## Facts

- Wilfred R. Wheeler, a New Hampshire resident, earned commission income as a salesman working in both Vermont and New Hampshire.
- For tax year 1966, Wheeler’s total commissions were $7,714.47, of which $1,928.62 (about 25%) was earned in Vermont and treated as Vermont-derived income.
- Vermont’s income tax for individuals began with federal “adjusted gross income,” applied deductions and personal exemptions to determine “Vermont taxable income,” and then applied a progressive rate schedule.
- Nonresidents computed the tax as if all taxable income were subject to Vermont tax, then multiplied that tax by a fraction equal to Vermont-derived income divided by total income.
- Wheeler argued that using total income to set the progressive rate could cause nonresidents to pay a higher effective Vermont tax on the same Vermont-source income than a resident with less total income.

## Issues

1. Whether Vermont’s nonresident tax computation method violates the Privileges and Immunities Clause (U.S. Const. art. IV, § 2) by discriminating against nonresidents.
2. Whether the method violates the Equal Protection Clause or Due Process Clause of the Fourteenth Amendment by imposing a higher effective tax on nonresidents’ Vermont-source income.

## Decision

- The Vermont Supreme Court affirmed the lower court and upheld the tax commissioner’s determination.
- The court held the nonresident computation method did not violate the Privileges and Immunities Clause, Equal Protection, or Due Process.
- The court concluded the scheme applied the same rate schedule and base computation to residents and nonresidents and used a permissible apportionment method to tax only Vermont-source income.

## Legal Principles

- A state may apply a progressive income tax structure that uses total income to determine the applicable rate while apportioning the resulting tax to the in-state portion of a nonresident’s income.
- Differential tax outcomes resulting from the interaction of progressive rates with a taxpayer’s total income are not unconstitutional discrimination when the statutory method and rate schedule apply uniformly to residents and nonresidents.
- For Due Process and Equal Protection purposes, an apportionment formula is valid if it bears a reasonable relation between the tax imposed and the taxpayer’s in-state contacts and is rationally related to legitimate governmental objectives.

## Conclusion

Vermont’s method of computing nonresident income tax—calculating tax under the progressive schedule on total taxable income and then apportioning liability by the Vermont-income ratio—was upheld as an even-handed and rational way to tax only Vermont-source income without violating federal constitutional protections.


Wheeler v. State, 249 A.2d 887 (Vt. 1969)