Thelen, Reid & Priest L. L. P., New York City (Richard P. Swanson and Consuelo Alden Vasquez of counsel), for Thomas J. Igoe, Jr., and another, plaintiffs. Lary S. Wolf, plaintiff pro se, and Roberts & Holland L. L. P., New York City (Glenn Newman, Carolyn Joy Lee and Ann Cochran-Becchina of counsel), for Lary S. Wolf and another, plaintiffs. John J. Farmer, Jr., Attorney General of New Jersey, Trenton (Jeffrey J. Miller, Patrick DeAlmeida and Mara Narayanan of counsel), and McCarter & English, L. L. P., New York City (Michael A. Guariglia, William D. Wallach, Joseph R. Scholz and Margaret C. Wilson of counsel), for Charles Quinn and another, plaintiffs. Richard Blumenthal, Attorney General of Connecticut, Hartford (Richard K. Greenberg of counsel), and Paul, Hastings, Janofsky & Walker, L. L. P., Stamford (Charles T. Lee and Kurt W. Hansson of counsel), for State of Connecticut and others, plaintiffs. Michael D. Hess, Corporation Counsel (Gail Rubin of counsel), for City of New York and others, plaintiffs. Richard M. Weinberg, New York City, for Peter F. Vallone, as Speaker of City Council of City of New York, plaintiff. Eliot Spitzer, Attorney General, New York City (Elizabeth A. Forman, Clement J. Colucci and Arnold D. Fleischer of counsel), for defendants.

OPINION OF THE COURT

BARRY A. COZIER, J.

BACKGROUND

Plaintiffs in action Nos. 1 through 3 are residents of States other than New York, and in action No. 4, plaintiff is the State of Connecticut. Plaintiffs seek to enjoin as unconstitutional the collection of the tax imposed on nonresidents of the State of New York (the State) under Tax Law § 1305 (b) (the Commuter Tax or Commuter Tax amendment), and Model Local Law § 1 (h) (General City Law § 25-m), as amended by chapter 5 of the Laws of 1999, which was enacted into law on May 27, 1999, and takes effect on July 1, 1999. The Commuter Tax amendment renders "nonresidents" subject to the Commuter Tax by excluding from its definition residents of New York State who commute from elsewhere in the State. Thus, the Commuter Tax, which is paid to New York City's general fund, will no longer be imposed on State residents who commute to their employment in the City. Alternatively, if those portions of the amended law excluding New York State residents from the tax are ultimately declared invalid or unconstitutional, by its terms the entire Commuter Tax will be repealed and of no force or effect. (L 1999, ch 5, § 9 [2].) On May 27, 1999, Governor Pataki signed into law chapter 5 of the Laws of 1999, which amends the Commuter Tax, effective July 1, 1999, by repealing that part of the tax which is imposed on the earnings of State residents. The Commuter Tax amendment, section 2, amends the definition of "nonresident individual" contained in Model Local Law § 1 (h) (General City Law § 25-m), to read as follows: "Nonresident individual.—A nonresident individual means an individual who is not a resident of THE CITY OR THE STATE OF NEW YORK." Thus, effective July 1, 1999, the Commuter Tax, as amended, will be imposed only on non-City residents who are also non-State residents.

DISCUSSION

I. Privileges and Immunities

The Privileges and Immunities Clause of the United States Constitution provides that "[t]he Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States." (US Const, art IV, § 2.) The intent of this clause was to "help fuse into one Nation a collection of independent, sovereign States." (Toomer v Witsell, 334 US 385, 395 [1948]; see also, Paul v Virginia, 8 Wall [75 US] 168, 180 [1868] [purpose of the Privileges and Immunities Clause is to place "the citizens of each State upon the same footing with citizens of other States, so far as the advantages resulting from citizenship in those States are concerned."].) More than one century ago, the Supreme Court recognized that this clause "plainly and unmistakably secures and protects the right of a citizen of one State to * * * be exempt from any higher taxes or excises than are imposed by the State upon its own citizens." (Ward v Maryland, 12 Wall [79 US] 418, 430 [1870].) The passage of time has not weakened this bedrock principle of the Privileges and Immunities Clause. Indeed, the United States Supreme Court reiterated this doctrine just one year ago when it declared that "[t]ax provisions imposing discriminatory treatment on nonresident individuals must be reasonable in effect and based on a substantial justification other than the fact of nonresidence." (Lunding v New York Tax Appeals Tribunal, 522 US 287, 314 [1998].) In the course of the approximately 130 years separating Ward (supra) and Lunding, courts have repeatedly found that the Privileges and Immunities Clause specifically prohibits unduly burdensome taxation on nonresidents. (See, e.g., Shaffer v Carter, 252 US 37, 56 [1920] [the Privileges and Immunities Clause guarantees citizens of one State the right to "remove to and carry on business in another without being subjected in property or person to taxes more onerous than the citizens of the latter State are subjected to."].) However, the Constitution does not require exact equality between residents and nonresidents of a State, and as the United States Supreme Court has recognized in certain circumstances, a State may sometimes treat nonresidents in a disproportionate manner. (See, Travis v Yale & Towne Mfg. Co., 252 US 60, 79 [1920] [where nonresidents are subject to different treatment, there must be "reasonable ground for the diversity of treatment"].) Moreover, the United States Supreme Court has recognized that State Legislatures have considerable discretion in formulating tax policy in light of "`local needs'." (Lunding v New York Tax Appeals Tribunal, supra, at 297, quoting Madden v Kentucky, 309 US 83, 88 [1940].) Thus, to sustain a tax that discriminates on the basis of State residence, a State must demonstrate that (i) there is a substantial reason for the difference in treatment; and (ii) the discrimination practiced against nonresidents bears a substantial relationship to the State's objective. (Supreme Ct. v Piper, 470 US 274, 284 [1985].) According to the State, such a substantial reason exists, as New York State resident commuters bear a heavier tax burden than nonresident commuters in terms of fiscal support provided to New York City. The State contends that even after the implementation of chapter 5, New York State resident commuters will pay more than twice as much as nonresident commuters in tax revenues which benefit New York City, and that chapter 5 is intended to distribute some of the currently existing New York City budget surplus to taxpayers who help support it. Specifically, the State maintains that with chapter 5 in effect, a New York State resident commuter who earns $82,000 in income will pay $712 in State taxes that flow to the benefit of New York City, whereas a nonresident commuter will pay only $343 in Commuter Tax. Among the taxes that the State claims New York State resident commuters pay that nonresident commuters either do not or are less heavily burdened are the Metropolitan Commuter Transportation District tax, the State sales tax, income tax on interest, dividends, and capital gains, and numerous miscellaneous consumption taxes such as motor fuel, alcohol, and cigarettes. The State argues that it has a significant interest in protecting its citizens from unnecessary tax burdens and that chapter 5 places New York State resident commuters on a closer economic footing with nonresident commuters. Plaintiffs counter that there is no legal authority which supports justification of a discriminatory tax on the basis of examining a set of unrelated taxes. Moreover, plaintiffs maintain that the State's factual premise that New York State resident commuters contribute more to the support of the City is wholly speculative and false. According to plaintiffs, should the State's reasoning be adopted, the inevitable result would be "tax wars" between neighboring States. The question before the court is whether balancing the tax burden as to its own residents is a substantial reason for the implementation of the chapter 5 amendment, and whether the discriminatory treatment against nonresidents bears a substantial relationship to the State's objective. The court finds that the State has failed to meet its burden. The State is correct in its assertion that it may impose an income tax on nonresidents. (See, Shaffer v Carter, supra, at 52 ["just as a State may impose general income taxes upon its own citizens and residents whose persons are subject to its control, it may, as a necessary consequence, levy a duty of like character, and not more onerous in its effect, upon incomes accruing to non-residents from their property or business within the State, or their occupations carried on therein"].) The State is also accurate in its observation that the power of the State to tax is broad and extensive. (See, Madden v Kentucky, supra, at 88 [recognizing the large area of discretion needed by a Legislature in formulating tax policies, the Supreme Court stated, "(s)ince the members of a legislature necessarily enjoy a familiarity with local conditions which this Court cannot have, the presumption of constitutionality can be overcome only by the most explicit demonstration that a classification is a hostile and oppressive discrimination against particular persons and classes."].) The United States Supreme Court has further recognized that because absolute equality in taxation can never be attained, the rule is one of substantial equality. (Lunding v New York Tax Appeals Tribunal, supra, at 297.) In other words, "[w]here nonresidents are subject to different treatment, there must be `reasonable ground for * * * diversity of treatment.'" (Supra, at 298.) Thus, "where the question is whether a state taxing law contravenes rights secured by [the Federal Constitution], the decision must depend not upon any mere question of form, construction, or definition, but upon the practical operation and effect of the tax imposed." (Shaffer v Carter, supra, at 55.) Notably, however, the Supreme Court's "concern for the integrity of the Privileges and Immunities Clause is reflected through a `standard of review substantially more rigorous than that applied to state tax distinctions, among, say, forms of business organizations or different trades and professions.'" (Lunding v New York Tax Appeals Tribunal, supra, at 298, quoting Austin v New Hampshire, 420 US 656, 663 [1975].) The State bases its argument on the fact that New York State resident commuters bear a greater tax burden than nonresident commuters in terms of fiscal support provided to New York City. This may be true. But the mere fact that the Legislature has already taxed its citizens to a certain degree does not lead to the conclusion that it may subsequently tax nonresidents in an attempt to equalize the burden. (See, Mullaney v Anderson, 342 US 415, 418 [1952].) Should the court hold otherwise, each State could regularly tax nonresidents for the given reason that the nonresidents utilize the State's resources. Plainly, each State's residents pay more to their State's treasury in taxes than nonresidents do. Such is the nature of State taxation. However, this mechanism does not justify a State's impingement on the rights of nonresidents who seek to obtain employment. (See, Saenz v Roe, 526 US 489, 502 [1999].) Under the State's reasoning, a State would be permitted to impose taxes on its residents and then cite such taxation as reason to impose a separate tax solely on nonresidents. The Privileges and Immunities Clause does not permit, and this court will not condone, such a practice. In the midst of the United States Supreme Court's jurisprudence on the Privileges and Immunities Clause are two decisions strikingly similar to the one currently before the court. In Travis (supra), a New York tax law permitted New York State residents an exemption on the first $1,000 of income, or $2,000 if filing jointly, but denied nonresidents that same exemption in calculating New York income subject to the New York income tax. In striking down the statute, the Supreme Court used language directly applicable to the present case: "[I]t being a matter of common knowledge that from necessity, due to the geographical situation of [New York City], in close proximity to the neighboring States, many thousands of men and women, residents and citizens of those States, go daily from their homes to [New York City] and earn their livelihood there. They pursue their several occupations side by side with residents of the State of New York—in effect competing with them as to wages, salaries, and other terms of employment. Whether they must pay a tax upon the first $1,000 or $2,000 of income, while their associates and competitors who reside in New York do not, makes a substantial difference. Under the circumstances as disclosed, we are unable to find adequate ground for the discrimination, and are constrained to hold that it is an unwarranted denial to the citizens of Connecticut and New Jersey of the privileges and immunities enjoyed by citizens of New York." (Travis v Yale & Towne Mfg. Co., 252 US, supra, at 80.) Like the plaintiffs in Travis (supra), the parties challenging chapter 5 in the present case are subject to the Commuter Tax merely because they are nonresidents. And no doubt, like the plaintiffs in Travis, many thousands of nonresident commuters who earn their living in New York City are employed in the same positions, work for the same employers, and are paid the same salary as New York State resident commuters. The only substantial difference between the two classes, and the determining factor as to whether they are subject to the Commuter Tax, is the State in which they reside. It may be a legitimate government objective to seek to ease the tax burdens of commuters. However, residence is not a legitimate limiting factor. The court also finds support for its decision in Austin v New Hampshire (420 US 656 [1975], supra). In Austin, the State of New Hampshire attempted to impose an income tax on nonresident commuters who worked within the State, while imposing no such income tax on New Hampshire residents. After noting that the Privileges and Immunities Clause "implicates not only the individual's right to nondiscriminatory treatment but also, perhaps more so, the structural balance essential to the concept of federalism" (supra, at 662), the Supreme Court found the statute in violation of the Privileges and Immunities Clause, as there was no substantial equality of taxation between the residents and nonresidents. Similarly, if the court were to uphold the Commuter Tax as to only nonresidents, the court has little doubt as to the possible result. Neighboring Legislatures, under pressure from constituents, would enact similar taxing schemes against nonresidents. Such retaliation is precisely the evil sought to be avoided by the Privileges and Immunities Clause, as stated by the Supreme Court in Austin and Travis (supra). The State places great emphasis on the fact that a finding of unconstitutionality will result in a large class of nonresidents failing to share in the cost of City services and facilities. The court finds this argument wholly unpersuasive for a number of reasons. First, nonresident commuters who earn a living in the City pay New York State income tax, a portion of which is no doubt directed by the State to the City for various budgetary items. (See, Tax Law § 631 [a], [b].) Moreover, the court rejects this concern in light of the reality that for more than 30 years, New York has had the Commuter Tax in effect to address precisely this issue. In fact, the Commuter Tax was specifically enacted to equitably distribute New York City's fiscal burden on all individuals who use its facilities and services. While the Legislature and the Governor may elect to otherwise recoup revenue lost by virtue of the enactment of chapter 5, they cannot, however, place nonresidents on unequal footing due to the mere fact that they reside outside of New York State. Notably, New York's Court of Appeals has also found that disparate tax classifications between residents and nonresidents are contrary to New York statute and New York tax policy.