Amdt14.S1.4.14.7 Individual Income Taxes

Fourteenth Amendment, Section 1:

All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

A state may tax annually the entire net income of resident individuals from whatever source received, 1 as jurisdiction is founded upon the rights and privileges incident to domicile. A state may also tax the portion of a nonresident’s net income that derives from property owned by him within its borders, and from any business, trade, or profession carried on by him within its borders. 2 This state power is based upon the state’s dominion over the property he owns, or over activity from which the income derives, and from the obligation to contribute to the support of a government that secures the collection of such income. Accordingly, a state may tax residents on income from rents of land located outside the state; from interest on bonds physically outside the state and secured by mortgage upon lands physically outside the state; 3 and from a trust created and administered in another state and not directly taxable to the trustee. 4 Further, the fact that another state has lawfully taxed identical income in the hands of trustees operating in that state does not necessarily destroy a domiciliary state’s right to tax the receipt of income by a resident beneficiary. 5

Footnotes

  1.  Lawrence v. State Tax Comm’n, 286 U.S. 276 (1932).
  2.  Shaffer v. Carter, 252 U.S. 37 (1920); Travis v. Yale & Towne Mfg. Co., 252 U.S. 60 (1920).
  3.  New York ex rel. Cohn v. Graves, 300 U.S. 308 (1937).
  4.  Maguire v. Trefy, 253 U.S. 12 (1920).
  5.  Guaranty Trust Co. v. Virginia, 305 U.S. 19, 23 (1938). Likewise, even though a nonresident does no business in a state, the state may tax the profits realized by the nonresident upon his sale of a right appurtenant to membership in a stock exchange within its borders. New York ex rel. Whitney v. Graves, 299 U.S. 366 (1937).