Austin v. New Hampshire

Background

A group of Maine residents who worked in New Hampshire during the 1970 tax year challenged New Hampshire’s Commuters Income Tax. The law taxed nonresidents’ New Hampshire income over $2,000 at 4% and required employers to withhold 4% up front. New Hampshire residents’ out-of-state income was effectively exempted by a set of rules and credits, so the tax fell largely on nonresidents. The New Hampshire Supreme Court upheld the tax, and the workers appealed to the United States Supreme Court.

Reasoning

The Court asked whether a State may single out nonresidents for heavier taxation. Relying on the Privileges and Immunities Clause of Article IV and earlier cases, the majority concluded the tax discriminated because it fell exclusively on nonresidents and was not offset by taxes residents alone paid. New Hampshire argued that credits from the workers’ home State (Maine) made the burden neutral, but the Court rejected that defense, saying a State cannot cure a discriminatory rule by depending on another State’s laws or invite retaliation by other legislatures. The Court reversed on that constitutional ground and did not decide the separate equal protection arguments.

Real world impact

The ruling invalidates New Hampshire’s commuter tax as written, protecting out-of-state workers from being taxed on wages that residents do not pay. Employers and nonresident employees will no longer be subject to the tax regime the Court found discriminatory. The decision also limits a State’s ability to justify discriminatory taxation by pointing to tax rules in other States.

Dissents or concurrances

Justice Blackmun dissented, calling the case a “noncase,” arguing the real source of any burden was Maine’s credit statute and that the appeal posed no substantial federal question.