Maryland’s Failure to Allow a Full Credit for Taxes Paid to Other States Discriminates Against Interstate Commerce: Maryland v. Wynne

September 26, 2014

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On November 12, 2014, the U.S. Supreme Court will hear oral argument in Maryland v. Wynne, which asks whether Maryland must provide a credit against local income taxes for income taxes paid to another state. We have filed an amicus brief in the case supporting the Wynnes.

The taxpayers in the case, Mr. and Mrs. Wynne, own 2.4 percent of a company doing business in 39 states. As Maryland residents, they paid $123,434 in income tax to Maryland, after applying a credit of $84,550 for taxes paid to other states on income earned outside Maryland’s borders. Maryland disallowed the credit to the extent that it offset the county income tax. The Tax Court upheld the assessment, a Maryland circuit court reversed and sided with the Wynnes, and Maryland’s highest court (the Court of Appeals) agreed, ruling the tax unconstitutional without a credit. Maryland appealed to the U.S. Supreme Court, which agreed in July to hear the case.

The Wynnes are right and Maryland is wrong. While it is true that tax credits and deductions are usually a matter of legislative grace, and that states may impose just about whatever tax it wishes on its own residents, these powers are limited when they involve interstate commerce. If Maryland is right here, taxpayers will be subject to tax on more than 100 percent of their income. The result would be that intrastate income would be taxed once, while interstate income would be taxed over and over and over. This violates the U.S. Constitution’s Commerce Clause.

Our brief responds to Maryland’s argument that their tax system is not discriminatory because it taxes all income at the same rate. That argument requires ignoring the effect of the law, which subjects interstate income to multiple taxation in excess of otherwise identical intrastate income. Maryland taxes residents’ income wherever it was earned. Because other states tax income earned within their borders, the result is taxing more than 100% of taxpayers’ income. Our brief also refutes the red herring argument that the taxes at issue are county taxes, not state taxes.

Our brief also explains the problematic consequences of removing a constitutional restriction on the power of states to impose taxes on interstate commerce. Frankly, this case has shocked the academic and practitioner community, as most took it as a given that a state income tax without a credit for taxes paid to another state is inherently unconstitutional because of these discriminatory effects.

The case is Comptroller of the Treasury of Maryland v. Wynne, No. 13-485.


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