Court of Appeals Decides Disparate Treatment of Alimony for Nonresidents Is OK
Whitehead, Roy, Yelvington, Brenda, The CPA Journal
New York allows a full deduction from gross income of alimony paid by a resident of the state [Tax Law, section 631 (b)(6)]. The State denies residents of other states any deduction for alimony from gross income earned in New York. A lawyer who lived in Connecticut., and earned substantial income in New York, challenged the law complaining that the disparate tax treatment of nonresidents violated the privileges and immunities clause of the U.S. Constitution. The privileges and immunities clause simply provides that "The citizens of each state shall be entitled to all privileges and immunities of citizens in the several states." The U.S. Supreme Court, when considering the privileges and immunities clause in tax cases, has established a rule of substantial equality of treatment for citizens of the taxing state and nonresidents. The court allows different treatment of nonresidents when a state can show a substantial reason related to a legitimate state objective (Austin v. New Hampshire, 420 U.S. 656).
The trial court found that the disparate tax treatment New York imposed on nonresidents failed the rule of substantial equality of treatment and violated the privileges and immunities clause because 1) the legislative history of the statute presented no legitimate rationale for the different treatment, and 2) the sole basis for denying the alimony deduction was whether the taxpayer was a resident or nonresident. …