Legal Document

522 U.S. 287118 S.Ct. 766139 L.Ed.2d 717 Christopher H. LUNDING, et ux., Petitioners,v.NEW YORK TAX APPEALS TRIBUNAL, al. No. 96-1462. Supreme Court of the United States Argued Nov. 5, 1997. Decided Jan. 21, 1998. Syllabus * New York Tax Law §631(b)(6) effectively denies only nonresident taxpayers a state income tax deduction for alimony paid. Petitioners-a Connecticut couple required to pay higher taxes on their when that State denied attempted pro rata portion petitioner husband paid previous spouse-exhausted administrative remedies and commenced this action, asserting, among other things, discriminates against nonresidents in violation Privileges Immunities Clause, Const., Art. IV, §2. The Appellate Division agreed held be unconstitutional, but Appeals reversed, holding was adequately justified because residents who are subject taxation all regardless source should entitled benefit full expenses, while personal expenses taxpayer more appropriately allocated residence. court also noted §631(b)(6)'s practical effect did not deny deduction, they could claim amount such payments computing hypothetical liability "as if'' resident, one steps involved under law. Held: In absence substantial reason difference treatment nonresidents, violates Clause by denying an payments. Pp. ___-___. (a) While have considerable discretion formulating laws, power must exercised within limits Federal Constitution. When confronted with challenge law distinguishing between may defend its position demonstrating " (i) there is treatment; (ii) discrimination practiced bears relationship State's objective.'' N.H. v. Piper, 470 274, 284, 105 1272, 1278, 84 205. Thus, justification different including explanation how relates justification. E.g., Shaffer Carter, 252 37, 55, 40 221, 226-227, 64 L.Ed. 445. (b) This Court's precedent respecting challenges provisions informs review §631(b)(6). Travis Yale & Towne Mfg. Co., 60, 80-82, 228, 232-233, 460, Austin Hampshire, 420 656, 665, 95 1191, 1197, 43 530, make clear prohibits from general exemption provided residents, Shaffer, supra, at 57, S.Ct., 227, Travis, 75-76, 230-231, establish limit nonresidents' deductions business nonbusiness based those in-state property or income. latter decisions provide leeway aligning burden activities, neither nor can fairly read hold permits categorically without treatment. (c) Respondents' attempt justify limitation asserting has jurisdiction over activities rejected. contention that, it consider "wholly linked outside York'' does suffice. Appeals' decision upholding contain any reasonable discriminatory provision. case which based, Goodwin Commission, 286 App.Div. 694, 146 N.Y.S.2d 172, aff'd, 1 N.Y.2d 680, 150 203, 133 N.E.2d 711, appeal dism'd, 352 805, 77 47, 38, questionable relevance here, since provision analogous §631(b)(6), rendered before adopted present system taxation, called into doubt subsequent decision. Unlike Appeals, takes little comfort fact inclusion nonresident's federal adjusted gross reduces liability, back "apportionment percentage'' used determine actual owed. summarizing case, explained no serious argument petitioners' were legitimate approximate equality Constitution satisfied. precedent, however, suggest schemes allowing deduct per se constitutional. Accordingly, further inquiry light required. arguments do supply adequate suggestion summary dismissals cases dispositive here rejected, same precedential value as opinions after briefing oral argument. Moreover, none unique problem complete denial Also unavailing reliance statement former Commissioners cannot legally recognize existence non-New income, nature unconnected production York. There good question whether actually rationale given evidence currently what amounts than 1987, allowed them share satisfied need impact disallowing merely nature, particularly inequities result obligations derives nearly her York, scenario "typical,'' see 80, 232. By requiring similarly situated solely basis liable payments, "rule treatment'' Austin, 1197. (iii) rejects respondents' adoption "income splitting'' regime creates parity spouses dissolved marital payer exclude payment recipient report corresponding increase Section 631(b)(6) disallows entire consideration will recipients. analysis begs treatment, therefore appreciably distinct assertion concern expenses. (iv) record assertions several amici would de minimis run-of-the-mill comity typically give credit States, so roughly overall tax. Further, constitutionality statutes affecting depend upon States. 668, 1198-99. P. ___. 89 283, 653 62, 675 816 (1996), reversed remanded. O'CONNOR, J., delivered opinion Court, STEVENS, SCALIA, SOUTER, THOMAS, BREYER, JJ., joined. GINSBURG, filed dissenting opinion, REHNQUIST, C.J., KENNEDY, Lunding, City, se. Andrew D. Bing, Albany, NY, respondents. Justice O'CONNOR Court. §2, provides [t]he Citizens each shall States.'' we consistent constitutional command. We conclude effected N.Y. challenged Clause. 2 A 3 requires individuals net real tangible personalty employment business, trade, professional operations See §631(a), (McKinney 1987). Under enacted Legislature determined according method taxpayer's total reported Government. §601(e)(1) 4 Computation owe involves steps. First, compute resided Ibid. starting point computation which, accordance Internal Revenue Code, 26 U.S.C. §215, includes After various adjustments derive resident taxable computed, using rates applicable residents. Once been applied amount, ratio §601(e)(1). denominator ratio, paid, virtue incorporated §612(a). numerator, property, employment, but, operation specifically paid.1 last step computation, multiply apportionment percentage, thereby liability. upper percentage. circumstances where include exceeds does, 100% tax.2 5 part York's Reform Reduction Act 1987. Until then, pursuant then "reflected policy non-business proportion sources.'' Friedsam Comm'n, 76, 81, 484 807, 810, 473 1181, 1184 (1984) (internal quotation marks omitted); Memorandum Governor, L.1961, ch. 68, Legis. Ann., 1961, p. 398 (describing §635(c)(1), permitted itemized deductions, alimony, "represent[ing] fairest most equitable solution many years' standing'' working York). Although legislative history explaining enactment, clearly overruled Friedsam's requirement permit B 6 1990, petitioners Lunding his wife, Barbara, Connecticut. During year, earned practice That he incurred relating dissolution marriage. law, Nonresident Income Return earnings. Petitioners comply instead deducting determination approximately 48% Christopher's attributable 7 Audit Department Taxation Finance recomputed recalculation owed additional $3,724 taxes, plus interest. appealed assessment Immunities, Equal Protection, Commerce Clauses unsuccessful appeals, addressed, action §2016 8 relying 98 App.Div.2d 26, 848 (3d Dept.1983), had affirmed __-__. 218 268, 639 519 Dept.1996). According court's reasoning, "although disparity [of nonresidents] if valid reasons exist, proscribes conduct . beyond mere [nonresidents] citizens Id., 270, N.Y.S.2d, 520 omitted). despite intervening enactment concluded "there exists disparate leaving "[t]he criterion payor nonresident.''' 272, 521 (quoting Friedsam, App.Div.2d, 29, 850). 9 Respondents lower ruling upheld (1996). decision, found 445 (1920), 460 "established limiting in-State [is] sufficient derived sources producing income,'' ""practical effect.''' N.Y.2d, 288, 65, N.E.2d, 819. "the mandate absolute treatment,'' quoted 205 (1985), violated ""(i) objective.''' 289, 66, 820. 10 Applying principles settled 172 (1955), aff'd 38 (1956), Jersey unsuccessfully estate interest medical life insurance premiums. two rationales concluding justified. reasoned source, Second, represent taxpayer, 289-290, 11 Based justifications distinguished post-Goodwin Golden Tully, 58 1047, 462 626, 449 406 (1983), granting moving expense violate [n]o rationale'' besides nonresidence "was proffered discrepancy treating nonresidents.'' court, decided "solely narrow ground Commission answer bill particulars offered disallowance'' 290, 67, 821. overrule 12 As effect, "nonresidents resident' §601(e).'' 291, rejected lack importance, finding "substantial apparent face statutory scheme.'' claims Protection Clauses. Those 13 Recognizing conflict Oregon Wood Revenue, 305 Or. 23, 749 P.2d 1169 (1988), tension South Carolina Spencer 281 S.C. 492, 316 S.E.2d 386 (1984), equally divided 471 82, 1859, 85 62 granted certiorari. ----, 117 1817, 137 1026 (1997). II 14 object "strongly constitute people,'' "plac[ing] footing far advantages resulting citizenship concerned.'' Paul Virginia, Wall. 168, 180, 19 357 (1868). One right secured citizen "remove carry another being subjected person onerous to.'' 56, 227; Toomer Witsell, 334 385, 396, 68 1156, 1162, 92 1460 (1948); Ward Maryland, 418, 430, 20 (1870). 15 Of course, "be ratable contribution support government.'' U.S., 53, 225. duty "to imposed like State.'' Ibid.; (1870) (nonresidents "subjected excise exacted permanent residents''). Nonetheless, matter, affords assurance precise particular State. Some differences inherent taxing scheme, [l]ike provisions, privileges immunities clause absolute,'' Toomer, [a]bsolute impracticable taxation,'' Maxwell Bugbee, 250 525, 543, 2, 7, 63 1124 (1919). 16 Because legislatures draw some distinctions "local needs,'' policy. Madden Kentucky, 309 83, 88, 60 406, 408, 590 (1940). "where contravenes rights [the Constitution], form, construction, definition, imposed.'' 226; St. Louis Southwestern R. Co. Arkansas, 235 350, 362, 35 99, 102, 59 265 (1914) (" [W]hen deprives party [w]e regard substance, rather controlling test enforced State''). short, context, "inequalities hostile discrimination, occasionally incidentally application [tax] arbitrary classification, defeat law.'' Maxwell, 7. 17 described balance "a rule taxpayers. 530 (1975). Where "reasonable diversity treatment.'' 79, 231; Travellers' Ins. Connecticut, 185 364, 371, 22 673, 676, 46 949 (1902) ("It enough reasonably fair distribution burdens''). bars 18 "discrimination But preclude situations perfectly independent it. Thus concerned exist degree close them. also, conducted due principle analyzing local evils prescribing appropriate cures.'' 1162. 1278. Our integrity reflected through "standard substantially rigorous distinctions, among, say, forms organizations trades professions.'' 663, 1196. both 820, State, Brief Respondent Commissioner 10-11, acknowledge, 21 informed provisions. Oklahoma's out-of-state losses arises naturally extent classes cases, regarded unfriendly unreasonable discrimination. may, exert sources, accords privilege losses, wherever these accrue. extends owned profession carried therein, sources. Hence obligation accord elsewhere incurred.'' 227. 23 holding, emphasized provision, treated onerously particular, 664, 1196 24 business-related deductions. discloses Oklahoma specified owned, every trade [Oklahoma],'' express bar preventing claiming exemptions available Tr. Record O.T.1919, 531, pp. 15-18 (Chapter 164, House Bill 599 (1910) §§1, 6, 8); Behalf Appellant 91 ("In trial [Oklahoma] Attorney General asserted appellant Oklahoma''). 25 corporation doing sought enjoin enforcement laws behalf employees, Jersey. issued day Shaffer's related 230 settling unconstitutional confining etc., non-resident taxpayers, connected arising clarifies limited business-related, ordinary necessary depreciation assets, depletion natural resources, oil, gas, timber. At time decided, (based income), (other taxes) uncompensated sustained circumstances, namely transactions entered profit casualty losses. Both contributions charitable organized 548 (State A, B, C Personal Law, 11-12, 14, &Par; 42, 44 (1919)). issue essentially mirrored tied activities. Another survive scrutiny however. Evincing animated struck down certain threshold even though event providing similar occasional accidental inequality taxpayer.'' Nor salvaged "upon theory non-residents untaxed home exempt [by York] act,'' conditioned income; rash assume class, receiving equivalent accorded them.'' Finally, speculative constitutionally unsound adjoining adopt tax, "in event, injustice avoided conditioned.'' 27 recent reviewing considered commuter decisions, "establishing taxpayers,'' Hampshire's one-sided failed. 28 III 29 acknowledges pursue livelihood terms presented likely affect individuals, common enter City livelihood, "it matter knowledge necessity, geographical situation [New City], proximity neighboring thousands men women, go daily homes city earn there.'' attempting respondents assert valid. Invoking maintains York.'' 24. suffices statute. 30 Looking first find purported apply two-part end, borrowed (1956). There, mortgage home, ""only [taxable] state.''' App.Div., 695, 175 §360(11)). 31 plainly irrespective might somehow relate York-source concerning disallowance premiums assumed "made taxpayer] course having taken place residence,'' id., 70, "embodie[d] governmental designed serve social end,'' ibid., encourage obtain protection help bear extraordinary illness accident,'' 700, 179. 32 State,'' articulate save reference discussion "policy gains realized income.'' Quite possibly, exists, appears long §360(17) (1944). And years preceding recipient's 81-82, (interpreting §635(c)(1) (1961)). 33 Goodwin, failed account broad 1987 reforms, new ties Indeed, determines rate owed, just to, personal. It percentage chosen isolate specific entirely nondeductible circumstances. acknowledged, favored parity, basis, allowance nonresidents. supra. current agree [§631(b)(6)],'' 34 take fact, included components 290-291, seems contrary impression expressed advisory re Rosenblatt, 1989-1990 Transfer Binder, CCH Rep. ¶252-998, 17,969 (Jan. 18, 1990), [§631(b)(6)'s] [alimony] numerator Petitioner get proportional made spouse.'' never argued effects anything Though deduction. expenses[,] satisfied, greater fine-tuning scheme mandated.'' constitutional, accordingly inquire effect. 36 Turning initial reject case. 15-16, n. 8.3 [o]ur rulings merits sense left undisturbed judgment from,'' "have merits.'' Washington Confederated Bands Tribes Yakima Indian Nation, 439 463, 477, 20, 99 740, 749, 740 (1979) (citations internal "It unusual action,'' where, courts arrived dissimilar outcomes. relies 37 context anomaly. avail themselves tax-deductible alimony. Before Commissioner's Rosenblatt indicates intended Friedsam. (Section "specifically Friedson [sic] 76 [484 1181] formula allocation nonresident''). Certainly, found, "had removing [the] impairment'' 821, implying disavowal acknowledged fairness underlying "impairment,'' freedom adjust end results must, Constitution, imposing explained, unlimited, validity established imposition tax.'' Mullaney Anderson, 342 415, 72 428, 96 458 (1952). 39 To refers statement, 1959 then-Commissioner Subcommittee Judiciary Committee. ""[s]ince [non-New source] felt general, main, York.''' Hon. Joseph Murphy, Nonresidents, Hearing H.J. Res. H.R. 4174 Committee Judiciary, 86th Cong., 1st Sess., 98-99 (1959)). Yet contrary, deductions,4 cited testimony suggests constrained, premise. 79-80, 231-232, suggested regarding rationally 56-57, 41 interpretation implies simple residence incorporate or, history, operate require significantly identically For example, earnings primarily raise above 100%, individual disallowed approaching exceeding 42 arise purposes Such petitioner's argue offset taxed thing, anomalous profits another. An facially inequitable unsubstantiated surely Gilmore, 372 39, 44, 83 623, 626-627, 570 (1963), arguably Alimony differ types whose situs location property. unlike discussed easily characterized "losses Rather, reflect duration large measure individual's generally, earned. "personal'' viewed geographically fixed manner be. dissent's suggestion, post, __, propose allow out-of-State imply invariably credits allows benefits, form credits. "consistent families generally.'' 14-15. purpose changes splitting,'' spouse equal unit. (citing McIntyre Pomp, Treatment Residents Nonresidents Notes 245, 249 (1997)). achieved 1942 Government means adjusting burdens payers who, remaining Report, 1942, 1942-2 C.B. 409. 45 system, pays another, payer's recipient, leading burden. 631(b)(6), explain concerns simply irrelevant [e]xtending splitting inappropriate grounds slice income-that 15. analysis, fail disregard out potential concept works receives other's making treasury whole (after adjustment spouses' respective rates). longer retains paying own split disappears, resides imposes surtax And, extreme, double-taxation windfall State: Government's aliens, §§872 873, reasonableness national level implicate guarantee migrate live work. D 47 respondents, States,'' Ohio 8. runs, [a]ll things State] less revenue.'' us. year question, Reply 4, 1. "Nor, add, configuration 1198; 232-233. IV 48 sum, inability sufficient, itself, nonresidence. 49 prevent allocate automatically disallow assumption inevitably allocable resides. there. generally correlates wealth, source. graduated imports element seem notions well. 50 categorical failure cursory smacks effort "penaliz[e] subjecting heavier citizens,'' 1168 (Frankfurter, concurring). thus unwarranted enjoyed 51 remanded proceedings inconsistent opinion. 52 ordered. 53 whom Chief KENNEDY join, dissenting. 54 follow lead1 only.2 practice, I conclude, offend nondiscrimination embodied Article dissent 55 put proper perspective, helpful "surely matter,'' ante, __; addition, "unlike obligation[s],'' __. regimes, §71(a), §§215(a), 62(a)(10), recipient. "can best seen respect choice rules definition expense. [alimony payer] conduit belongs recipient] divorce decree.'' M. Chirelstein, ¶9.05, (8th ed.1997) (hereinafter Chirelstein); B. Bittker McMahon, Individuals ¶36.7, 36-18 (2d ed. 1995) ("Unlike payments] designating expenditures. combination, §71 [allowing §215 [requiring income] treat [payer]'s received offsetting payee.''). applies payers. 1987) declares "shall 56 spouse's well purposes, receive words, once, twice. reside means, urges, all. Compared divorced spouses, seeks windfall, escape double question. beneficence earning insists, §2 demands. 57 Explaining why favor invites comparisons broken marriages-cases elsewhere. Lunding's moved count her, nonetheless him, residence, twice, giving him her. situation, standing demand nothing order excessive others. More engagingly, compares living Yorker transferred choice, state, else extend him. apparently agrees. least, holds, "has justified'' line drawn. Ante, condemnation me unwarranted. universe partners spouse, attribution someone (either recipient) hardly unfair. True, afforded she elsewhere, chased collector. spouse. legitimately Lundings' overly generous (New payer, insufficiently (nonresident recipient), systematic discretely pairs nonresident. classifications, previously burdens, intentional non-residents.'' (1902). Travellers', discriminatory: stock corporations holdings, stockholders proportionate corporation's estate. discriminatory, although municipal property; taxes. 367, 674. Municipal varied across low-tax municipalities up workings larger properly vitiate succeeding varying calls localities expenses.'' 369, 675. 61 classifications rough (1975) (Privileges precedents "establis[h] treatment''). observation Baldwin Fish Game Comm'n Mont., 436 383, 1852, 1860, 354 (1978), [s]ome Nation composed permitted; prohibited hinder formation, purpose, development single Union classification systematically discriminate said "hinder Union.'' Post-Marriage Splitting Deduction Payments, 1631, 1635 (1997) (urging forgo income-splitting objective served "results ideal'' "when parties transaction nonresident'').3 affirm cast doubt, today's secure. Viewing about accept adaptation, level, system. notes shies away approach, expressing "extreme'' us-the "New [who] taxpayer,'' __.4 Instead, treats makes deductible. Significantly, approach conforms historic pattern. "Historically, child includable [in income]. Successive [federal] enactments beginning continuing nondeductible-excludable payments.'' Ault, Comparative Taxation: Structural Analysis 277 65 Accepting, arguendo, "personal deduction'' lieu attribution'' categorization our lead direction takes. On embraces, core Oral Arg. 19. been, be, teaches. 66 [E]arly century, enunciated connection J. Hellerstein W. Hellerstein, 20-47 (1992). companion cases-Shaffer (1920)-the considered, respectively, taxation. violating 67 Upholding declaring impermissibly least three principles. "just impose persons control, consequence, levy character, incomes accruing occupations therein.'' 52, 225; accord, 75, 230. uniformly 79-81, 231-232. exemptions, set Reflections Nonresident's Income, Mich. L.Rev. 1309, 1343 (1974) Hellerstein), create zero bracket exemption. 3. Denial across-the-board impermissible longstanding interpretation. See, e.g., Chalker Birmingham Northwestern 522, 526-527, 366, 748 (1919); (1871); 659, 1193-1194 [i]n taxe[d] Hampshire''). abridgement 69 differently blanket Travis: afford governing incurred, "only discrimination.'' "their "Hence stated 230: [T]here '' 70 clear. hand, Travis's language expenses.5 commentator "nothing either addressing itself deductions.'' 1347, 165. 71 With rare exception, force 702, 180 Dept.1955), mem., dismissed want exemplifies approach. lawyer City. return, claimed association dues, subscriptions legal periodicals, entertainment car contributions. 174. disallowances, appeals non-income-producing kind referred think shouldered sister 701, 180. exercise advance welfare residents.'' "extend aid encouragement states.'' not, underwrite Nation. Cf. Martinez Bynum, 461 321, 328, 103 1838, 1842, 75 879 (1983) free primary secondary education extending nonresidents). 73 Other courts, variety only, Goodwin's analysis. Challenges rulings, disposed summarily Lung O'Chesky, 94 N.M. 802, 617 1317 (1980) (upholding grocery rebates relief receipts taxes), 450 961, 101 1475, 610 (1981); Anderson Tiemann, 182 Neb. 393, 407-408, 155 N.W.2d 322, 331-332 (1967) sales food purchased use), 390 714, 88 1418, 254 (1968); Berry 241 580, 582, 397 780, 782 (1964) home-state loans, items; legislature closely taxed''), 382 16, 86 (1965). 32-33, 1169, 1173-1174 (1988) 74 persuasive elaboration Travis. Whether exposition broadly (as supporting view expenses) precisely expenditures "intimately taxpayer's] 180), seeks. (if all) expense, acknowledges, They "ste[m] relationship,'' 51, 631, and, incidents family life, principally donations York-based charities second inure benefit. decree court. "must deemed in'' [Lunding's] centered.'' A.D., compelled subsidize majority wrong fault insufficient articulation §631(b)(6).'' recalled characterizing "definitively addressed'' 816, 820 referable insurance, Goodwin. policy-based needed elaboration. facilitate contribute riches, connection: [A]s source.'' __ (alimony "arguably earnings,'' "determined earned''). spending generated anywhere determine, quality character care purchase. "correlat[ion] income'' appears, school district eligibility aimed low-income notably credits, grants residents.6 78 run influenced considerations, length marriage, earnings, custody arrangements, antenuptial agreement.7 "related-to-income'' directly leads candidly argued: Any 19-20. If long-settled overturned, capacity repair. "notions fairness,'' my judgment, resort Privilege contours [not] shaped process wear constant litigation judicial interpretation.'' 379, 1858. 79 *** 80 stated, mandates seeks-the insulation 1990 judgment. syllabus constitutes prepared Reporter Decisions convenience reader. Detroit Timber Lumber 200 337, 282, 287, 499. section hundred fifteen revenue code, IT-203-I, Instructions Form IT-203, Part-Year Resident ("To figure your divide Amount column column, 100%''). 711 (1956) (involving premiums), (1956); nonresidents), Rubin Glaser, N.J. 299, 416 A.2d homestead rebate principal residences residents), 977, 389, 239 (1980); Davis Franchise Board, Cal.App.3d 998, 139 Cal.Rptr. 797 (1977) averaging 434 1055, 1222, 755 (1978); Wilson 267 103, 514 1334 (1973) 964, 1984, 554 (1974); 322 780 1943 Laws, §3 tax); 1944 333, 1961 §1 (itemized income). §§872-873; 248-249 Four addition York-Alabama, California, West Wisconsin-expressly Ala.Code §40-18-15(18) (1993); Cal. Rev. Tax.Code Ann. §17302 (West 1994); Va.Code §11-21-32(b)(4) (1995); Wis. Stat. §71.05(6)(a)(12) (1989). Two States-Illinois Ohio-restrict calculating list Ill. Comp. 35, §5/301(c)(2)(A) (1996); Rev.Code §5747.20(B)(6) (1994). appear "an unfair revenue'' resident. Notes, 1635. assume, balance; so, generate recipients ibid. already observed, (Connecticut, issue), fit representative elicit concern. Ferber, 747, 767, 102 3348, 3360, 1113 (1982) [A] statute conceivably unconstitutionally others Court.''). non-business-related 12, 44). infirm, rested 79-82, 231-233. differential personal-loss ("no discrimination'' use Earned Credit refund excess §§606(d)(1)-(d)(2) Supp.1997); §§606(c)(1)-(c)(2) (residents household dependent services; liability). divorced, lists factors relevant determinations causes annulment, marriage separation, age, health, station, occupation, vocational skills, employability, needs parent minor children awarded, desirability parent's securing employment.'' Conn. Gen.Stat. §46b-82 (1995).

Classification Label: 7