AUSTIN v. NEW HAMPSHIRE
Legal provision: Article 4, Section 2, Paragraph 1: Privileges and Immunities Clause
Argument of Charles G. Cleaveland
Chief Justice Warren E. Burger: We’ll hear arguments next in 73-2060, Austin against New Hampshire.
Mr. Charles G. Cleaveland: Mr. Chief Justice.
Chief Justice Warren E. Burger: Yes.
Mr. Charles G. Cleaveland: If I may, I do not have reply argument, but Mr. Roddick advised me that I should speak to you concerning our reply brief because this case was accelerated, we would request permission to file our reply brief following argument.
Chief Justice Warren E. Burger: You may do so and of course you'll serve it in the usual course on your friend.
Mr. Charles G. Cleaveland: Certainly, thank you.
Chief Justice Warren E. Burger: Very well.
We’ll wait for a moment counsel.
We’ll wait for a moment until the room gets a little quiet here.
I think perhaps we can proceed now, Mr. Smith whenever you’re ready.
Argument of Charles W. Smith
Mr. Charles W. Smith: Mr. Chief Justice and may it please the Court.
This case arose out of a petition for a declaratory judgment brought by a three Maine citizens and residents against the State of New Hampshire and the taxing authorities of that state, questioning the constitutional validity of the so-called Commuters Income Tax in that state, both and the -- they say -- said it was a violation of the United States Constitution and a violation of the constitutional provisions of the State of New Hampshire.
It was reported as a -- what they call in the State of New Hampshire a reserved case to the Supreme Court of that state and that Court found that the petitioners had standing that the vehicle for getting there, the declaratory judgment method was a proper vehicle, but denied the relief requested and as a result, it comes before this Court on appeal from that decision.
There are two constitutional issues which are raised in the case, one is that the New Hampshire statute is violative of the Privileges and Immunity Clause of Article 4, Section 2 of the Constitution of the United States and of the Fourteenth Amendment, Equal Protection Clause in that amendment.
Justice Harry A. Blackmun: Mr. Smith, before you get in to that, if you prevail here what do you gain?
Mr. Charles W. Smith: If we prevail here, I presume that what our people gain is the payment of tax in their own state.
We get to a question I think that you’re raising, may it please the Court, the question of standing which is a corollary issue in this case which I’ll come to --
Justice Harry A. Blackmun: Well, I’m not all worried about the first -- about the question standing, but aren’t you asking whom they to pay the same tax dollar in the State of Maine rather than the State of New Hampshire?
Mr. Charles W. Smith: Yes, but we’re asking --
Justice Harry A. Blackmun: Therefore --
Mr. Charles W. Smith: -- that they pay the same tax dollar to the State of Maine rather than the State of New Hampshire because they would get the benefits of the payment of that tax dollar in the State of Maine that they do not get in the State of New Hampshire, may it please the Court.
Justice Harry A. Blackmun: You say the legislative decision by the Maine legislature?
Mr. Charles W. Smith: Would you repeat the question, may it please the Court, so that I’ll understand it.
Justice Harry A. Blackmun: Isn’t that a decision that the Maine legislature itself has made?
Mr. Charles W. Smith: I do not believe that that’s a question of the Maine legislature and I think we get into what the Privileges and Immunities Clause was designed to prevent, we get into what we call retaliatory legislation.
If one states tax to retaliate against another state because of the taxing statutes to that particular state, may it please the Court.
Justice Harry A. Blackmun: But hasn’t the Maine statute in effect provided and recognized the propriety of this payment to the State of New Hampshire?
Mr. Charles W. Smith: I do not believe that the Maine statute or the legislature has recognized the propriety of the payment in New Hampshire.
Simply the Maine statute as most income tax statutes, most state income tax statutes gives a credit, may it please the Court, to taxes paid in -- on income and other jurisdictions in the State of Maine, they give it against the Maine tax and that is --
Justice William J. Brennan: Retaliatory deduction upon a credit or a deduction?
Mr. Charles W. Smith: It’s a credit against the tax.
Justice William J. Brennan: Yes.
Justice Harry A. Blackmun: And I guess another way to phrase my question if whether this isn’t just a lawyer's lawsuit?[Attempt to Laughter]
Mr. Charles W. Smith: No, I think these people feel very strongly about this and this is why we are in this Court.
Justice Harry A. Blackmun: Well, the taxpayers may, but their legislature has permitted it by --
Mr. Charles W. Smith: Their legislature, I am sure their legislature could change it by doing a way with the credit and then we get in to all the retaliatory legislative processes against one state against another which this Court has said, the Privileges and Immunities Clause was designed to prevent.
Justice William H. Rehnquist: Of course their legislature too might feel that even though they could exact full measure of the Maine tax, there would be an element of unfairness in the eyes of that legislature to this particular solution?
Mr. Charles W. Smith: I’m suppose -- I presume that that’s the excessive reasoning or rational behind it, may it please the Court.
We get to --
Justice Harry A. Blackmun: Now, we end up with a proposition however that if you prevail here your clients are out the same amount of dollars?
Mr. Charles W. Smith: They’re out the same amount of dollars but they’re going to have those amounts of dollars spent in their state under the provisions of this statute where they receive the benefits of those amounts of dollars spent.
Either in -- by a way of reduction of taxation in their state because of an additional amount of income in their state or by the benefit of the services that they can receive.
Justice Harry A. Blackmun: Then the answer to that is that the Maine legislature, if it chooses to do that can change its statute?
Mr. Charles W. Smith: If it changes its statute, it’s that -- it could stay -- it could simply do a way with the credit.
And then of course as Mr. Justice Rehnquist just pointed out, it would impose an additional burden on all of the Maine taxpayers that are working out of that state and again having income tax imposed -- in other words they’d be double -- subject to double taxation which now have failed.
Justice Harry A. Blackmun: A routine that has to go over the country?
Mr. Charles W. Smith: We have double taxation, I will agree to that, but I think that that would be one of the impositions that results.
The State of New Hampshire has raised before this Court the question of standing and we would say that we answer that very simply, we advanced it in our brief but we say that this is the case of a taxpayer which is questioning the imposition of a tax or question the statute which imposes a tax upon the taxpayer and not to question that is so often come before this Court of a taxpayer questioning the spending of taxpayer’s funds and we submit that that is quite a difference.
We feel that the taxpayer always has a right to challenge the constitutional validity of a statute under which he is taxed.
And we think that we have precedent in this Court.
In the Allied Stores case, which is cited in our brief, which was an Ohio case which is similar in almost all respects except that that was not an income tax, it was an Ad Velorem tax in that case and the very question I think that was raised a moment ago here by the Court was decided in that case.
That was a case where Allied Stores of Ohio was a resident corporation and they were taxed on merchandise and storage under the provisions of the Ohio statute, merchandise that were kept in storage by non-residents that were not taxed, under the equal protection clause, they brought it to this Court.
They brought it to this Court after the Supreme Court of the State of Ohio had denied standing saying that it didn’t make any difference to the taxpayer in that case that if they struck out that proviso as to the non-resident proviso that nevertheless they would be subject to the same amount of tax and this Court said that they had standing to raise the issue and then went on and decided the constitutional issues in the case.
We say that we are in exactly at the same standing.
We say also that we have a -- was subject to injury under the statute because the petitioners here, the appellants in this case as I have pointed out would get the benefit of their tax dollar in the State of Maine or reduction of taxes in the State of Maine if their tax dollar was retained by that state.
I think we have to understand the background of standing as we are talking about it, we have to understand something about the New Hampshire statute.
The New Hampshire statute does not tax the income of the residents of New Hampshire in that state.
It pretends to tax the income of New Hampshire residents working in another state, but I say, I use the word pretend because they make two exemptions which literally destroys the taxation provision because they make the first exemption that if the other state imposes a tax, then that New Hampshire resident is not subject to a income tax in the State of New Hampshire.
And if the other state does not impose a tax on income, then likewise, the New Hampshire resident is not subject to a tax in the State of New Hampshire.
So that under no conceivable condition can a New Hampshire resident be taxed on his income in the State of New Hampshire.
This tax is only imposed, this income tax is only imposed against non-residents.
It's a flat 4% tax in excess for the first $2,000.00 of income or stated in other way, the $2,000.00 exempt and it’s a flat 4%, then they adjust the tax.
They say that if in the state of none resident, the tax would be less -- lesser, then they impose the lesser tax.
Justice Harry A. Blackmun: In that respect Mr. Smith, suppose that Maine didn’t have an income tax at all, would that mean that New Hampshire --
Mr. Charles W. Smith: They would pay no tax in the State of New Hampshire.
Justice William J. Brennan: They would what?
Mr. Charles W. Smith: They would pay no tax.
Justice William J. Brennan: Pay no tax.
Mr. Charles W. Smith: In the State of New Hampshire.
Theoretically under the law, they would pay a tax, but they would get it back, but that’s not the way they work in practical effect in the State of New Hampshire.
They pay no tax if they -- if Maine had no income tax in the State of Maine, they would -- there would be no income tax imposed.
Justice William H. Rehnquist: Your statement then as to the effect to that purported tax on New Hampshire residents earning income out of the state that it simply categorically doesn’t effect a single person in that class?
It’s really --
Mr. Charles W. Smith: I would have to make that categorical statement, I can’t conceive of any condition.
Justice William H. Rehnquist: A gimmick in other words.
Justice William J. Brennan: It's a sham.[Attempt to Laughter]
Mr. Charles W. Smith: It’s a sham, it’s exactly what I say, I said it was a pretends but that’s exactly what I say.
I can’t conceive of any condition where a New Hampshire resident working out of state is going to be taxed on his income in the State of New Hampshire, no possible way.
And it is because of this credit and because of the -- that the State of New Hampshire says, if the petitioners do not have standing, I think I’ve covered that fairly well as I go along here both from the point of view of prior pronouncements of this Court and of the pocketbook issue.
I would point out one other thing that as the result of this New Hampshire statute, non-residents of the State of New Hampshire, working in New Hampshire of course are subject to criminal penalties under the income tax law whereas the residents of New Hampshire are not subject to any penalties at all in this respect.
They raise one other question which it’s a corollary issue and I think that I should address just a moment of my time to that.
And that is that we have no overcome the presumption of constitutionality of the statute, of the taxing statute in the State of New Hampshire and we say that that presumption disappears, recognizing that there is a presumption of constitutionality, we say that that presumption disappears.
First of all because this Court has said in the Mullaney case cited in our brief that the mere imposition of the tax does not constitute that the statute is a valid statute.
And secondly, because of what this Court said in the case of Bailey versus Drexel Furniture Company, that’s a case not cited in my brief and I timely gave this case to counsel for the State of New Hampshire, found in 259 US 20 which was --
Unknown Speaker: 259?
Mr. Charles W. Smith: 259 US 20, may it please the Court.
Unknown Speaker: Thank you.
Mr. Charles W. Smith: This was a case of a child labor tax and it was a federal statute rather than a state statute that was in question and this Court said but I say that that -- I cannot say that that makes any difference, and this Court said, the presumption of validity cannot prevail because proof of the contrary is found on the very face of its provisions.
In other words, in that case they said, on the face of that statute itself, it is unconstitutional on the face of the provisions of the statute, and therefore, it cannot prevail.
Getting down to the matter of the constitutional invalidity and the two questions that I mentioned, the two issues that I mentioned a moment ago, I think that the State of New Hampshire, the appellees in this case, misread the case of Shaffer versus Carter on which they seem to bottom their argument that their tax is within constitutional limits.
In that case, there was two cases decided at the same term to this Court, that case and the Travis versus Yale & Towne Manufacturing Company case, and in that case, which was an Oklahoma case, it established only that a state might impose an income tax on non-residents, that was the thrust of -- main thrust to that case.
But in that case, Oklahoma also had an income tax against its residents, and the burden was not more onerous on non-residents than it was upon residents and I think that that is the complete thrust to that case as I have read it.
They went in to some other matters but I think that’s the thrust of it because at the same time with that Court, we came down with the case of Travis versus Yale & Towne Manufacturing Company which was the New York statute was in question and I’m sure this Court is familiar with the case decided in our brief, where non-residents were not granted the same exemption as residents.
And in that case they said that there was not -- that this was a violation of the Privileges and Immunities Clause of the United States that they were not granted, non-residents working in that state were not granted --
Justice William J. Brennan: Was that Yale & Towne?
Mr. Charles W. Smith: Yale & Towne, were not granted the same privileges as the taxpayer in the State of New York, the resident taxpayer in the State of New York.
This statute is not --
Chief Justice Warren E. Burger: Let me back -- let me back up a little bit Mr. Smith?
Mr. Charles W. Smith: Sure.
Chief Justice Warren E. Burger: You, at least I thought you’ve said earlier that Maine residents are subject to criminal penalties in New Hampshire if they work there and don’t pay their taxes, but that for the non-payment of the same kind of a tax by a New Hampshire men in New Hampshire is only subject to civil penalties?
Mr. Charles W. Smith: New Hampshire doesn’t have a tax, so that New Hampshire residents could not to any conditions may be subject to a tax.
Chief Justice Warren E. Burger: Well then I did misunderstand you.
Mr. Charles W. Smith: Yes, I’m sorry.
I -- New Hampshire does not impose a tax upon its residents of any kind and therefore there could be no criminal penalties against any resident of the State of New Hampshire.
Chief Justice Warren E. Burger: Now, as to that point, what provision of the Constitution do you say that offense?
Mr. Charles W. Smith: I say that that only goes, I have only pointing that out on the question standing, may it please the Court.
I didn’t go to constitutional --
Chief Justice Warren E. Burger: But you think it offends any other provisions of the Constitution?
Mr. Charles W. Smith: I presume that it does, but I’m not a -- I have to tell you sir that I’m not a constitutional lawyer, but I would suspect that it would offend both the Privileges and Immunities Clause and the Equal Protection Clause.
Justice William J. Brennan: You got here, you’re doing alright?[Attempt to Laughter]
Chief Justice Warren E. Burger: Yes, but we know the case, it's usually a constitutional lawyer who’s set up something to persuade us to hear it, but to pursue that a moment, the equal protection clause is at least one of the candidates that might be violated by this provision?
Mr. Charles W. Smith: We say so.
This is our argument, may it please the Court --
Chief Justice Warren E. Burger: Under New Hampshire?
Mr. Charles W. Smith: -- because first of all, it doesn’t -- it’s -- we have to say it’s completely arbitrary as to its classifications and that the -- has no fair or substantial relationship to the object of the legislation.
This is not by the way a statute which has dedicated revenues.
It is not a statute which says that non-residents working in the State of New Hampshire constitute some peculiar or particular source of evil as was talked about in the Toomer case which is cited in our brief.
It just goes in, the money just go into the general fund of the State of New Hampshire and they try to justify this at the New Hampshire Supreme Court by saying that its practical effect is offset because they do have a tax in the State of New Hampshire which non-residents do not participate in on an income over the sum of $600.00, but many states have that same kind of a tax and the reason that they do not tax non-residents in that kind of a -- of that time with the tax scheme would be that you would dry up capital in that particular state of falling into the State of New Hampshire and I’m sure that that can’t offset in any respect the --
Justice Harry A. Blackmun: Mr. Smith, you -- does the record show how much we are really talking about in dollars in this case?
Mr. Charles W. Smith: No, it does not.
The amicus curiae brief filed by the State of Maine and the State of Vermont indicates that we’re talking in -- as far as the State of Maine is concerned in the neighborhood for that year from 1970, because this is the first year of the law immediately attacked, of $400.00 -- $400,000.00 may it please the Court for that particular year.
What it is at the current time, I do not know.
Chief Justice Warren E. Burger: In other words, Maine loses that amount of --
Mr. Charles W. Smith: Maine loses that amount of money.
Now, my only authority for that is in the amicus curiae brief which is filed in this Court.
Now, there is one other peculiar feature about this law that I want to point out, we pointed it out in the brief, but I’d like to discuss it for just a moment.
And that is that it treats non-resident’s unequal because of this tax credit.
In other words, the State of Maine and the State of Vermont and the non-residents of the State of Massachusetts, all working at the same job contribute because of their own state statute, taxing statute contribute in different sums of money although they might have the same job, the same income, the same amount of exemptions and dependence, they would all be treated differently.
In fact the non-residents coming from a state which imposes no income tax would pay no income tax in that State of New Hampshire at all, although he’s working at the same job, getting the same income in the State of New Hampshire as other non-residents.
So that it treats among non-residents, it treats them unequally and unfairly.
Justice William H. Rehnquist: A non-resident coming from a state which imposes no income tax would pay no New Hampshire income tax?
Mr. Charles W. Smith: That is correct, may it please the Court, no New Hampshire income tax at all.
The State of Massachusetts as a matter of fact would pay a far greater tax because of the taxing structure than the state of -- the resident of State of Maine.
We’ve set forth some illustrations in our brief, but it doesn’t even treat the class.
Justice William J. Brennan: How about Vermont residents working in New Hampshire?
Mr. Charles W. Smith: The Vermont pays a different tax and I’ve forgotten what -- whether it’s more or less.
I think it’s more than the State of Maine because I think their tax rate is --
Justice William J. Brennan: But Vermont does have an income tax?
Mr. Charles W. Smith: Yes, Vermont does have an income tax.
Justice William H. Rehnquist: Very high one.
Mr. Charles W. Smith: Very high, they -- fairly high tax and I’m sure that --
Justice William J. Brennan: As a resident of Vermont is just --
Mr. Charles W. Smith: So they would pay a tax that’s even higher than the State of Maine but it preach that the point is, that it treats all of this classification of non-residents unequally that the taxing structure itself which again we say is violative of the Privileges and Immunities Clause of the United States and again it’s violative also of the equal protection clause.
I don’t think that --
Justice Potter Stewart: On the other hand Mr. Smith, if New Hampshire did tax its own residents at this 4% rate of their income, then you would have no constitutional case at all?
Mr. Charles W. Smith: We would have no constitutional case, we wouldn’t be here -
Justice Potter Stewart: Even though with respect to non-residents, there would still be the same unequal incident?
Mr. Charles W. Smith: Well, I’m not sure --
Justice Potter Stewart: -- depending upon whether they live in Vermont, Massachusetts or Maine?
Mr. Charles W. Smith: I think perhaps -- I -- if all of the -- yes, I have to withdraw what I said.
I think we’d still have a constitutional imperfection among non-residents in that respect, although New Hampshire residents was taxed, but we do not quibble here that if all non-residents and all residents were taxed alike that we have no --
Justice Potter Stewart: Well, you’ll have no case at all?
Mr. Charles W. Smith: We’ll have no case at all but that’s not in --
Justice Potter Stewart: But even if they weren’t --
Mr. Charles W. Smith: That’s not our forum.
Justice Potter Stewart: That’s not the situation, but I’m trying to see what your constitutional attack is?
Mr. Charles W. Smith: My thought would be yes, my thought would be because you are still using non-residents -- treating non-residents unequally.
Justice Potter Stewart: Well, you’re treating -- assume there were a 4% tax on residents?
Mr. Charles W. Smith: Residents, right.
Justice Potter Stewart: -- which I know there is not but let’s assume there is and also a 4% tax on non-residents commuters to come to New Hampshire to work, but were the same provisions as still now exist, that would mean some non-residents would get a better break than others?
Mr. Charles W. Smith: That is correct.
Justice Potter Stewart: But you wouldn’t have the same constitutional attack you now have, would you?
Mr. Charles W. Smith: I think under that posture, I think we would because non-residents, if it just fell on -- an occasional burden fell on some taxpayer, on the single taxpayer, then we perhaps would have no constitutional question.
But here we have a classification of taxpayers, so that you have within your subclasses that you have an unequal treatment and I think that would be violative, certainly violative of the -- you’re taxing the brown-eyed people at one tax and you’re taxing the blue-eyed people at another tax, may it please the Court.
Justice Potter Stewart: But none of them would be taxed higher than would be residents of New Hampshire?
Mr. Charles W. Smith: No, but that wouldn’t affect in my constitutional infirmity of the tax --
Justice Potter Stewart: You have at least a not so strong an attack as you now has?
Mr. Charles W. Smith: We wouldn’t have a stronger attack that we now have.
We have -- we think the very strong attack at this time, may it please the Court.
Justice William H. Rehnquist: Your privileges and immunities argument would stand or wouldn’t it even though all non-residents were treated alike simply because of the difference in treatment between non-residents and residents?
Mr. Charles W. Smith: That is correct, may it please the Court.
That -- I think this Court has spoken several times that just residency alone, the citizenship alone as this Court has said in these cases is not a -- is an arbitrary classification and this is something more unless -- unless that group constitutes some particular or peculiar source of evil to the -- which the statute is designed to correct, may it please the Court.
Justice Byron R. White: Privileges and immunities would reach only the discrimination you say on residents and non-residents?
Mr. Charles W. Smith: That is correct.
Justice Byron R. White: And the other is an equal protection clause?
Mr. Charles W. Smith: The other is equal protection clause which will -- which only state residents can take advantage but non-residents can also take advantage off, may it please the Court.
Justice Potter Stewart: But in other words, if the tax structure of Vermont, Massachusetts and Maine were precisely the same so that the effect was precisely the same on all non-residents, nonetheless, you’d have a privilege and immunities attacked because there’s no tax at all on New Hampshire?
Mr. Charles W. Smith: That is correct, that’s right.
Justice Byron R. White: That’s the heart of your case?
Mr. Charles W. Smith: That’s the heart of our case, may it please the Court.
Justice Harry A. Blackmun: Mr. Smith, you’re familiar with the federal state tax system, aren’t you?
Mr. Charles W. Smith: I am not a state tax lawyer, we have other people in our firm to do that.
I’m familiar with it generally yes sir.
Justice Harry A. Blackmun: Well, under the federal state tax system, there is or at least used to be a credit for state inheritance, some estate taxes paid in many states because their inheritance tax would not eat up the 20% credit as to an estate tax to take up the slack and I guess I’m asking whether that doesn’t afford a precedent to precisely what New Hampshire is doing here?
Mr. Charles W. Smith: Well, I’m not sure.
There have been some decisions by this Court and I’m not familiar with all of them.
I’m not sure that that would be precisely the same question that we have here.
I -- it sounds to me as you expound the question that it would be the same, but I’m not sure that in the --
Justice Byron R. White: (Inaudible)
Mr. Charles W. Smith: I don’t think there would be in that case.
You have there the -- at most an equal protection violation.
Justice Byron R. White: Due process?
Mr. Charles W. Smith: You might have due process, right.
I have nothing further, may it please the Court, unless there some questions, thank you.
Chief Justice Warren E. Burger: Alright, you may save your remaining time for rebuttal Mr. Smith.
Rebuttal of Charles G. Cleaveland
Mr. Charles G. Cleaveland: Mr. Chief Justice and may it please the Court.
In our view, this case does not involve any novel issues of constitutional law, although it maybe said to raise some familiar principles in a new configuration.
It’s my objective here today to demonstrate that this new configuration is not an occasion for this Court to depart from those familiar principles and that a logical application of these principles compels a conclusion that the decision of the New Hampshire Supreme Court should be affirmed.
Now, the principal contention which we urge upon this Court and have set out in the brief is that the appellants suffer no injury, in fact, by the imposition of the New Hampshire commuter’s income tax.
We are asserting that this tax is in fact a balanced provision, designed to reach non-residents for a ratable contribution in support of the Government, this is the language which appeared in Shaffer v. Carter and I think is a settled principle upon which a state can tax non-residents upon income earned within its jurisdiction.
I think it appropriate to say at this point that the appellant’s description of the operation of the tax, although I’ve frankly concede that the provision which he labels a sham in fact does not reach any state resident with any tax burden.
Yet I would stop short of labeling it a sham because if you read the taxing statute in its entirety, you see that in fact a tax is imposed sticking to the strictly legal effect of the word imposed.
A tax is imposed on residents and non-residents alike.
Justice William H. Rehnquist: Mr. Cleaveland.
Mr. Charles G. Cleaveland: Yes sir.
Justice William H. Rehnquist: This Court certainly has gone a long way in saying that you can’t be absolutely equal and that some differences will be tolerated in the sort of thing.
But is there any single resident of New Hampshire that whether -- you know an existence that would pay a tax as a result of that provision?
Mr. Charles G. Cleaveland: I don’t think, no.
I think that the short answer to that Your Honor is no.
I think the counsel for the appellant’s position is correct that he can’t conceive of one, I can’t conceive of one.
The -- I think in my brief, I have attempted to analyze the language of that provision for a tax upon residents in the light in which it was intended which is to create a category of taxation.
In that light, the law of New Hampshire is of interest because we do not permit a desperate rate of taxation upon the same classification of property, that is to say we could not have a graduated income tax.
So statutes in New Hampshire tend to pay close attention to the description of the classification of the income or the classification rather of the property which in this case is income earned in a state, not of the residents of the person earning it.
The point I’m trying to make is quite simple that quite apart from the fact that the provision purporting to tax New Hampshire residents never in fact does so.
Nevertheless, the effect of that statute -- of that part of the statute is that it does not alter the tax burden of any resident.
Likewise, the taxing provisions in which reaches non-residents does not and cannot under its own terms alter the net tax burden of any nonresident and that is essentially the point I like to -- I would like to urge upon the Court in relation to the -
Justice Thurgood Marshall: But if you didn't collect from the non-residents, it's the residents that pays up, wouldn’t he?
Mr. Charles G. Cleaveland: I’m sorry Your Honor, could you rephrase --
Justice Thurgood Marshall: Where did you get the $400,000.00 that now you getting the Maine people?
Mr. Charles G. Cleaveland: There’s no question of what the statute accomplishes a diversion of revenue to New Hampshire Your Honor.
Justice Thurgood Marshall: Now, you said that it wouldn’t change the New Hampshire people, I submit it would.
They’d had to raise their tax from New Hampshire people?
Mr. Charles G. Cleaveland: Well, Your Honor, I think that would be a -- that is -- at least it’s a political decision.
I’m not certainly authorized to state but --
Justice Thurgood Marshall: All the taxpayers -- that’s political move you can make it to tax somebody else other than people that vote for you?[Attempt to Laughter]
Mr. Charles G. Cleaveland: We’ve been doing it for a long time Your Honor.
I don’t dispute that.
Justice Harry A. Blackmun: Then I come back then -- isn’t part of your answer that this is a political question which the Maine legislature has resolved?
Mr. Charles G. Cleaveland: I hasten to point that out Your Honor that would be my next point, to be sure that the -- it is a little bit awkward to see taxpayers in here urging as an injury, a loss of revenue by the State of Maine.
We are urging here that the injury which the appellants attempt to set up if there is indeed any, which is cognizable in terms if its substantiality runs to the State of Maine and not to these appellants.
Justice Byron R. White: You think Maine law would be acceptable politically or constitutionally or any other way if it said we allow credits for all the payments, all income tax payments made in other states except Vermont -- except New Hampshire?
Mr. Charles G. Cleaveland: I’m not sure that -- I think to answer the question candidly Your Honor, I think the -- if the Maine law were to be phrased in that terms, it maybe subject to a challenge, but it would certainly be -- the answer would be then that the New Hampshire law is being challenged.
Justice Byron R. White: (Voice Overlap) if that isn’t acceptable than the legislative solution requires denying that is to everybody?
Mr. Charles G. Cleaveland: I don’t think that that is the case Your Honor.
I think the Maine legislature could certainly politically take the position that we consider the New Hampshire tax to be for instance unconstitutional and in terms both for that reason and in terms of reciprocity, they could grant a credit only where the other state neglects to tax or chooses not to tax Maine residents.
That’s what reciprocity is all about.
Justice William H. Rehnquist: I think you can go back to Madison’s notes in the debates in the constitutional convention in the Privileges and Immunities Clause and find that that is just a sort of thing they had in mind that they didn’t want the states to be doing?
Mr. Charles G. Cleaveland: Well, Your Honor I think the -- I’ll bring this point up then out of order in my argument, I intended to make it last, but it’s just as appropriate now.
A recent case in New Jersey considered the New Jersey’s counterpart Fiat, that case was brought here and was recently dismissed by this Court for one of a substantial federal question.
The holding in that case out of New Jersey was in the case where a fee was assessed by the State of New Jersey on trucks operating in interstate commerce which were not registered in New Jersey, the Fee is assessed to the extent that and in the amount that state of registration of that track would tax a New Jersey truck.
And the Court went into great length and great detail in discussing the question of so called retaliatory statutes and hinted that maybe that was an inappropriate label for such a statute because in fact the effect of them is to further and encourage reciprocity and comity between states.
I think the New Hampshire statute has a considerable element of that nature to it.
In fact, Section 6 of the New Hampshire Act provides that the taxing administrator may enter into it, reciprocity agreement which -- under which we would cease to tax the nonresident from that state if they would cease to tax residents of New Hampshire working in that state.
Under that -- under those terms, since Maine now taxes New Hampshire residents, we would be in a position to say if you stop taxing New Hampshire residents, we will stop taxing Maine residents and then every body would be free to go home and tax their own people an that would be the end of that.
So I think that that’s the direct answer to your question I think Your Honor that the statute, this statute, the New Jersey statutes as illustrated in the brief filed by the State of New Jersey, all operate to encourage reciprocity.
In the mean time, I do not deny obviously that they raise revenue for the State of New Hampshire nor what I’ve suspect, New Jersey deny that they raise revenue for the State of New Jersey but the force behind them and one of the theories upon which they can be sustained is that they do encourage comity and they do encourage reciprocity.
The history of the New Jersey statute is very enlightening in that respect because it started off on the basis of reciprocity and was converted by the State of New York changing its credit arrangements.
Moving on, we suggest that the facts adduced by the brief filed by the State of Maine referred to the citizens, all the citizens of Maine and just those subject to the commuter’s income tax.
Plus it shows that even that impact, that injury if there is any, a secondary having first passed through the treasury of the State of Maine.
Now, I say that addressing the point that to the extent that there is any additional tax burden upon the residents of Maine because of the loss of revenue by the State of Maine.
It is one de minimis.
The State of Maine itself adduces the fact that of the record and in its brief that the total -- the net increase in burden for instance upon each citizen is $00.40.
I would submit that that simply does not rise to the level of injury which ought to permit this Court to overrule a taxing statute of a sovereign state on grounds for instance of equal protection or for that matter privileges and immunities.
Justice Lewis F. Powell: Mr. Cleaveland.
Mr. Charles G. Cleaveland: Yes Your Honor.
Justice Lewis F. Powell: May I ask this question?
As I understand it, New Hampshire withholds at the rate of 4%?
Mr. Charles G. Cleaveland: That’s correct Your Honor.
Justice Lewis F. Powell: And that the Maine tax has been 3%, is that correct?
Mr. Charles G. Cleaveland: I believe the tax rate in the State of Maine will float with the income, I believe it’s a graduated rate but --
Justice Lewis F. Powell: At times it’s less than the 4%?
Mr. Charles G. Cleaveland: That’s correct Your Honor, I understand the point you’re trying to illustrate.
Justice Lewis F. Powell: Right, would you concede that there is an injury where the Maine resident is -- having his taxes withheld in an amount in excess of what he might ultimately have paid in there?
Mr. Charles G. Cleaveland: The withholding of the tax creates a situation where for the moment, for the interim, the resident of Maine would have withheld in greater amount than he would ultimately have to pay in tax.
The -- that of course is wiped out in tax here when everything is adjusted.
The tax imposed will never reach 4% for -- excuse me, it may if the rate rises high enough in the State of Maine but the adjustment will be made at the end of the year.
Justice Potter Stewart: You didn’t get any interest in this?
Mr. Charles G. Cleaveland: And that -- no that’s correct Your Honor.
Justice Potter Stewart: So it’s not like that in --
Mr. Charles G. Cleaveland: The laws of the use of the money is without a doubt, it can’t be denied.
I still suggest that in these terms it’s a negligible argument.
The case of Travis v. Yale & Town --
Chief Justice Warren E. Burger: We’ll resume there at 1 o’clock.
Mr. Charles G. Cleaveland: Thank you Your Honor.[Luncheon Break]
Chief Justice Warren E. Burger: You may continue Mr. Cleaveland.
Mr. Charles G. Cleaveland: Thank you Mr. Chief Justice, may the Court please I believe I was in the middle of discussing, finishing up on the point of the withholding tax and to the extent to which that accomplished an injury, a cognizable injury to the appellants here.
I’m maintaining that it does not in that it is de minimis and it’s part of -- part and parcel of the -- what the Court in prior decisions has labeled the necessary administrative burden of collecting -- assessing and collecting a tax.
I should point out in a case of a tax upon non-residents that in fact the withholding provision is just about the only way that the state who is collecting the tax can be assured of getting it since if the cash has let out of the state, the collection then becomes an out of state proceeding and it’s very difficult.
The case of Travis v. Yale & Town stood for the proposition that the withholding arrangements would not constitute a sufficient injury to result in either a violation of privileges and immunities or a deprivation of equal protection.
Moving on, I assert that the injury which exists here by virtue of the in fact diversion of revenue is an injury which belongs to the State of Maine, to be asserted by the State of Maine if by anybody at all and that to that extent, this case brought by taxpayers is more in the nature of political question and an attempt by the taxpayers to litigate the interest of other parties.
Justice Potter Stewart: To that extent you are making that basic argument Mr. Cleaveland, you are telling us in effect that the Supreme Court of New Hampshire was wrong in finding standing because that’s the traditional and most elementary test of standing as was the plaintiff injured and you said no in this case, the plaintiff is not injured.
No injury in fact and that’s -- if there is no injury in fact, then the plaintiff is without standing and to that extent your Supreme Court was mistaken, that must be what you’re telling us?
Mr. Charles G. Cleaveland: Your right Your Honor.
I think I have the liberty here to say that I did argue against the standing of these plaintiffs in the New Hampshire Supreme Court but as noted in the -- in footnote in the Flast v. Cohen, the New Hampshire Supreme Court has one of the most liberal attitudes on standing in the country.
They will recognize the standing of just about anybody which is perhaps a reflection of the case load that they carry and I’ve noted in the brief time --
Justice Potter Stewart: (Voice Overlap) to get business of it?
Mr. Charles G. Cleaveland: I think maybe in my experience up there, this attitude is beginning to change.
But I --
Justice Potter Stewart: It’s true that as you know if you are not sure in our cases that often a state court will say under state law, you have standing and this Court will say well, you don’t have standing from our position and vice versa?
Mr. Charles G. Cleaveland: Right, I pointed that out in my brief Your Honor.
There’s no question what this Court has different standards to apply when considering the question of standing.
Just to begin with, it must consider the fact that this Court’s jurisdiction is limited by the Constitution to actual cases and controversies.
And I think that one of the elements which this Court should consider in deciding the extent to which this is really a case in which these plaintiffs have an interest is the fact that the expressions of interest in this case by other states specifically, Vermont, Maine and New Jersey, if one measure just how much an interest the states have in the outcome of this, and is again a measure of the extent to which this is really a contest between various states for the right to collect revenues.
Moving on again, I think it follows almost immediately in the wake of our contention that there is no injury in fact here that as we have been discussing, the appellants have no standing to prosecute this appeal.
Trying to condense this point slightly, I think its one book law that standing to litigate a constitutional issue requires a demonstrable injury in fact upon which the complaint maybe founded.
This requirement as I mentioned is a part and parcel of the constitutional limitation with respect to cases and controversies, but also I think reflects fundamental fact that the Constitution is not designed to settle specific disputes, but rather provides certain broad and rights and privileges.
Thus, a complaint under the Constitution is primarily a complaint about conduct which results in a deprivation or infringement of a right or privilege.
In other words, if there is no injury, there is no deprivation and the complaint should not -- a complainant, excuse me, should not be heard to say that there is.
This illustrates the extent to which in my brief I have tried to tie together the argument, that there is no injury with the argument, that there is no standing with the argument, that there is no deprivation.
In this particular circumstance, I think the whole thing turns on the question of the injury.
Chief Justice Warren E. Burger: How do you distinguish deprivation from injury, you regard then as two different things?
Mr. Charles G. Cleaveland: I think if there is a conduct, for instance an action by a state Your Honor which results in or trespasses upon a constitutional right, I think the conduct in the first place, the action by the state results in say an injury which would be say a tax burden, an increased tax burden, a disproportionate tax burden.
That results in a deprivation of the constitutional rights under certain circumstances.
I think if -- what I’m -- the negative pregnant there from, is that if there is no additional tax burden for instance, then there is no injury to that particular person which would -- could be said to result in a deprivation of a constitutional right.
I think that is the -- that's part and parcel of what standing in case in controversy arguments are all about.
Justice William H. Rehnquist: What about the case in Toomer against Witsell where South Carolina was charging a fee that to non-residents, would it have been a sufficient answer there to tell this man that if he done a shrimping in North Carolina waters if that was where he lived, he would have had to pay a fee which North Carolina charged, so he really wasn’t injured?
Mr. Charles G. Cleaveland: I think Toomer and Witsell, if I recall it correctly Your Honor, it is just a fee case, a privilege case.
And the disproportion of the assessments there was so radical as to practically wipe out any argument that there were for instance were available -- were assessed upon resident's other fees which would make the assessment uniform.
Justice William H. Rehnquist: Of course that’s on the merits, not on the standing?
Mr. Charles G. Cleaveland: Correct.
Justice William H. Rehnquist: Do you think it can be seriously maintained that the New Hampshire $10.00 residency tax or whatever else New Hampshire residents pay is really an approximate equivalent of what the other state people pay?
Mr. Charles G. Cleaveland: That’s a starting point Your Honor but this Court in prior decisions has indicated that you need not stop with simply state assessed taxes.
The proper inquiry is what is the total tax burden upon the resident used to defray the expenses of Government and Government includes both the state and municipal subdivisions.
Justice William H. Rehnquist: Well, can you make that argument here that there is rough equality?
Mr. Charles G. Cleaveland: I can -- the more I have examined this case, the more I think that argument can be made.
I think in the stance in which this case rests now, my argument is that it is conceivable that this is so.
That there is some kind of approximate balance and it is sufficiently conceivable that is -- that that is so that the plaintiff who wants to challenge this statute should have an affirmative burden to show that it is not.
Justice Byron R. White: Why don’t you do it to all out of state residents who work in New Hampshire?
Mr. Charles G. Cleaveland: We do Your Honor, if I understand your question correctly.
Justice Byron R. White: Well, not if they don’t have an income tax?
Mr. Charles G. Cleaveland: No, if the -- well, to that extent, all that reflects is a --
Justice Byron R. White: Well, you aren’t trying to tax out of staters for equivalently with in staters because you just don’t tax a lot of out of staters?
Mr. Charles G. Cleaveland: I’m not sure that there are very many out of staters who are working in New Hampshire, who are not hit by this tax.
The only instance in which an out of stater subject to a tax would escape from it is if his own state had no income tax.
Justice Byron R. White: Or it didn’t give a credit?
Justice William J. Brennan: How long do you have to earn money in the state before you start (Inaudible) how would that to be there three, four, six months to be enough?
Mr. Charles G. Cleaveland: No Your Honor, the taxable --
Justice William J. Brennan: How about Jersey residents who work summer time and sure reserve a hotel room and that New Jersey doesn’t have any tax unless if they don’t pay any (Inaudible)
Mr. Charles G. Cleaveland: That’s probably the case Your Honor.
If there are -- that situation would obtain, but this reflects not so much an invidious discrimination as it isn’t recognition by the New Hampshire legislature that where a state does not tax, it necessary -- its own citizens, it does not tax our residents, we will not tax theirs.
That is again a reciprocity argument.
It recognizes the interest in furthering reciprocity to that extent.
Justice William H. Rehnquist: Do you -- New Hampshire really borders on three states, doesn’t it?
Mr. Charles G. Cleaveland: Correct Your Honor.
Justice William H. Rehnquist: Maine, Vermont and Massachusetts, do all of those have income tax?
Mr. Charles G. Cleaveland: Yes they do Your Honor and that accounts far in a way the bulk of the taxpayers under this tax.
Justice William H. Rehnquist: Is there anything in the record that would indicate that people who do not reside in those three states may work in New Hampshire?
Mr. Charles G. Cleaveland: I don’t believe there is any data.
I could be corrected on that if my brother knows of some, but I’m not aware of any data which would indicate what proportion of the taxpayers are from other than those three states or for that matter which are not some point not being taxed.
Justice Potter Stewart: Could it be the different country, some could come from Canada presumably which is -- and might --
Mr. Charles G. Cleaveland: Presumably.
Justice Potter Stewart: -- and as my brother Brennan suggests undoubtedly there are good many people who have summer jobs in New Hampshire from other states other than the border states?
Mr. Charles G. Cleaveland: It’s my understanding Your Honor that they would be reached by the withholding provision.
In other words, they would be taxed for that part of the calendar tax year, the tax year that they worked.
I don’t think that’s a new -- to the extent any question is addressed which raises the specter of a nonresident not being taxed.
That is certainly not anything about which that nonresident can complain.
Justice Potter Stewart: No, that no part of your brother's case, is it?
Mr. Charles G. Cleaveland: No it isn’t, it isn't and moving along the --
Justice Byron R. White: What if -- correct or fill me in, assume -- what is the tax rate here, 4%?
Mr. Charles G. Cleaveland: It begins at 4% Your Honor but it is automatically reduced to whatever rate the non-residents home state would apply.
Justice Byron R. White: So it will never be higher?
Mr. Charles G. Cleaveland: Never be higher.
The -- at the end of the calendar year after the returns are filed and adjustments made and rebates issued, the tax will be precisely the same as the taxpayer would have paid to his home state in call cases and on the same earnings, of course they --
Justice William J. Brennan: There’s nothing --
Mr. Charles G. Cleaveland: Nothing in excess.
Justice William J. Brennan: -- and against representing withheld, he gets it all back?
Mr. Charles G. Cleaveland: He gets it all back if the withholding is in excess which it maybe in some cases as I have said.
Justice Byron R. White: So, he takes his money until the end of the year?
Mr. Charles G. Cleaveland: He may take it until the end of the year.
Justice Byron R. White: So at least it deprives him of the use of the money during the year?
Mr. Charles G. Cleaveland: I can’t -- may say that Your Honor.
I could say that it’s a de minimis injury.
Chief Justice Warren E. Burger: But there’s the additional injury that your friend mentioned that there’s money going out of Maine and into New Hampshire which never comes back to the State of Maine?
Mr. Charles G. Cleaveland: Which is an injury if anything to the State of Maine Your Honor.
Chief Justice Warren E. Burger: Well, who is the State of Maine except all the people in the State of Maine, particularly among the taxpayers?
Justice Byron R. White: It's stolen by the state of Maine itself?
Mr. Charles G. Cleaveland: It is given away Your Honor.
I think I have to comeback to that point.
The key to the loss of revenue on part to the State of Maine is held by the State of Maine.
It’s their credit provision Your Honor.
If the Court please --
Chief Justice Warren E. Burger: Well, the fact that it’s a revolving fund and it’s a circular process doesn’t alter all of the fact that it goes out to the hands of the taxpayer, does it?
Mr. Charles G. Cleaveland: It goes out of the hands of the taxpayer, but again that part of it is a political question.
The State of Maine could solve that problem simply by phrasing the issue directly by removing that credit then we would have without question, a controversy.
Justice William H. Rehnquist: Well then you’d be in much tougher shape to sustain your tax?
Mr. Charles G. Cleaveland: No question, we would fall immediately into an equal protection problem where we could necessarily have to get in to the business of trying to balance the relative burden of taxation.
Justice William H. Rehnquist: Or privileges and immunities?
Mr. Charles G. Cleaveland: And I think my contention is in scope to this argument that privileges and immunities and equal protection in this type of case are so closely entangled, it’s pretty much impossible to take them apart.
Justice Byron R. White: You do in fact some non-resident (Inaudible) if they work in Vermont -- they in New Hampshire?
Mr. Charles G. Cleaveland: If the principle to be applied Your Honor is that the state will not -- our state will not tax a nonresident in excess of the rate which his own state applies to him and if that happens to create an inequality among non-residents, I don’t think that rises to a prosecution.
Justice Byron R. White: Well, yeah but if it has some relevance to your argument at all, all you are trying to do is to equalize the overall tax burden between residents of New Hampshire and non-residents of New Hampshire.
If you’re trying to do that, you tax non-residents in the same way?
Mr. Charles G. Cleaveland: I’m not suggesting that we are affirmatively striving for that goal.
It’s something to which has to be approximated otherwise we have constitutional problems.
The principle objective is to do unto the non-resident taxpayer precisely as his state does under him.
The option for that state than being to cease to tax are own residents to the extent that for instance the State of Maine tries to say that our taxing their citizens at their rate is not rational for instance, how then do they justify taxing New Hampshire residents at the same rate and they in fact do to the -- I submit to the extent that the State of Maine can justify taxing New Hampshire residents at the Maine tax rate and say that that is in any way a ratable contribution to the support of Government, then to the same extent can New Hampshire say that taxing Maine residents is precisely for that purpose and to the same extent a rationale basis.
Justice Thurgood Marshall: Mr. Cleaveland, do you have any situation where two people making $20,000.00 a year are taxed on a different percentage basis other than this?
Mr. Charles G. Cleaveland: Two people, same income both in -- working in New Hampshire?
Justice Thurgood Marshall: Yeah.
Mr. Charles G. Cleaveland: If one of them came from Maine and one of them came from Massachusetts, yes they would be taxed under our tax differently.
Justice Thurgood Marshall: (Voice Overlap) situation in the world like that, where two people doing exact same job, getting exact same money are taxed differently?
Mr. Charles G. Cleaveland: I think disparate of taxation is the fact of life all over this country Your Honor.
Double taxation exists.
I’m not trying to dodge it.
Justice Thurgood Marshall: Do you know anyone where two people doing the exact same work, in exact same place with the exact same money are taxed differently?
Justice Harry A. Blackmun: Should I suggest Mr. Cleaveland that two Government employees in this city earning $20,000.00 a piece, one leaving in Maryland and one in Virginia might have different income tax obligations.
Mr. Charles G. Cleaveland: I think that’s a fair example.
Justice Thurgood Marshall: That’s assessed by two different agencies.
But I want to know where the taxing authority, a single tax of authority, taxes two people making exact the same money at different rate?
Mr. Charles G. Cleaveland: Every state Your Honor which has a graduated income tax with for instance part of the graduation of which is --
Justice Thurgood Marshall: I said they both earning 20,000?
Mr. Charles G. Cleaveland: Alright, let me finish Your Honor.
Justice Thurgood Marshall: Sure.
Mr. Charles G. Cleaveland: The part of the graduation of which involves various exemptions or deductions is going to windup taxing disparately.
Justice Thurgood Marshall: It is not the basic tax, the basic tax --
Mr. Charles G. Cleaveland: The rate -- your point is well taken Your Honor, I’m --
Justice Thurgood Marshall: So this is unique, isn't it?
I’m not saying it’s unconstitutional but at least unique.
Mr. Charles G. Cleaveland: It maybe indeed unique except I’m not sure whether the States of New Jersey is in the same situation.
Justice Thurgood Marshall: It’s no more unique than taxing everybody but the resident, it’s no more unique.
Justice Potter Stewart: The real point is that the New Hampshire resident working right along side making the same income doesn’t pay anything and that’s what make this unlike the Maine tax on non-resident, New Hampshire rights --
Mr. Charles G. Cleaveland: Precisely there is no --
Justice Potter Stewart: -- Maine imposes a tax on its own people?
Mr. Charles G. Cleaveland: The irritation which the situation creates is obvious Your Honor.
One more point and one more reason why that is properly called a political question.
If there are no more questions, I think my time is expires.
Chief Justice Warren E. Burger: Do you have anything further Mr. Smith?
Rebuttal of Charles W. Smith
Mr. Charles W. Smith: I think, unless the Court has some questions to address me, then we don’t have any rebuttal.
Chief Justice Warren E. Burger: Very well, thank you gentleman.
The case is submitted.