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Opinion of the Court
CHRISTOPHER H. LUNDING, et ux., PETITIONERS v.
NEW YORK TAX APPEALS TRIBUNAL et al.
ON WRIT OF CERTIORARI TO THE COURT OF APPEALS
OF NEW YORK
[January 21, 1998]
Justice O'Connor delivered the opinion of the Court.
The Privileges and Immunities Clause, U.S. Const., Art. IV, §2, provides that [t]he Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States. In this case, we consider whether a provision of New York law that effectively denies only nonresident taxpayers an income tax deduction for alimony paid is consistent with that constitutional command. We conclude that because New York has not adequately justified the discriminatory treatment of nonresidents effected by N. Y. Tax Law §631(b)(6), the challenged provision violates the Privileges and Immunities Clause.
I
A
New York law requires nonresident individuals to pay tax on net income from New York real property or tangible personalty and net income from employment or business, trade, or professional operations in New York. See N. Y. Tax Law §§631(a), (b) (McKinney 1987). Under provisions enacted by the New York Legislature in 1987, the tax on such income is determined according to a method that takes into consideration the relationship between a nonresident taxpayers New York source income and the taxpayers total income, as reported to the Federal Government. N. Y. Tax Law §601(e)(1) (McKinney 1987).
Computation of the income tax nonresidents owe New York involves several steps. First, nonresidents must compute their tax liability as if
Section 631(b)(6) was enacted as part of New Yorks Tax Reform and Reduction Act of 1987. Until then, nonresidents were allowed to claim a pro rata deduction for alimony expenses, pursuant to a New York Court of Appeals decision holding that New York tax law then reflected a policy decision that nonresidents be allowed the same non-business deductions as residents, but that such deductions be allowed to nonresidents in the proportion of their New York income to income from all sources. Friedsam v. State Tax Commn, 64 N. Y. 2d 76, 81, 473 N. E. 2d 1181, 1184 (1984) (internal quotation marks omitted); see also Memorandum of Governor, L. 1961, ch. 68, N. Y. State Legis. Ann., 1961, p. 398 (describing former N. Y. Tax Law §635(c)(1), which permitted nonresidents to deduct a pro rata portion of their itemized deductions, then including alimony, as represent[ing] the fairest and most equitable solution to the problem of many years standing respecting the taxation of nonresidents working in New York). Although there is no legislative history explaining the rationale for its enactment, §631(b)(6) clearly overruled Friedsams requirement that New York permit nonresidents a pro rata deduction for alimony payments.
B
In 1990, petitioners Christopher Lunding and his wife, Barbara, were residents of Connecticut. During that year, Christopher Lunding earned substantial income from the practice of law in New York. That year, he also incurred alimony expenses relating to the dissolution of a previous marriage. In accordance with New York law, petitioners filed a New York Nonresident Income Tax Return to report the New York earnings. Petitioners did not comply with the limitation in §631(b)(6), however, instead deducting a pro rata portion of alimony paid in computing their New York income based on their determination that approximately 48% of Christophers business income was attributable to New York.
The Audit Division of the New York Department of Taxation and Finance denied that deduction and recomputed petitioners tax liability. After recalculation without the pro rata alimony deduction, petitioners owed an additional $3,724 in New York income taxes, plus interest. Petitioners appealed the additional assessment to the New York Division of Tax Appeals, asserting that §631(b)(6) discriminates against New York nonresidents in violation of the Privileges and Immunities, Equal Protection, and Commerce Clauses of the Federal Constitution. After unsuccessful administrative appeals, in which their constitutional arguments were not addressed, petitioners commenced an action before the Appellate Division of the New York Supreme Court, pursuant to N. Y. Tax Law §2016 (McKinney 1987).
The New York Supreme Court held that §631(b)(6) violates the Privileges and Immunities Clause, relying upon its decision in Friedsam v. State Tax Commn, 98 App. Div. 2d 26, 470 N. Y. S. 2d 848 (3d Dept. 1983), which had been affirmed by the New York Court of Appeals, see supra, at 3. 218 App. Div. 2d 268, 639 N. Y. S. 2d 519 (3d Dept. 1996). According to the courts reasoning, although a disparity in treatment [of nonresidents] is permitted if valid reasons exist, the Privileges and Immunities Clause proscribes such conduct
where there is no substantial reason for the discrimination beyond the mere fact that [nonresidents] are citizens of other States. Id., at 270, 639 N. Y. S. 2d, at 520 (internal quotation marks omitted). Thus, despite the intervening enactment of §631(b)(6), the court concluded that there exists no substantial reason for the disparate treatment, leaving as [t]he only criterion
whether the payor is a resident or nonresident.
Respondents appealed to the New York Court of Appeals, which reversed the lower courts ruling and upheld the constitutionality of §631(b)(6). 89 N. Y. 2d 283, 675 N. E. 2d 816 (1996). In its decision, the New York Court of Appeals found that Shaffer v. Carter, 252 U.S. 37 (1920), and Travis v. Yale & Towne Mf
Applying those principles to §631(b)(6), the court determined that the constitutionality of not allowing nonresidents to deduct personal expenses had been settled by Goodwin v. State Tax Commn, 286 App. Div. 694, 146 N. Y. S. 2d 172, aff
Based on those justifications for §631(b)(6), the court distinguished this case from its post-Goodwin decision, Golden v. Tully, 58 N. Y. 2d 1047, 449 N. E. 2d 406 (1983), in which New Yorks policy of granting a moving expense deduction to residents while denying it to nonresidents was found to violate the Privileges and Immunities Clause because [n]o other rationale besides the taxpayers nonresidence was proffered to justify the discrepancy in treating residents and nonresidents. According to the court, Golden was decided solely on the narrow ground that the Tax Commission in its answer and bill of particulars had offered only nonresidence as the explanation for the disallowance of nonresidents moving expenses. 89 N. Y. 2d, at 290, 675 N. E. 2d, at 821. The court also distinguished Friedsam, supra, on the ground that §631(b)(6) was enacted to overrule that decision. 89 N. Y. 2d, at 290, 675 N. E. 2d, at 821.
As to §631(b)(6)s practical effect, the court noted that nonresidents are not denied all benefit of the alimony deduction since they can claim the full amount of such payments in computing the hypothetical tax liability as if a resident under Tax Law §601(e). Id., at 291, 675 N. E. 2d, at 821. The court rejected petitioners contention that the lack of legislative history explaining §631(b)(6) was of any importance, finding that substantial reasons for the disparity in tax treatment are apparent on the face of the statutory scheme. Ibid. The court also rejected petitioners claims that §631(b)(6) violates the Equal Protection and Commerce Clauses. Ibid. Those claims are not before this Court.
Recognizing that the ruling of the New York Court of Appeals in this case creates a clear conflict with the Oregon Supreme Courts decision in Wood v. Department of Revenue, 305 Ore. 23, 749 P.2d 1169 (1988), and is in tension with the South Carolina Supreme Courts ruling in Spencer v. South Carolina Tax Commn, 281 S. C. 492, 316 S. E. 2d 386 (1984), aff
II
A
The object of the Privileges and Immunities Clause is to strongly constitute the citizens of the United States one people, by plac[ing] the citizens of each State upon the same footing with the citizens of other States, so far as the advantages resulting from citizenship in those States are concerned. Paul v. Virginia, 8 Wall. 168, 180 (1869). One right thereby secured is the right of a citizen of any State to remove to and carry on business in another without being subjected in property or person to taxes more onerous than the citizens of the latter State are subjected to. Shaffer, supra, at 56; see also Toomer v. Witsell, 334 U.S. 385, 396 (1948); Ward v. Maryland, 12 Wall. 418, 430 (1871).
Of course, nonresidents may be required to make a ratable contribution in taxes for the support of the government. Shaffer, 252 U.S., at 53. That duty is one to pay taxes not more onerous in effect than those imposed under like circumstances upon citizens of the . . . State. Ibid.; see also Ward v. Maryland, 12 Wall. 418, 430 (1871) (nonresidents should not be subjected to any higher tax or excise than that exacted by law of permanent residents). Nonetheless, as a practical matter, the Privileges and Immunities Clause affords no assurance of precise equality in taxation between residents and nonresidents of a particular State. Some differences may be inherent in any taxing scheme, given that, [l]ike many other constitutional provisions, the privileges and immunities clause is not an absolute, Toomer, supra, at 396, and that [a]bsolute equality is impracticable in taxation, Maxwell v. Bugbee, 250 U.S. 525, 543 (1919).
Because state legislatures must draw some distinctions in light of local needs, they have considerable discretion in formulating tax policy. Madden v. Kentucky, 309 U.S. 83, 88 (1940). Thus, where the question is whether a state taxing law contravenes rights secured by [the Federal Constitution], the decision must depend not upon any mere question of form, construction, or definition, but upon the practical operation and effect of the tax imposed. Shaffer, supra, at 55; see also St. Louis Southwestern R. Co. v. Arkansas, 235 U.S. 350, 362 (1914) ([W]hen the question is whether a tax imposed by a State deprives a party of rights secured by the Federal Constitution [w]e must regard the substance, rather than the form, and the controlling test is to be found in the operation and effect of the law as applied and enforced by the State). In short, as this Court has noted in the Equal Protection context, inequalities that result not from hostile discrimination, but occasionally and incidentally in the application of a [tax] system that is not arbitrary in its classification, are not sufficient to defeat the law. Maxwell, supra, at 543.
We have described this balance as a rule of substantial equality of treatment for resident and nonresident taxpayers. Austin v. New Hampshire, 420 U.S. 656, 665 (1975). Where nonresidents are subject to different treatment, there must be reasonable ground for diversity of treatment. Travis, 252 U.S., at 79; see also Travellers Ins. Co. v. Connecticut, 185 U.S. 364, 371 (1902) (It is enough that the State has secured a reasonably fair distribution of burdens). As explained in Toomer, the Privileges and Immunities Clause bars
discrimination against citizens of other States where there is no substantial reason for the discrimination beyond the mere fact that they are citizens of other States. But it does not preclude disparity of treatment in the many situations where there are perfectly valid independent reasons for it. Thus the inquiry in each case must be concerned with whether such reasons do exist and whether the degree of discrimination bears a close relationship 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. 334 U.S., at 396.
Thus, 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 States objective. Piper, 470 U.S., at 284.
Our 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. Austin, supra, at 663. Thus, as both the New York Court of Appeals, 675 N. E. 2d, at 820, and the State, Brief for Respondent Commissioner of Taxation and Finance 1011, appropriately acknowledge, the State must defend §631(b)(6) with a substantial justification for its different treatment of nonresidents, including an explanation of how the discrimination relates to the States justification.
B
Our review of the States justification for §631(b)(6) is informed by this Courts precedent respecting Privileges and Immunities Clause challenges to nonresident income tax provisions. In Shaffer v. Carter, the Court upheld Oklahomas denial of deductions for out-of-state losses to nonresidents who were subject to Oklahomas tax on in-state income. The Court explained that
[t]he difference is only such as arises naturally from the extent of the jurisdiction of the State in the two classes of cases, and cannot be regarded as an unfriendly or unreasonable discrimination. As to residents, it may, and does, exert its taxing power over their income from all sources, whether within or without the State, and it accords to them a corresponding privilege of deducting their losses, wherever these accrue. As to nonresidents, the jurisdiction extends only to their property owned within the State and their business, trade, or profession carried on therein, and the tax is only on such income as is derived from those sources. Hence there is no obligation to accord to them a deduction by reason of losses elsewhere incurred. 252 U.S., at 57.
In so holding, the Court emphasized the practical effect of the provision, concluding that the nonresident was not treated more onerously than the resident in any particular, and in fact was called upon to make no more than his ratable contribution to the support of the state government. Austin, 420 U.S., at 664.
Shaffer involved a challenge to the States denial of business-related deductions. The record in Shaffer discloses that, while Oklahoma law specified that nonresidents were liable for Oklahoma income tax on the entire net income from all property owned, and of every business, trade or profession carried on in [Oklahoma], there was no express statutory bar preventing nonresidents from claiming the same nonbusiness exemptions and deductions as were available to resident taxpayers. See Tr. of Record in Shaffer v. Carter, O. T. 1919, No. 531, pp. 1518 (Chapter 164, Oklahoma House Bill No. 599 (1910) §§1, 5, 6, 8); see also Brief on Behalf of Appellant in Shaffer v. Carter, O. T. 1919, No. 531, p. 91 (In the trial court, the [Oklahoma] Attorney General asserted that the appellant has the same personal exemptions as a resident of Oklahoma).
In Travis v. Yale & Towne Mfg. Co., a Connecticut corporation doing business in New York sought to enjoin enforcement of New Yorks nonresident income tax laws on behalf of its employees, who were residents of Connecticut and New Jersey. In an opinion issued on the same day as Shaffer, the Court affirmed Shaffers holding that a State may limit the deductions of nonresidents to those related to the production of in-state income. See Travis, 252 U.S., at 7576 (describing Shaffer as settling that there is no unconstitutional discrimination against citizens of other States in confining the deduction of expenses, losses, etc., in the case of non-resident taxpayers, to such as are connected with income arising from sources within the taxing State). The record in Travis clarifies that many of the expenses and losses of nonresidents that New York law so limited were business-related, such as ordinary and necessary business expenses, depreciation on business assets, and depletion of natural resources, such as oil, gas, and timber. At the time that Travis was decided, New York law also allowed nonresidents a pro rata deduction for various nonbusiness expenses, such as interest paid (based on the proportion of New York source income to total income), a deduction for taxes paid (other than income taxes) to the extent those taxes were connected with New York income, and a deduction for uncompensated losses sustained in New York resulting from limited circumstances, namely nonbusiness transactions entered into for profit and casualty losses. Both residents and nonresidents were entitled to the same deduction for contributions to charitable organizations organized under the laws of New York. Tr. of Record in Travis v. Yale & Towne Mfg. Co., O. T. 1919, No. 548 (State of New York, The A, B, C of the Personal Income Tax Law, pp. 1112, 14, ¶¶42, 44 (1919)). Thus, the statutory provisions disallowing nonresidents tax deductions at issue in Travis essentially mirrored those at issue in Shaffer because they tied nonresidents deductions to their in-state activities.
Another provision of New Yorks nonresident tax law challenged in Travis did not survive scrutiny under the Privileges and Immunities Clause, however. Evincing the same concern with practical effect that animated the Shaffer decision, the Travis Court struck down a provision that denied only nonresidents an exemption from tax on a certain threshold of income, even though New York law allowed nonresidents a corresponding credit against New York taxes in the event that they paid resident income taxes in some other State providing a similar credit to New York residents. The Court rejected the argument that the rule was a case of occasional or accidental inequality due to circumstances personal to the taxpayer. 252 U.S., at 80. Nor was denial of the exemption salvaged upon the theory that non-residents 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 [by New York] under this act, because [t]he discrimination is not conditioned upon the existence of such untaxed income; and it would be rash to assume that non-residents 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. Id., at 81. Finally, the Court rejected as speculative and constitutionally unsound the argument that States adjoining New York could adopt an income tax, in which event, injustice to their citizens on the part of New York could be avoided by providing similar exemptions similarly conditioned. Id., at 82.
In Austin, a more recent decision reviewing a States taxation of nonresidents, we considered a commuter tax imposed by New Hampshire, the effect of which was to tax only nonresidents working in that State. The Court described its previous decisions, including Shaffer and Travis, as establishing a rule of substantial equality of treatment for the citizens of the taxing State and nonresident taxpayers, under which New Hampshires one-sided tax failed. 420 U.S., at 665.
Travis and Austin make clear that the Privileges and Immunities Clause prohibits a State from denying nonresidents a general tax exemption provided to residents, while Shaffer and Travis establish that States may limit nonresidents deductions of business expenses and nonbusiness deductions based on the relationship between those expenses and in-state property or income. While the latter decisions provide States a considerable amount of leeway in aligning the tax burden of nonresidents to in-state activities, neither they nor Austin can be fairly read as holding that the Privileges and Immunities Clause permits States to categorically deny personal deductions to a nonresident taxpayer, without a substantial justification for the difference in treatment.
III
In this case, New York acknowledges the right of nonresidents to pursue their livelihood on terms of substantial equality with residents. There is no question that the issue presented in this case is likely to affect many individuals, given the fact that it is common for nonresidents to enter New York City to pursue their livelihood, it being a matter of common knowledge that from necessity, due to the geographical situation of [New York City], in close proximity to the neighboring States, many thousands of men and women, residents and citizens of those States, go daily from their homes to the city and earn their livelihood there. Travis, 252 U.S., at 80. In attempting to justify the discrimination against nonresidents effected by §631(b)(6), respondents assert that because the State only has jurisdiction over nonresidents in-state activities, its limitation on nonresidents deduction of alimony payments is valid. Invoking Shaffer and Travis, the State maintains that it should not be required to consider expenses wholly linked to personal activities outside New York. Brief for Respondent Commissioner of Taxation and Finance 24. We must consider whether that assertion suffices to substantially justify the challenged statute.
A
Looking first at the rationale the New York Court of Appeals adopted in upholding §631(b)(6), we do not find in the courts decision any reasonable explanation or substantial justification for the discriminatory provision. Although the court purported to apply the two-part inquiry derived from Toomer and Piper, in the end, the justification for §631(b)(6) was based on rationales borrowed from another case, Goodwin v. State Tax Commn, 286 App. Div. 694, 146 N. Y. S. 2d 172 (1955), aff
There is no analogous provision in §631(b)(6), which plainly limits nonresidents deduction of alimony payments, irrespective of whether those payments might somehow relate to New York-source income. Although the Goodwin courts rationale concerning New Yorks disallowance of nonresidents deduction of life insurance premiums and medical expenses assumed that such expenses, made by [the taxpayer] in the course of his personal activities must be regarded as having taken place in the state of his residence, id., at 70, 146 N. Y. S. 2d, at 180, the court also found that those expenses embodie[d] a governmental policy designed to serve a legitimate social end, ibid., namely to encourage [New York] citizens to obtain life insurance protection and to help [New York] citizens bear the burden of an extraordinary illness or accident, id., at 700, 146 N. Y. S. 2d, at 179.
In this case, the New York Court of Appeals similarly described petitioners alimony expenses as wholly linked to personal activities outside the State, but did not articulate any policy basis for §631(b)(6), save a reference in its discussion of petitioners Equal Protection Clause claim to the States policy of taxing only those gains realized and losses incurred by a nonresident in New York, while taxing residents on all income. 89 N. Y. 2d, at 291, 675 N. E. 2d, at 821. Quite possibly, no other policy basis for §631(b)(6) exists, given that, at the time Goodwin was decided, New York appears to have allowed nonresidents a deduction for alimony paid as long as the recipient was a New York resident required to include the alimony in income. See N. Y. Tax Law §360(17) (1944). And for several years preceding §631(b)(6)s enactment, New York law permitted nonresidents to claim a pro rata deduction of alimony paid regardless of the recipients residence. See Friedsam, 64 N. Y. 2d, at 8182, 473 N. E. 2d, at 1184 (interpreting N. Y. Tax Law §635(c)(1) (1961)).
In its reliance on Goodwin, the New York Court of Appeals also failed to account for the fact that, through its broad 1987 tax reforms, New York adopted a new system of nonresident taxation that ties the income tax liability of nonresidents to the tax that they would have paid if they were residents. Indeed, a nonresidents as if
We also take little comfort in the fact, noted by the New York Court of Appeals, that §631(b)(6) does not deny nonresidents all benefit of the alimony deduction because that deduction is included in federal adjusted gross income, one of the components in the nonresidents computation of his New York tax liability. See id., at 290291, 675 N. E. 2d, at 821. That finding seems contrary to the impression of New Yorks Commissioner of Taxation and Finance as expressed in an advisory opinion, In re Rosenblatt, 19891990 Transfer Binder, CCH N. Y. Tax Rep. ¶252998, p. 17,969 (Jan. 18, 1990), in which the Commissioner explained that [t]he effect of [§631(b)(6)s] allowance of the [alimony] deduction in the . . . denominator and disallowance in the numerator is that Petitioner cannot get the benefit of a proportional deduction of the alimony payments made to his spouse. In any event, respondents have never argued to this Court that §631(b)(6) effects anything other than a denial of nonresidents alimony deductions. Though the inclusion of the alimony deduction in a nonresidents federal adjusted gross income reduces the nonresidents as if
In summarizing its holding, the New York Court of Appeals explained that, because there can be no serious argument that petitioners alimony deductions are legitimate business expenses[
B
Turning to respondents arguments to this Court, as an initial matter, we reject the States suggestion that this Courts summary dismissals in several other cases should be dispositive of the question presented in this case. See Brief for Respondent Commissioner of Taxation and Finance 1516, n. 8.3 Although we have noted that [o]ur summary dismissals are to be taken as rulings on the merits in the sense that they rejected the specific challenges presented and left undisturbed the judgment appealed from, we have also explained that they do not have the same precedential value as does an opinion of this Court after briefing and oral argument on the merits. Washington v. Confederated Bands and Tribes of Yakima Nation, 439 U.S. 463, 477, n. 20 (1979) (citations and internal quotation marks omitted). It is not at all unusual for the Court to find it appropriate to give full consideration to a question that has been the subject of previous summary action, ibid., particularly where, as here, other courts have arrived at dissimilar outcomes. In any event, none of the cases on which the State relies involved the unique problem presented here, the complete denial of deductions for nonresidents alimony payments.
In the context of New Yorks overall scheme of nonresident taxation, §631(b)(6) is an anomaly. New York tax law currently permits nonresidents to avail themselves of what amounts to a pro rata deduction for other tax-deductible personal expenses besides alimony. Before 1987, New York law also allowed nonresidents to deduct a pro rata share of alimony payments. The New York State Tax Commissioners advisory opinion in In re Rosenblatt indicates that §631(b)(6) may have been intended to overrule Friedsam. See In re Rosenblatt, supra, ¶252998, at 17,969 (Section 631(b)(6) specifically reversed Friedson [sic] v. State Tax Commission, 64 N. Y. 2d 76 (1984), which had allowed an alimony deduction to a nonresident according to the formula for allocation of itemized deductions by the nonresident). Certainly, as the New York Court of Appeals found, §631(b)(6) had the effect of removing [the] impairment imposed by Friedsam, 89 N. Y. 2d, at 290, 675 N. E. 2d, at 821, thereby implying a disavowal of the States previous policy of substantial equality between residents and nonresidents.
The policy expressed in Friedsam, which acknowledged the principles of equality and fairness underlying the Privileges and Immunities Clause, was not merely an impairment, however. Although the State has considerable freedom to establish and adjust its tax policy respecting nonresidents, the end results must, of course, comply with the Federal Constitution, and any provision imposing disparate taxation upon nonresidents must be appropriately justified. As this Court has explained, where the power to tax is not unlimited, validity is not established by the mere imposition of a tax. Mullaney v. Anderson, 342 U.S. 415, 418 (1952).
To justify §631(b)(6), the State refers to a statement, presented in 1959 by New Yorks then-Commissioner of Taxation and Finance before a Subcommittee of the House Judiciary Committee. In that statement, the Commissioner explained,
Moreover, to the extent that the cited testimony suggests that no circumstances exist under which a States denial of personal deductions to nonresidents could be constrained, we reject its premise. Certainly, as the Court found in Travis, 252 U.S., at 7980, nonresidents must be allowed tax exemptions in parity with residents. And the most that the Court has suggested regarding nonresidents nonbusiness expenses is that their deduction may be limited to the proportion of those expenses rationally related to in-state income or activities. See Shaffer, 252 U.S., at 5657.
As a practical matter, the Courts interpretation of the Privileges and Immunities Clause in Travis and Shaffer implies that States may effectively limit nonresidents deduction of certain personal expenses based on a reason as simple as the fact that those expenses are clearly related to residence in another State. But here, §631(b)(6) does not incorporate such analysis on its face or, according to the New York Court of Appeals, through legislative history, see 89 N. Y. 2d, at 290291, 675 N. E. 2d, at 821. Moreover, there are situations in which §631(b)(6) could operate to require nonresidents to pay significantly more tax than identically situated residents. For example, if a nonresidents earnings were derived primarily from New York sources, the effect of §631(b)(6) could be to raise the tax apportionment percentage above 100%, thereby requiring that individual to pay more tax than an identically situated resident, solely because of the disallowed alimony deduction. Under certain circumstances, the taxpayer could even be liable for New York taxes approaching or even exceeding net income.
There is no doubt that similar circumstances could arise respecting the apportionment for tax purposes of income or expenses based on in-state activities without a violation of the Privileges and Immunities Clause. Such was the case in Shaffer, despite the petitioners attempt to argue that he should be allowed to offset net business income taxed by Oklahoma with business losses incurred in other States. See 252 U.S., at 57. It is one thing, however, for an anomalous situation to arise because an individual has greater profits from business activities or property owned in one particular State than in another. An entirely different situation is presented by a facially inequitable and essentially unsubstantiated taxing scheme that denies only nonresidents a tax deduction for alimony payments, which while surely a personal matter, see United States v. Gilmore, 372 U.S. 39, 44 (1963), arguably bear some relationship to a taxpayers overall earnings. Alimony payments also differ from other types of personal deductions, such as mortgage interest and property tax payments, whose situs can be determined based on the location of the underlying property. Thus, unlike the expenses discussed in Shaffer, alimony payments can not be so easily characterized as losses elsewhere incurred. 252 U.S., at 57. Rather, alimony payments reflect an obligation of some duration that is determined in large measure by an individuals income generally, wherever it is earned. The alimony obligation may be of a personal nature, but it cannot be viewed as geographically fixed in the manner that other expenses, such as business losses, mortgage interest payments, or real estate taxes, might be.
Accordingly, contrary to the dissents suggestion, post, at 7, 13, we do not propose that States are required to allow nonresidents a deduction for all manner of personal expenses, such as taxes paid to other States or mortgage interest relating to an out-of-State residence. Nor do we imply that States invariably must provide to nonresidents the same manner of tax credits available to residents. Our precedent allows States to adopt justified and reasonable distinctions between residents and nonresidents in the provision of tax benefits, whether in the form of tax deductions or tax credits. In this case, however, we are not satisfied by the States argument that it need not consider the impact of disallowing nonresidents a deduction for alimony paid merely because alimony expenses are personal in nature, particularly in light of the inequities that could result when a nonresident with alimony obligations derives nearly all of her income from New York, a scenario that may be typical, see Travis, 252 U.S., at 80. By requiring nonresidents to pay more tax than similarly situated residents solely on the basis of whether or not the nonresidents are liable for alimony payments, §631(b)(6) violates the rule of substantial equality of treatment this Court described in Austin, 420 U.S., at 665.
C
Respondents also propose that §631(b)(6) is consistent with New Yorks taxation of families generally. Brief for Respondent Commissioner of Taxation and Finance 1415. It has been suggested that one purpose of New Yorks 1987 tax law changes was to adopt a regime of income splitting, under which each spouse in a marital relationship is taxed on an equal share of the total income from the marital unit. Ibid. (citing McIntyre & Pomp, State Income Tax Treatment of Residents and Nonresidents Under the Privileges and Immunities Clause, 13 State Tax Notes 245, 249 (1997)). A similar effect is achieved in the case of marital dissolution by allowing the payer of alimony to exclude the payment from income and requiring the recipient to report a corresponding increase in income. Such treatment accords with provisions adopted in 1942 by the Federal Government as a means of adjusting tax burdens on alimony payers who, without a deduction for alimony paid, could face a tax liability greater than their remaining income after payment of alimony. See Committee Report, Revenue Act of 1942, 19422 C. B. 409.
In the federal system, when one resident taxpayer pays alimony to another, the payers alimony deduction is offset by the alimony income reported by the recipient, leading to parity in the allocation of the overall tax burden. Section 631(b)(6), however, disallows nonresidents entire alimony expenses with no consideration given to whether New York income tax will be paid by the recipients. Respondents explain that such concerns are simply irrelevant to New Yorks taxation of nonresidents, because [e]xtending the benefit of income splitting to nonresidents is inappropriate on tax policy grounds because nonresidents are taxed by New York on only a slice of their incomethat derived from New York sources. Brief for Respondent Commissioner of Taxation and Finance 15. Such analysis, however, begs the question whether there is a substantial reason for the difference in treatment, and is therefore not appreciably distinct from the States assertion that no such justification is required because §631(b)(6) does not concern business expenses.
Indeed, we fail to see how New Yorks disregard for the residence of the alimony recipient does anything more than point out potential inequities in the operation of §631(b)(6). Certainly, the concept of income splitting works when both former spouses are residents of the same State, because one spouse receives a tax deduction corresponding to the others reported income, thereby making the state treasury whole (after adjustment for differences in the spouses respective tax rates). The scheme also results in an equivalent allocation of total tax liability when one spouse is no longer a resident of the same State, because each spouse retains the burden of paying resident income taxes due to his or her own State on their share of the split income. The benefit of income splitting disappears, however, when a State in which neither spouse resides essentially imposes a surtax on the alimony, such as the tax increase New York imposes through §631(b)(6). And, at the extreme, when a New York resident receives alimony payments from a nonresident New York taxpayer, §631(b)(6) results in a double-taxation windfall for the State: the recipient pays taxes on the alimony but the nonresident payer is denied any deduction. Although such treatment may accord with the Federal Governments treatment of taxpayers who are nonresident aliens, see 26 U.S.C. § 872 and 873, the reasonableness of such a scheme on a national level is a different issue that does not implicate the Privileges and Immunities Clause guarantee that individuals may migrate between States to live and work.
D
Finally, several States, as amici for respondents, assert that §631(b)(6) could not have any more than a de minimis effect on the run-of-the-mill taxpayer or comity among the States, because States imposing an income tax typically provide a deduction or credit to their residents for income taxes paid to other States. Brief for State of Ohio et al. 8. Accordingly, their argument runs, [a]ll things being equal the taxpayer would pay roughly the same total tax in the two States, the only difference being that [the taxpayers resident State] would get more and New York less of the revenue. Ibid. There is no basis for such an assertion in the record before us. In fact, in the year in question, Connecticut imposed no income tax on petitioners earned income. Reply Brief for Petitioners 4, n. 1. Nor, we may add, can the constitutionality of one States statutes affecting nonresidents depend upon the present configuration of the statutes of another State. Austin, 420 U.S., at 668; see also Travis, 252 U.S., at 8182.
IV
In sum, we find that the States inability to tax a nonresidents entire income is not sufficient, in and of itself, to justify the discrimination imposed by §631(b)(6). While States have considerable discretion in formulating their income tax laws, that power must be exercised within the limits of the Federal Constitution. Tax provisions imposing discriminatory treatment on nonresident individuals must be reasonable in effect and based on a substantial justification other than the fact of nonresidence.
Although the Privileges and Immunities Clause does not prevent States from requiring nonresidents to allocate income and deductions based on their in-state activities in the manner described in Shaffer and Travis, those opinions do not automatically guarantee that a State may disallow nonresident taxpayers every manner of nonbusiness deduction on the assumption that such amounts are inevitably allocable to the State in which the taxpayer resides. Alimony obligations are unlike other expenses that can be related to activities conducted in a particular State or property held there. And as a personal obligation that generally correlates with a taxpayers total income or wealth, alimony bears some relationship to earnings regardless of their source. Further, the manner in which New York taxes nonresidents, based on an allocation of an as if
Under the circumstances, we find that respondents have not presented a substantial justification for the categorical denial of alimony deductions to nonresidents. The States failure to provide more than a cursory justification for §631(b)(6) smacks of an effort to penaliz[e] the citizens of other States by subjecting them to heavier taxation merely because they are such citizens, Toomer, 334 U.S., at 408 (Frankfurter, J., concurring). We thus hold that §631(b)(6) is an unwarranted denial to the citizens of other States of the privileges and immunities enjoyed by the citizens of New York.
Accordingly, the decision of the New York Court of Appeals is reversed and remanded for proceedings not inconsistent with this opinion.
Notes
1. Section 631(b)(6) provides that [t]he deduction allowed by section two hundred fifteen of the internal revenue code, relating to alimony, shall not constitute a deduction derived from New York sources.
2. See, e.g., 1990 IT203I, Instructions for Form IT203, Nonresident and Part-Year Resident Income Tax Return (To figure your income percentage, divide the amount in the New York State Amount column by the amount in the Federal Amount column . If the amount in the New York State Amount column is more than the amount in the Federal Amount column, the income percentage will be more than 100%).
3. See Goodwin v. State Tax Commn, 286 App. Div. 694, 146 N. Y. S. 2d 172, aff d, 1 N. Y. 2d 680, 133 N. E. 2d 711 (1955) (involving States denial of deductions not related to in-state activities, including medical expenses and life insurance premiums), appeal dismd, 352 U.S. 805 (1956); see also Lung v. OChesky, 94 N. M. 802, 617 P.2d 1317 (1980) (involving States denial of grocery and medical tax rebates to nonresidents), appeal dismd, 450 U.S. 961 (1981); Rubin v. Glaser, 83 N. J. 299, 416 A. 2d 382 (involving States limitation of homestead tax rebate to principal residences of residents), appeal dismd, 449 U.S. 977 (1980); Davis v. Franchise Tax Board, 71 Cal. App. 3d 998, 139 Cal. Rptr. 797 (1977) (involving States denial of income averaging method of tax computation to nonresidents), appeal dismd, 434 U.S. 1055 (1978); Wilson v. Department of Revenue, 267 Ore. 103, 514 P.2d 1334 (1973) (involving States limitation of nonresidents deductions to those connected with in-state income), appeal dismd, 416 U.S. 964 (1974); Anderson v. Tiemann, 182 Neb. 393, 155 N. W. 2d 322 (1967) (involving States denial of food sales tax credit to nonresidents), appeal dismd, 390 U.S. 714 (1968); Berry v. State Tax Commn, 241 Ore. 580, 397 P.2d 780 (1964) (involving States limitation of nonresidents personal deductions to those connected with in-state income), appeal dismd, 382 U.S. 16 (1965).
4. See 1943 N. Y. Laws, ch. 245, §3 (alimony deductions allowed only when recipient is subject to New York tax); 1944 N. Y. Laws, ch. 333, §2 (alimony deduction allowed to all residents and to nonresidents only if recipient is subject to New York tax); 1961 N. Y. Laws, ch. 68, §1 (itemized deductions, including alimony, generally allowed to nonresidents in proportion to New York source income).