## Facts

- Pennsylvania law capped the wage tax Philadelphia could impose on nonresidents working in the city at 4.3125%.
- Philadelphia enacted an ordinance setting the wage and net profits tax at 4.3125% for nonresidents and 4.96% for residents, effective July 1, 1983.
- Kathleen Leonard, a Philadelphia resident and taxpayer, paid the higher resident rate on wages earned in Philadelphia.
- Leonard challenged the statute and ordinance as unconstitutional because similarly situated nonresident wage earners working in Philadelphia paid a lower rate.

## Issues

1. Whether a wage tax scheme that taxes Philadelphia residents at a higher rate than nonresidents working in the city violates the Pennsylvania Constitution’s Uniformity Clause.
2. Whether the same scheme violates the Equal Protection Clause of the Fourteenth Amendment.
3. Whether resident and nonresident wage earners may be treated as separate classes for wage tax purposes, permitting different rates if the classification is reasonable and the tax is uniform within each class.

## Decision

- The Supreme Court of Pennsylvania reversed the Commonwealth Court.
- The court upheld the statutory nonresident wage tax cap and the city ordinance implementing different resident and nonresident rates.
- The court held the classification between residents and nonresidents was reasonable and that the tax was uniform within each class.
- The court concluded the scheme satisfied both the Uniformity Clause and federal equal protection standards.

## Legal Principles

- Tax classifications are constitutional if they rest on a reasonable basis and are not arbitrary, and if the tax is applied uniformly within each defined class.
- In tax cases, challenges under Pennsylvania’s Uniformity Clause and the Fourteenth Amendment’s Equal Protection Clause are analyzed in the same manner.
- Residency may serve as a legitimate basis for tax classification where differential treatment rationally relates to governmental interests (including differences in political participation and municipal benefits, and maintaining competitiveness for nonresident workers).
- A rate difference between classes does not violate uniformity so long as each class is taxed uniformly and the class distinction is reasonable.

## Conclusion

The court sustained Philadelphia’s higher resident wage tax rate and the statutory cap on the nonresident rate, holding that residents and nonresidents are distinct, reasonably defined tax classes and that uniformity and equal protection are satisfied when taxation is uniform within each class and rationally related to legitimate governmental purposes.


Leonard v. Thornburgh, 489 A.2d 1349 (Pa. 1985)