Does a state income tax that falls exclusively on the New Hampshire-derived income of nonresidents, while exempting residents' income, violate the Privileges and Immunities Clause of Article IV, Section 2, even though nonresidents' total tax liability is offset by a credit from their home state?

Appellants, residents of Maine, worked in New Hampshire during the 1970 tax year and were subject to the New Hampshire Commuters Income Tax. The tax imposed a 4% levy on nonresidents' New Hampshire-derived income exceeding $2,000, reduced to the amount their home state would impose if lower. Employers withheld 4% of nonresidents' earnings, with excess refunded after a return was filed. The statute also nominally taxed New Hampshire residents on out-of-state income at 4%, but exempted that income if taxed, exempted, or untaxed by the state of origin, and it did not tax residents' New Hampshire earnings. The practical result was that no resident was taxed on earned income, and only nonresidents working in New Hampshire paid the tax. Residents paid other taxes, such as a $10 annual resident tax and a tax on certain interest and dividends over $600, but these did not approximate the burden on nonresidents. Appellant Logan, with $33,000 of New Hampshire income, paid $252, while a resident with identical earnings paid only the $10 resident tax. Maine allowed its residents a credit for income taxes paid to other states, so appellants' total tax liability was unchanged.

Appellants petitioned the New Hampshire Superior Court on behalf of themselves and others similarly situated for a declaration that the tax violated the Privileges and Immunities and Equal Protection Clauses of the New Hampshire and United States Constitutions. The case was transferred directly to the New Hampshire Supreme Court, which upheld the tax in 114 N.H. 137, 316 A.2d 165 (1974). The United States Supreme Court noted probable jurisdiction of the federal constitutional claims, 419 U.S. 822 (1974), and reversed.

(Marshall, J.)

Yes. The New Hampshire Commuters Income Tax violates the Privileges and Immunities Clause. The tax falls exclusively on nonresidents' income and is not offset, even approximately, by other taxes imposed only on residents.

The Clause establishes a norm of comity and bars a state from denying outlanders treatment its own citizens demand for themselves, including exemption from higher taxes than those paid by the state's own citizens. Corfield v. Coryell, 6 F. Cas. 546 (CCED Pa. 1825). Although state legislatures have broad latitude in tax classification, a tax that burdens a constitutionally protected value receives more rigorous scrutiny. Because nonresidents are not represented in the taxing state's legislature, the Clause protects both individual equality and the structural balance of federalism.

The Court's precedents require substantial equality of treatment between residents and nonresidents, judged by the tax's practical effect. Ward v. Maryland, 12 Wall. 418 (1871), struck a discriminatory license fee on nonresident traders. Travellers' Insurance Co. v. Connecticut, 185 U.S. 364 (1902), and Shaffer v. Carter, 252 U.S. 37 (1920), upheld schemes where nonresidents paid no more than a ratable share of burdens. Travis v. Yale & Towne Mfg. Co., 252 U.S. 60 (1920), invalidated a tax that disadvantaged all nonresidents in concrete, general fashion. New Hampshire's tax cannot be sustained under these cases because it falls only on nonresidents.

The State's argument that nonresidents' total liability is unchanged due to Maine's credit fails. The effect merely diverts revenue from Maine to New Hampshire, and Maine could end it by repealing its credit. That possibility does not cure the discrimination; it compounds it by inviting nonresidents to induce their own legislature to retaliate. Travis held that a state may not barter away its citizens' privileges and immunities, and discrimination cannot be corrected by retaliation, which the Constitution was adopted to prevent. Nor can one state's statute's validity depend on another state's statutes. Because the case is resolved under Article IV, the Court did not reach the equal protection claims. Reversed.

Dissent (Blackmun, J.) The appeal presents no substantial federal question and should be dismissed. Appellants pay New Hampshire's tax only because Maine's legislature, their own elected representatives, gave New Hampshire the option to divert this increment of tax through Maine's credit provision, and New Hampshire took that option. Maine can change its statute if it wishes, so appellants are really complaining about their own state's law. The majority answered that Maine's power to repeal its credit does not cure the discrimination and instead compounds it by inviting retaliation. The situation resembles the federal estate tax credit for state death taxes, which was upheld against constitutional attack in Florida v. Mellon, 273 U.S. 12 (1927). Appellants gain no financial benefit from prevailing, since relief from New Hampshire's tax produces a corresponding increase in Maine's tax; the only difference is which state collects. Absolute equality is not required under the Privileges and Immunities Clause, Toomer v. Witsell, 334 U.S. 385 (1948), and any inequality results from differences in the income tax rates of neighboring states, not unequal protection by New Hampshire. The Court wastes its time on this noncase.