State Income Tax Treatment of Residents and Nonresidents Under the Privileges and Immunities Clause

Under New York law at this time, non-resident taxpayers were only permitted state income tax deductions for expenses reasonably related to income earned in the state. Residents could deduct alimony payments, but non-residents could not because such expenses were considered wholly personal. Prior to being heard by the Supreme Court, Christopher Lunding argued that New York's favorable treatment of residents over non-residents violated the Privileges and Immunities Clause.This article describes the parallels between New York's tax structure regarding alimony and that of the federal government. Section 1 explains New York's income tax system, which denies deductions to non-residents for personal expenses, but allows such deductions for residents. Section 2 provides background on the 1987 New York tax reform legislation that resulted in the current alimony rule. Section 3 details the legal issues in Lunding by analyzing the likely arguments of both parties. This section concludes by distinguishing Lunding from Austin v. New Hampshire, and determines that the New York alimony rule is reasonable and equitable to both non-residents and other states. The article concludes in Section 4 by asserting that New York's tax treatment of alimony is consistent with precedent, consistent with tax logic, and consistent with the Privileges and Immunities Clause