Supreme Court Rules Against Local Taxes on Out-of-State Earnings

By Elizabeth Janney (Patch Staff) and Ashley Westerman (Capital News Service)

The Supreme Court has ruled that Maryland’s out-of-state income tax policies are unconstitutional. The high court’s ruling could have widespread impact on how much tax revenue local governments receive.

The justices voted 5-4 that Maryland’s income tax was unconstitutional in that residents do not receive a full tax credit for taxes they pay out of state, according to The Washington Post.

Brian Wynne is co-owner of Columbia-based Maxim Healthcare Services, which operates in more than 30 states, according to court filings. He and his wife, Karen, have five children and reside in Howard County.

The Wynnes argued that they were taxed on money made out of state in those respective states and paid Howard County taxes the earnings as well, which is a violation of the dormant Commerce Clause.

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“There is no federal law that prohibits or requires states to give tax credits for taxes paid in other states,” according to University of Maryland law professor Mark Graber. “But the claim the Wynnes are making is that, in fact, Maryland’s failure to do so sufficiently burdens interstate commerce.”

Now that the Supreme Court ruled the income tax policy is unconstitutional, the Maryland Bureau of Revenue Estimates says it could cost local governments up to $190 million plus interest in one-tine protected claims and retroactive refunds.

The Maryland Association of Counties estimates a smaller cost of $120 million to local governments in retroactive refunds, but says it could also reduce local income tax revenues by about $50 million a year.

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Here’s how the case got to the Supreme Court:

• In 2006, Maxim Healthcare filed tax state tax returns in 39 states, according to court filings.
• The comptroller informed the company of a Maryland tax deficiency, a claim the Wynnes appealed in 2008.
• The state’s tax court found that the comptroller’s assessment was appropriate in a 2009 ruling.
• The Howard County Circuit Court reversed the tax court’s decision in 2011.
• The Maryland Court of Appeals determined the tax structure was unconstitutional in 2013; and ultimately, the case was referred to the U.S. Supreme Court.