Iowa to Refund Local Income Taxes After Wynne Decision

October 21, 2015

Back in May, the U.S. Supreme Court struck down Maryland’s practice of taxing out-of-state income earned by residents without a mechanism for adjusting for taxes paid to other states. The result was a Maryland resident investing out of state was paying multiple taxes compared to a Maryland resident who invested only in state, a violation of the U.S. Constitution’s interstate commerce clause.

Iowa has concluded that local school district surtaxes have the same problem and are refunding about $9 million paid by 32,000 taxpayers over the past three years. While Iowa gives taxpayers a credit for taxes paid to another state, the surtax was calculated without applying it. The issue did not affect Iowa taxpayers who earned income only in Iowa and Illinois, as those two states have a reciprocal agreement not to impose income tax on each other’s residents.

Iowa taxpayers must file the Iowa 1040X form to seek their refund, one form for each of the three years (2012, 2013, and 2014).

Read more on our brief in the earlier Wynne case, which upheld what should be noncontroversial: state tax powers do not extend to harming interstate commerce by levying multiple taxes on it.

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