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Law School Case Brief

Lunding v. N.Y. Tax Appeals Tribunal - 522 U.S. 287, 118 S. Ct. 766 (1998)


When confronted with a challenge under the Privileges and Immunities Clause to a law distinguishing between residents and nonresidents, a state may defend its position by demonstrating that (i) there is a substantial reason for the difference in treatment; and (ii) the discrimination practiced against nonresidents bears a substantial relationship to the state's objective.


A nonresident married couple filed a New York nonresident income tax return on which the couple reported the husband's income earned in New York and rather than complying with the statutory provision, deducted the portion of the alimony paid by the husband that corresponded to the percentage of the couple's total income that was earned in New York. A New York state statutory income tax provision disallowed any deduction for alimony paid at one of the several steps used to calculate nonresidents' tax on their income earned in the state and effectively denied only nonresident taxpayers a state income tax deduction for alimony paid, where in some circumstances, the provision would result in a nonresident's tax liability being greater than if the nonresident was a resident. The state denied the pro rata alimony deduction, which resulted in an increase in the couple's tax liability. The taxpayer couple sought state administrative relief from the denial of the deduction on the basis, among others, that the state tax provision violated the Privileges and Immunities Clause, U.S. Const. art. IV, § 2, but was unsuccessful. The couple then commenced an action before the Third Department of the Appellate Division of the New York Supreme Court, which expressed the view that the tax provision violated the Privileges and Immunities Clause. On appeal, the New York Court of Appeals reversed expressing the view that the provision did not violate the Privileges and Immunities Clause, as substantial reasons for the disparity in tax treatment were apparent on the face of the statutory scheme. The taxpayer couple contended that the statute, N.Y. Tax Law § 631(b)(6) (1987), violated the Privileges and Immunities Clause because it discriminated against New York nonresidents by not allowing them a pro rata deduction for alimony expenses.


Did the provision in a New York state law that effectively denies only nonresident taxpayers an income tax deduction for alimony violate the Privileges and Immunities Clause as discriminatory treatment of nonresidents?




On a writ of certiorari, the Supreme Court of the United States found that respondent state agencies had not presented a substantial justification or a reasonable expectation for the categorical denial of alimony income tax deductions to nonresidents. According, § 631(b)(6) of New York's Tax Reform and Reduction Act of 1987 was an unwarranted denial to the citizens of other states the privileges and immunities enjoyed by the citizens of New York. Because the state had not adequately justified the discriminatory treatment of nonresidents affected by N. Y. Tax Law § 631(b)(6), the challenged provision violates the Privileges and Immunities Clause. Although the Privileges and Immunities Clause did not prevent states from requiring nonresidents to allocate income and deductions based on their in-state activities, a state could not disallow nonresident taxpayers every manner of nonbusiness deduction. Requiring nonresidents to pay more tax than similarly situated residents solely on the basis of whether or not the nonresidents were liable for alimony payments was found to violate the "rule of substantial equality of treatment." Thus, the decision of the New York Court of Appeals was reversed. In reaching this decision, the Court explained that its concern for the integrity of the Privileges and Immunities Clause is reflected through a standard of review substantially more rigorous than that applied to state tax distinctions, among, say, forms of business organizations or different trades and professions.

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