Opinion ID: 1533028
Heading Depth: 1
Heading Rank: 5

Heading: The Standard of Substantial Equality

Text: Article IV, § 2, cl. 1 of the United States Constitution provides: The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States. [16] Although the text does not define the privileges and immunities of national citizenship, it is clear that an interest at stake in this case  the pursuit of one's livelihood free from economic discrimination  is protected by the clause. In its most recent expression of the scope of the Privileges and Immunities Clause, the United States Supreme Court unanimously held that the pursuit of an occupation outside one's home state is a constitutionally protected right. See Hicklin v. Orbeck, 437 U.S. 518, 524-525, 98 S.Ct. 2482, 2487-2488, 57 L.Ed. 2d 397, at 404 (1978). This principle is well-settled. [I]t was long ago decided that one of the privileges which the clause guarantees to citizens of State A is that of doing business in State B on terms of substantial equality with the citizens of that State. [ Toomer v. Witsell, 334 U.S. 385, 396, 68 S.Ct. 1156, 1162, 92 L.Ed. 1460, 1471 (1948) (footnote omitted)] See Travis v. Yale & Towne Mfg. Co., 252 U.S. 60, 40 S.Ct. 228, 64 L.Ed. 460 (1920); Ward v. Maryland, 79 U.S. (12 Wall. ) 418, 20 L.Ed. 449 (1871). The method by which New Jersey allegedly discriminates against non-residents involves another aspect of the privileges and immunities of national citizenship  `an exemption from higher taxes or impositions than are paid by the other citizens of the state.' Austin v. New Hampshire, 420 U.S. at 661, 95 S.Ct. at 1195, 43 L.Ed. 2d at 535 (quoting Corfield v. Coryell, 6 F.Cas. 546, 552 (C.C.E.D.Pa. 1825) (No. 3, 230)); see Ward v. Maryland, supra . Although legislatures possess the greatest freedom in classification in the area of taxation, Madden v. Kentucky, 309 U.S. 83, 88, 60 S.Ct. 406, 408, 84 L.Ed. 590, 593 (1940), when a violation of the Privileges and Immunities Clause is alleged, the standard of judicial review must be substantially more rigorous than a search for rationality in order to protect [that] constitutional value from erosion. Austin v. New Hampshire, 420 U.S. at 662-663, 95 S.Ct. at 1195-1196, 43 L.Ed. 2d at 535-536. Absolute equality is not required, however. Inexactitude is permissible when a state fairly attempts to distribute the burdens and costs of government to those receiving its benefits: It is enough that the state has secured a reasonably fair distribution of burdens, and that no intentional discrimination has been made against nonresidents. [ Travelers' Ins. Co. v. Connecticut, 185 U.S. 364, 371, 22 S.Ct. 673, 676, 46 L.Ed. 949, 954 (1902)] As announced by the Supreme Court in Austin, the rule that has developed is one of substantial equality of treatment. 420 U.S. at 665, 95 S.Ct. at 1198, 43 L.Ed. 2d at 537. While invoking close scrutiny, disparity of treatment does not violate this rule if it has a valid justification independent of mere citizenship. Thus the inquiry in each case must be concerned with whether such reasons do exist and whether the degree of discrimination bears a close relation to them. The inquiry must also, of course, be conducted with due regard for the principle that the States should have considerable leeway in analyzing local evils and in prescribing appropriate cures. [ Toomer v. Witsell, 334 U.S. at 396, 68 S.Ct. at 1162, 92 L.Ed. at 1471 (footnote omitted)] See Hicklin v. Orbeck, supra . A state may therefore impose upon non-residents the additional expenses occasioned by their activities within the state, or the reasonable costs of benefits which they receive from the state. See Mullaney v. Anderson, 342 U.S. 415, 417, 72 S.Ct. 428, 430, 96 L.Ed. 458, 461-462 (1952); Toomer v. Witsell, 334 U.S. at 398-399, 68 S.Ct. at 1163-1164, 92 L.Ed. at 1472-1473; Travelers' Ins. Co. v. Connecticut, 185 U.S. at 368-369, 22 S.Ct. at 674-675, 46 L.Ed. at 953. See also Baldwin v. Montana Fish and Game Comm'n, 436 U.S. 371, 402-406, 98 S.Ct. 1852, 1869-1872, 56 L.Ed. 2d 354, 377-380 (Brennan, J., dissenting); Davis v. Franchise Tax Bd., 71 Cal. App. 3d 998, 139 Cal. Rptr. 797 (Ct.App. 1977). Although the trial court correctly described the criteria for justifying disparate treatment of non-residents, it did not properly apply them. As the Supreme Court stated in Toomer and reiterated in Hicklin, a `substantial reason for the discrimination' would not exist    `unless there is something to indicate that non-citizens constitute a peculiar source of the evil at which the statute is aimed.' Hicklin v. Orbeck, 437 U.S. at 525-526, 57 L.Ed. 2d at 404 (quoting Toomer v. Witsell, 334 U.S. at 398, 68 S.Ct. at 1163, 98 S.Ct. at 2488, 92 L.Ed. at 1460). Contrary to the trial court's ruling, the burden of demonstrating that non-residents are the peculiar source clearly lies with the State. Hicklin v. Orbeck, 437 U.S. at 526, 98 S.Ct. at 2488, 57 L.Ed. 2d at 405. Once that is proven, the court must then determine whether that discrimination bears a substantial relationship to the particular `evil' [that the non-residents] are said to present. Id. at 527, 98 S.Ct. at 2489, 57 L.Ed. 2d at 405. Applying this two-fold analysis to the facts before us, we reject plaintiffs' claim that as a matter of law, a transportation problem cannot serve to justify a commuter tax on non-residents. Plaintiffs argue that the Austin Court rejected such a rationale when it invalidated New Hampshire's commuter income tax on non-residents. [17] In that case, however, New Hampshire did not claim that commuters contributed in any way to a local transportation emergency, nor did that state even allege the existence of such an emergency. The only purpose served by New Hampshire's tax was that of diverting revenue into its general fund. See 420 U.S. at 666, 95 S.Ct. at 1197, 43 L.Ed. 2d at 538. Were the sole purpose of New Jersey's ETT simply that of diverting revenue for general state purposes, we would similarly conclude that the tax violates the Privileges and Immunities Clause. However, we agree with the State that a transportation problem can serve as a valid independent justification for a discriminatory tax. [18] Unlike the situation in Austin, plaintiffs here challenge a specific statutory scheme calling for a transportation tax designed to fund only transportation-related expenditures. While the possibility of a valid independent reason exists, we are unable to conclude on the present record that the State has sustained its burden. Acting Transportation Commissioner Mullen testified during his deposition that the problem creating the transportation emergency is peak-load commuter demand. Other evidence, however, shows that New York to New Jersey commuters are far outnumbered by New Jersey residents commuting to New York. See Affidavit of Russell H. Mullen, Acting Commissioner of Transportation at 4; see also Tri-State Regional Planning Commission, 1970 Census Worker File (1975); 1977 Certification of Commissioner of Transportation at 9; 1970 Certification of Commissioner of Transportation at 11. While commuters living in New York need not be the sole cause of New Jersey's transportation crisis to justify discriminatory treatment, [19] more than merely their identification is required. The State's burden of showing that non-residents constitute a peculiar source of an evil would be stripped of meaning if that obligation could be discharged simply by referring to a problem to which non-residents make but a small contribution. Imposition of the ETT cannot be justified if it appears that the tax burden on New York residents is substantially disproportionate to their burden upon New Jersey's transportation facilities. This is not to say that non-resident commuters cannot be charged for any benefits resulting from New Jersey's subsidization of commuter transportation facilities and expenditures for highway construction and maintenance in northern New Jersey. The Constitution does not entitle nonresident commuters to a free ride. The State may exact from them a fair share of the cost of adequate transportation facilities without violating the Privileges and Immunities Clause. The record discloses that expenditures for highway construction and maintenance in northern New Jersey amounted to $910 million during the years 1970 through 1977. Since none of these funds came from emergency transportation taxes, [20] non-residents apparently did not contribute to the cost of providing these vital transportation facilities. [21] The expenditure figures introduced also indicate, however, that ETT funds have supplied a very substantial portion of state expenditures for bus and rail facilities. While non-resident use of such facilities constitutes a very small percentage of total patronage, [22] we recognize that a strict percentage analysis is not required for each separate type of commuter transportation facility. Under the constitutional mandate of substantial equality, it is only necessary that total payments of the ETT by non-resident commuters be substantially proportionate to the total benefit they derive by virtue of State expenditures for all types of commuter facilities. Stated differently, the ETT would be justified if its burden on New York commuters is substantially commensurate with the benefit they derive from their use of New Jersey's transportation facilities. The State also emphasizes that New Jersey residents pay other taxes  such as property taxes and sales and use taxes  which non-residents either do not pay or pay substantially less. This assertion has sparked a sharp dispute between the parties as to what tax liabilities can be compared in assessing whether non-residents are in fact being required to pay more than their fair share. Plaintiffs allege that Austin made clear that only taxes to which non-residents are not subject can be compared with a discriminatory impost. See Austin v. New Hampshire, 420 U.S. at 659 n. 3, 662 n. 8, 95 S.Ct. at 1194 n. 3, 1195 n. 8, 43 L.Ed. 2d at 534 n. 3, 536 n. 8. Noting that property taxes are paid by any non-resident who owns property in New Jersey, plaintiffs argue that such taxes do not qualify as taxes imposed upon residents alone under Austin. See 420 U.S. at 665, 95 S.Ct. at 1197, 43 L.Ed. 2d at 538. We do not agree that taxes which non-residents may pay must be excluded from the substantial equality of treatment analysis. While `something more is required than bald assertion'    to establish the validity of a taxing statute that on its face discriminates against nonresidents, Austin, 420 U.S. at 665, n. 10, 95 S.Ct. at 1197 n. 10, 43 L.Ed. 2d at 538 n. 10 (quoting Mullaney v. Anderson, 342 U.S. at 418, 72 S.Ct. at 430, 96 L.Ed. at 462), the question is still one of impact in fact. The State has introduced evidence lending support to the conclusion that residents pay a much greater percentage of New Jersey's property and sales taxes than non-residents. The discriminatory impact of the ETT cannot be offset, however, by the fact that residents pay more total tax dollars than non-residents. Even a per capita comparison is inappropriate unless its scope is restricted to collections for transportation services, the asserted ground of justification for the ETT. To sustain the tax, there must be a showing that the impact of ETT on non-residents, along with their other contributions for public transportation expenses, is substantially offset by the benefits they receive from transportation services. The State introduced the affidavit of John F. Laezza, Director of the Division of Local Government Services, Department of Community Affairs, in which he asserts that [i]n 1975 the municipalities and county governments in the ten northern counties spent approximately $12,645,000 for services directly allocable to commuters from New York. This figure allegedly represents the non-resident commuters' pro rata share of the total public safety and public works expenditure made by the ten counties and their municipalities. As explained by Director Laezza, this strict percentage computation was based on the theory that a person who commutes to and works in New Jersey for a part of the day utilizes these facilities to the same extent as a New Jersey resident. [23] This assumption is questionable; moreover, it is only to the extent these benefits arise from local maintenance of transportation facilities that they should be included in the constitutional analysis. We reject the State's argument that since the effect of the challenged tax is in fact no more onerous than the liability taxpayers would otherwise incur to New York, it does not violate the privileges and immunities of non-residents. As the Supreme Court noted in Austin, while such an argument may have initial appeal, it cannot be squared with the underlying policy of comity to which the Privileges and Immunities Clause commits us. 420 U.S. at 666, 95 S.Ct. at 1197, 43 L.Ed. 2d at 538. The evidence here presented falls far short of showing that the non-residents are taxed only to the extent of their contribution to the transportation problem. We are therefore unable to apply the correct constitutional standard of substantial equality to the record before us. A remand is accordingly necessary to permit a full exploration of the benefits and burdens to non-resident commuters occasioned by State transportation programs and imposition of the ETT. In view of our disposition of this case, we now set out guidelines for further trial proceedings. On remand, evidence should be introduced to enable the trial court to compare the transportation benefits New York residents receive and the tax contributions they are required to make. The data must therefore include statistics on annual state and local expenditures  identified by source  for commuter rail and bus services and for construction and maintenance of highways used by interstate commuters. Figures on the amount and application of ETT monies must also be presented. [24] Commutation figures must be introduced for the years during which non-residents paid emergency transportation taxes. The total number of New Jersey to New York commuters and the proportion by which they exceed New York to New Jersey commuters would be a relevant consideration. Travel figures must also take into account the substantial amount of intrastate use of all facilities funded. Only when the State supplies such an accounting can the relationship between benefits and burdens be properly assessed. Once these computations are submitted, the court can then make a fully informed judgment on whether the problems of peak-hour commutation by New York residents justifies imposition of the ETT. B