Does a state income tax that falls exclusively on nonresidents while exempting residents violate the Privileges and Immunities Clause of Article IV?

Maine residents Austin and others worked in New Hampshire during the 1970 tax year and were subject to New Hampshire's Commuters Income Tax. This tax imposed a 4% rate on nonresidents' New Hampshire-derived income exceeding $2,000, with a reduction if the nonresident's home state would impose a lesser tax on the same income. The tax initially imposed a 4% rate on New Hampshire residents' out-of-state income but then exempted such income if it was taxed, exempted, or not taxed by the state where it was earned. The practical effect was that no New Hampshire resident paid income tax on out-of-state earnings, and residents paid no tax on domestic earned income. Only nonresidents working in New Hampshire were effectively subject to the state's income tax. Maine provided tax credits to its residents for income taxes paid to other states, meaning appellants' total tax burden remained unchanged, but the tax revenue was diverted from Maine to New Hampshire.

Appellants petitioned the New Hampshire Superior Court for a declaration that the Commuters Income Tax violated the Privileges and Immunities and Equal Protection Clauses of both the New Hampshire and United States Constitutions. The case was transferred directly to the New Hampshire Supreme Court, which upheld the tax in 1974. The United States Supreme Court noted probable jurisdiction of the federal constitutional claims and heard the case on appeal from the New Hampshire Supreme Court's decision.

(Marshall, J.)

Yes. The New Hampshire Commuters Income Tax violates the Privileges and Immunities Clause because it discriminates against nonresidents without justification. The Privileges and Immunities Clause of Article IV establishes a norm of comity that prevents states from denying citizens of other states the same treatment accorded to their own citizens. Historical precedent from Corfield v. Coryell established that fundamental privileges include exemption from higher taxes than those paid by other citizens of the state. The Court applies heightened scrutiny to tax measures that burden nonresidents because they lack representation in the taxing state's legislature, and judicial acquiescence in such schemes would invite retaliation between states, which the Constitution sought to prevent.

Precedent from Ward v. Maryland, Travellers' Insurance Co. v. Connecticut, Shaffer v. Carter, and Travis v. Yale & Towne Mfg. Co. establishes that while states have broad discretion in taxation, they must provide substantial equality of treatment between residents and nonresidents. The tax fails this standard because it falls exclusively on nonresidents with no offsetting burden on residents alone.

New Hampshire's argument that the tax burden is not more onerous because nonresidents receive credits from their home states fails because it invites interstate retaliation and makes constitutional rights dependent on other states' legislation. The state cannot cure discrimination by relying on another state's decision to provide tax credits, as this would allow states to barter away constitutional rights and encourage the very retaliation the Constitution was designed to prevent.

Dissent (Blackmun, J.) This case lacks substantial merit and wastes judicial resources. The appellants have no real injury because Maine's tax credit provision means their total tax liability remains unchanged regardless of New Hampshire's tax. The real issue stems from Maine's own statute allowing the credit, not New Hampshire's tax law. Maine could eliminate any perceived problem by modifying its own tax credit provision. The situation resembles the federal estate tax credit system, where states deliberately structure their laws to take advantage of credits offered by other jurisdictions. Since appellants gain no financial benefit from prevailing and their injury, if any, results from Maine's own legislative choice, this constitutes a non-case that should be dismissed for lack of substantial federal question.