Source: https://supreme.justia.com/cases/federal/us/252/60/
Timestamp: 2019-04-25 14:17:31+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 252 › Travis v. Yale & Towne Mfg Co.
Shaffer v. Carter, ante 252 U. S. 37, followed, to the effect that a state may tax incomes of nonresidents arising within her borders, and that there is no unconstitutional discrimination against nonresidents in confining the deductions allowed them for expenses, losses, etc., to such as are connected with income so arising while allowing residents, taxed on their income generally, to make such deductions without regard to locality. P. 252 U. S. 75.
Such a tax may be enforced as to nonresidents working within the state by requiring their employers to withhold and pay it from their salaries or wages, and no unconstitutional discrimination against such nonresidents results from omitting such a requirement in the case of residents. P. 252 U. S. 76.
A regulation requiring that the tax be thus withheld is not unreasonable as applied to a sister-state corporation carrying on local business without any contract limiting the regulatory power of the taxing state; nor is the power to impose such a regulation affected by the fact that the corporation may find it more convenient to pay its employees and keep its accounts in the its origin and principal place of business. Id.
The terms "resident" and "citizen" are not synonymous, but a general taxing scheme of a state which discriminates against all nonresidents necessarily includes in the discrimination those who are citizens of other states. P. 252 U. S. 78.
A general tax laid by a state on the incomes of residents and nonresidents, which allows exemptions to the residents, with increases for married persons and for dependents, but allows no equivalent exemptions to nonresidents, operates to abridge the privileges and immunities of citizens of other states in violation of § 2 of Art. IV of the Constitution. P. 252 U. S. 79.
not overcome by a provision excluding from the taxable income of nonresident annuities, interest, and dividends not part of income from a local business, or occupation, etc., subject to the tax. P. 252 U. S. 81.
An abridgment by one the privilege and immunities of the citizens of other states cannot be condoned by those states or cured by retaliation. P. 252 U. S. 82.
property without due process of law, and denying to such employees the equal protection of the laws. A motion to dismiss the bill -- equivalent to a demurrer -- was denied upon the ground that the act violated § 2 of Art. IV of the Constitution by discriminating against nonresidents in the exemptions allowed from taxable income; an answer was filed, raising no question of fact; in due course, there was a final decree in favor of complainant, and defendant took an appeal to this Court under § 238, Judicial Code.
"A like tax is hereby imposed and shall be levied, collected, and paid annually at the rates specified in this section upon and with respect to the entire net income as herein defined, except as hereinafter provided, from all property owned and from every business, trade, profession, or occupation carried on in this state by natural persons not residents of the state."
"3. In the case of taxpayers other than residents, gross income includes only the gross income from sources within the state, but shall not include annuities, interest on bank deposits, interest on bonds, notes, or other interest-bearing obligations or dividends from corporations except to the extent to which the same shall be a part of income from any business, trade, profession, or occupation carried on in this state subject to taxation under this article."
"In the case of a taxpayer other than a resident of the state, the deductions allowed in this section shall be allowed only if, and to the extent that, they are connected with income arising from sources within the state. . . ."
"Sec. 363. Credit for Taxes in case of Taxpayers Other Than Residents of the state. -- Whenever a taxpayer other than a resident of the state has become liable to income tax to the state or country where he resides upon his net income for the taxable year, derived from sources within this state and subject to taxation under this article, the comptroller shall credit the amount of income tax payable by him under this article with such proportion of the tax so payable by him to the state or country where he resides as his income subject to taxation under this article bears to his entire income upon which the tax so payable to such other state or country was imposed; provided that such credit shall be allowed only if the laws of said state or country grant a substantially similar credit to residents of this state subject to income tax under such laws."
Section 366 in terms requires that every "withholding agent" (including employers) shall deduct and withhold 2 percentum from all salaries, wages, etc., payable to nonresidents, where the amount paid to any individual equals or exceeds $1,000 in the year, and shall pay the tax to the Comptroller. This applies to a resident employee also unless he files a certificate showing his residence address within the state.
amount required by the act to be withheld by complainant from the salaries of such nonresident employees is in excess of $3,000 per year. Most of these persons are engaged under term contracts calling for stipulated wages or salaries for a specified period.
The bill sets up that defendant, as Comptroller of the State of New York, threatens to enforce the provisions of the statute against complainant, requires it to deduct and withhold from the salaries and wages payable to its employees residing in Connecticut or New Jersey and citizens of those states respectively, engaged in whole or in part in complainant's business in the State of New York, the taxes provided in the statute, and threatens to enforce against complainant the penalties provided by the act if it fails to do so; that the act is unconstitutional for the reasons above specified, and that, if complainant does withhold the taxes as required, it will be subjected to many actions by its employees for reimbursement of the sums so withheld. No question is made about complainant's right to resort to equity for relief; hence we come at once to the constitutional questions.
connected with income arising from sources within the taxing state likewise is settled by that decision.
It is not here asserted that the tax is a burden upon interstate commerce, the point having been abandoned in this Court.
The contention that an unconstitutional discrimination against noncitizens arises out of the provision of § 366 confining the withholding at source to the income of nonresidents is unsubstantial. That provision does not in any wise increase the burden of the tax upon nonresidents, but merely recognizes the fact that, as to them, the state imposes no personal liability, and hence adopts a convenient substitute for it. See Bell's Gap Railroad Co. v. Pennsylvania, 134 U. S. 232, 134 U. S. 239.
the company, when making payments of coupons upon bonds previously issued by it, payable at its office in the City of New York, to withhold taxes assessed by the State of Pennsylvania against residents of that state because of ownership of such bonds. The coupons were payable to bearer, and when they were presented for payment, it was practically impossible for the company to ascertain who were the real owners, or whether they were owned by the same parties who owned the bonds. The statute was held to be an unreasonable regulation, and hence to amount to an impairment of the obligation of the contract.
In the case at bar, complainant, although it is a Connecticut corporation and has its principal place of business in that state, is exercising the privilege of carrying on business in the State of New York without any contract limiting the state's power of regulation. The taxes required to be withheld are payable with respect to that portion only of the salaries of its employees which is earned within the State of New York. It might pay such salaries, or this portion of them, at its place of business in New York, and the fact that it may be more convenient to pay them in Connecticut is not sufficient to deprive the State of New York of the right to impose such a regulation. It is true complainant asserts that the act impairs the obligation of contracts between it and its employees; but there is no averment that any such contract made before the passage of the act required the wages or salaries to be paid in the State of Connecticut or contained other provisions in any wise conflicting with the requirement of withholding.
the elaborate and ingenious argument submitted by appellant to the contrary, we are constrained to affirm the ruling.
"It was undoubtedly the object of the clause in question to place the citizens of each state upon the same footing with citizens of other states, so far as the advantages resulting from citizenship in those states are concerned. It relieves them from the disabilities of alienage in other states; it inhibits discriminating legislation against them by other states; it gives them the right of free ingress into other states, and egress from them; it insures to them in other states the same freedom possessed by the citizens of those states in the acquisition and enjoyment of property and in the pursuit of happiness, and it secures to them in other states the equal protection of their laws. It has been justly said that no provision in the Constitution has tended so strongly to constitute the citizens of the United States one people as this."
"Beyond doubt, those words [privileges and immunities] are words of very comprehensive meaning, but it will be sufficient to say that the clause plainly and unmistakably secures and protects the right of a citizen of one state to pass into any other state of the union for the purpose of engaging in lawful commerce, trade, or business without molestation; to acquire personal property; to take and hold real estate; to maintain actions in the courts of the state, and to be exempt from any higher taxes or excises than are imposed by the state upon its own citizens."
(La Tourette v. McMaster, 248 U. S. 465, 248 U. S. 470), but a general taxing scheme such as the one under consideration, if it discriminates against all nonresidents, has the necessary effect of including in the discrimination those who are citizens of other states, and, if there be no reasonable ground for the diversity of treatment, it abridges the privileges and immunities to which such citizens are entitled. In Blake v. McClung, 172 U. S. 239, 172 U. S. 247, and 176 U. S. 176 U.S. 59, 176 U. S. 67, the Court held that a statute of Tennessee, declaring the terms upon which a foreign corporation might carry on business and hold property in that state, which gave to its creditors residing in Tennessee priority over all creditors residing elsewhere, without special reference to whether they were citizens or not, must be regarded as contravening the "privileges and immunities" clause.
"Provided that such credit shall be allowed only if the laws of said state . . . grant a substantially similar credit to residents of this state subject to income tax under such laws. * "
Savings Rank v. Purdy, 231 U. S. 373, 231 U. S. 393-394; Maxwell v. Bugbee, 250 U. S. 525, 250 U. S. 543), but a general rule, operating to the disadvantage of all nonresidents including those who are citizens of the neighboring states, and favoring all residents including those who are citizens of the taxing state.
"annuities, interest on bank deposits, interest on bonds, notes, or other interest-bearing obligations or dividends from corporations, except to the extent to which the same shall be a part of income from any business, trade, profession, or occupation carried on in this state subject to taxation under this article."
This provision is not so conditioned as probably to benefit nonresidents to a degree corresponding to the discrimination against them; it seems to have been designed rather (as is avowed in appellant's brief) to preserve the preeminence of New York City as a financial center.
Nor can the discrimination be upheld, as is attempted to be done, upon the theory that nonresidents have untaxed income derived from sources in their home states or elsewhere outside of the State of New York corresponding to the amount upon which residents of that state are exempt from taxation under this act. The discrimination is not conditioned upon the existence of such untaxed income, and it would be rash to assume that nonresidents taxable in New York under this law, as a class, are receiving additional income from outside sources equivalent to the amount of the exemptions that are accorded to citizens of New York and denied to them.
respect to the exemptions, looked forward to the speedy adoption of an income tax by the adjoining states, in which event injustice to their citizens on the part of New York could be avoided by providing similar exemptions similarly conditioned. This, however, is wholly speculative; New York has no authority to legislate for the adjoining states, and we must pass upon its statute with respect to its effect and operation in the existing situation. But besides, in view of the provisions of the Constitution of the United States, a discrimination by the State of New York against the citizens of adjoining states would not be cured were those states to establish like discriminations against citizens of the State of New York. A state may not barter away the right, conferred upon its citizens by the Constitution of the United States, to enjoy the privileges and immunities of citizens when they go into other states. Nor can discrimination be corrected by retaliation; to prevent this was one of the chief ends sought to be accomplished by the adoption of the Constitution.
* Reading the statute literally, there would appear to be an additional discrimination against nonresidents in that, under § 366, the "withholding agent" (employer) is required to withhold 2 percent from all salaries, wages, etc., payable to any individual nonresident amounting to $1,000 or more in the year, whereas, by § 351, the tax upon residents (indeed, upon nonresidents likewise, so far as this section goes) is only one percentum upon the first $10,000 of net income. It is said, however, that the discrepancy arose through an amendment made to § 351 while the bill was pending in the legislature, no corresponding amendment having been made in § 366. In view of this, and taking the whole of the act together, the Attorney General has advised the Comptroller that § 366 requires withholding of only one percentum upon the first $10,000 of income, and the Comptroller has issued regulations to that effect. Hence, we treat the discrepancy as if it did not exist.

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