may not discriminate substantially between residents and nonresidents. In Ward v. Maryland,217 the Court set aside a state law that imposed specific taxes upon nonresidents for the privilege of selling within the state goods that were produced in other states. Also found to be incompatible with the comity clause was a Tennessee license tax, the amount of which was dependent upon whether the person taxed had his chief office within or without the state.218 In Travis v. Yale & Towne Mfg. Co.,219 the Court, although sustaining the right of a state to tax income accruing within its borders to nonresidents,220 held the particular tax void because it denied to nonresidents exemptions which were allowed to residents. The “terms ‘resident’ and ‘citizen’ are not synonymous,” wrote Justice Pitney, “. . . but a general taxing scheme . . . if it discriminates against all non-residents, has the necessary effect of including in the discrimination those who are citizens of other States . . . .”221 Where there were no discriminations between citizens and noncitizens, a state statute taxing the business of hiring persons within the state for labor outside the state was sustained.222
The Court returned to the privileges-and-immunities restrictions upon disparate state taxation of residents and nonresidents in Lunding v. New York Tax Appeals Tribunal.223 In this case, the state denied nonresidents any deduction from taxable income for alimony payments, although it permitted residents to deduct such payments. Although it observed that approximate equality between residents and nonresidents was required by the clause, the Court acknowledged that precise equality was neither necessary nor in most instances possible. But it was required of the challenged state that it demonstrate a “substantial reason” for the disparity, and the discrimination must bear a “substantial relationship” to that reason.224 A state, under this analysis, may not deny nonresidents a general tax exemption provided to residents that would reduce their tax burdens, but it could limit specific expense deductions based on some relationship between the expenses and their in-state property or income. Here, the state flatly denied the exemption. Moreover, the Court rejected various arguments that had been presented, finding that most of those arguments, while they might support targeted denials or partial denials, simply reiterated the state’s contention that it need not afford any exemptions at all. This section of the Constitution does not prevent a territorial government, exercising powers delegated by Congress, from imposing a discriminatory license tax on nonresident fishermen operating within its waters.225
However, what at first glance may appear to be a discrimination may turn out not to be when the entire system of taxation prevailing in the enacting state is considered. On the basis of overall fairness, the Court 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.226 Occasional or accidental inequality to a nonresident taxpayer is not sufficient to defeat a scheme of taxation whose operation is generally equitable.227 In an early case the Court brushed aside as frivolous the contention that a state violated this clause by subjecting one of its own citizens to a property tax on a debt due from a nonresident secured by real estate situated where the debtor resided.228
- 79 U.S. (12 Wall.) 418, 424 (1871). See also Downham v. Alexandria Council, 77 U.S. (10 Wall.) 173, 175 (1870).
- Chalker v. Birmingham & N.W. Ry., 249 U.S. 522 (1919).
- 252 U.S. 60 (1920).
- 252 U.S. 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, inasmuch as the State imposed no income tax on its own residents and thus the tax fell exclusively on nonresidents’ income and was not offset even approximately by other taxes imposed upon residents alone.
- 252 U.S. 60, 78–79 (1920).
- Williams v. Fears, 179 U.S. 270, 274 (1900).
- 522 U.S. 287 (1998).
- 522 U.S. at 298.
- Haavik v. Alaska Packers Ass’n, 263 U.S. 510 (1924).
- Travellers’ Ins. Co. v. Connecticut, 185 U.S. 364, 371 (1902).
- Maxwell v. Bugbee, 250 U.S. 525 (1919).
- Kirtland v. Hotchkiss, 100 U.S. 491, 499 (1879). Cf. Colgate v. Harvey, 296 U.S. 404 (1935), in which discriminatory taxation of bank deposits outside the state owned by a citizen of the state was held to infringe a privilege of national citizenship, in contravention of the Fourteenth Amendment. Colgate v. Harvey was overruled by Madden v. Kentucky, 309 U.S. 83, 93 (1940).