## Facts

- Christopher and Barbara Lunding were Connecticut residents; Christopher earned part of his income in New York and paid alimony to a former spouse who also lived in Connecticut.
- For tax year 1990, the Lundings filed a New York nonresident income tax return reporting that about 48% of Christopher’s income was attributable to New York sources.
- They claimed a New York deduction equal to 48% of alimony paid, corresponding to the portion of income New York taxed.
- New York Tax Law § 631(b)(6) provided that, for nonresidents, the federal alimony deduction “shall not constitute a deduction derived from New York sources.”
- New York’s Audit Division disallowed the claimed alimony deduction, increasing the Lundings’ New York tax liability.
- The Lundings challenged the assessment, arguing the statute discriminated against nonresidents in violation of Article IV’s Privileges and Immunities Clause.
- The New York Tax Appeals Tribunal sustained the assessment; the Appellate Division held the statute unconstitutional; the New York Court of Appeals reversed and upheld the statute.
- The U.S. Supreme Court granted certiorari.

## Issues

1. Whether New York Tax Law § 631(b)(6), which effectively denied only nonresidents a state income tax deduction for alimony paid, violated the Privileges and Immunities Clause.
2. Whether New York showed a substantial reason for the disparate treatment of nonresidents and a substantial relationship between the discrimination and the State’s asserted objectives.

## Decision

- The Supreme Court reversed the New York Court of Appeals and remanded.
- The Court held that § 631(b)(6) violated the Privileges and Immunities Clause because New York failed to show a substantial justification for denying nonresidents an alimony deduction available to residents.
- The Court treated the provision as facially discriminatory because it denied a general personal deduction to nonresidents while allowing it to residents.
- The Court rejected New York’s asserted rationales (allocation of personal expenses to the domicile state, the “personal” nature of alimony, and the structure of the nonresident tax computation) as insufficient to justify the categorical denial.

## Legal Principles

- A state law that discriminates against nonresidents concerning a protected privilege must satisfy a two-part test: (1) a substantial reason for the difference in treatment, and (2) a substantial relationship between the discrimination and the state objective.
- The Privileges and Immunities Clause prohibits a state from denying nonresidents a general tax exemption or deduction provided to residents absent adequate justification.
- A state may limit nonresident deductions to those connected to in-state income (commonly business-related expenses), but may not categorically deny a general personal deduction solely on the basis of nonresidency without substantial justification.
- Administrative design features in a tax calculation do not cure discrimination if the final tax paid still reflects denial of a deduction available to residents.

## Conclusion

The Court held that New York’s categorical denial of an alimony deduction to nonresidents, while granting the deduction to residents, lacked the substantial justification required by the Privileges and Immunities Clause, and therefore was unconstitutional.


Lunding v. N.Y. Tax Appeals Tribunal, 522 U.S. 287 (1998)