Under a story entitled, "In Landmark Case, Supreme Court Finds Maryland's Tax Scheme Unconstitutional," Kelly Phillips Erb, contributor to Forbes magazine, wrote on Monday, May 18:
"Last May, Dominic Perella, argued that the way that the State of Maryland treated tax credits was wrong, arguing, “Maryland’s approach is unfair to people who make money in more than one state.”
"As it turns out, the Supreme Court agrees, holding in Comptroller v. Wynne that Maryland’s tax scheme is unconstitutional because it doesn’t offer credit to its residents for taxes paid in other states.
"This – as it applies both to state and local tax policy – is a big deal. To understand the case, we need to understand the context. How did this case find its way to the Supreme Court? Here are the details:
"A married couple (the Wynnes) reported taxable net income of approximately $2.7 million to the State of Maryland. More than half of that amount represented a share of earnings in an S corporation with operations in several states. The Wynnes claimed a credit on their Maryland tax returns for taxes paid to 39 other states. The State of Maryland denied the credits and issued a notice of deficiency. The Wynnes appealed. At a hearing, the assessment was affirmed, meaning that the Wynnes were stuck paying the tax.
"The Wynnes disagreed with the finding and amended their petition, claiming that the tax credit statute, as written, was in violation of the Commerce Clause of the United State Constitution. That claim was rejected.
"So the Wynnes tried again, arguing this time that the State of Maryland was constitutionally required to extend the credit for taxes paid to other states to the county as well as the state. Their bigger question was whether a state had the unconditional right to tax all income based on residency (they, of course, said no). This time, the Circuit Court agreed with the Wynnes."
Read the remainder of Ms. Erb's story here; there is a link to her 5/28/14 story, which reported tjat SCOTUS had agreed to her the Wynne's case.
A press release from Fagre Baker Daniels is here.
At SCOTUSblog, Bradley Joondeph provides an analysis of the opinion. Here's his "plain English" summary:
"In Comptroller v. Wynne, the Supreme Court invalidated the county component of Maryland’s personal income tax as violating the Commerce Clause because it discriminated against interstate commerce. The Court applied its “internal consistency” test for state taxes: If every state in the Union adopted an identical tax scheme, would commerce that crosses state lines be taxed the same as commerce staying entirely within one state? Because Maryland failed to offer a credit to Maryland residents against the county tax for taxes paid to other states – and Maryland nonetheless imposed the county tax on non-residents earning income in Maryland – the tax scheme was internally inconsistent. Were every state to adopt the same tax scheme, commerce crossing state lines would be taxed more heavily than commerce occurring exclusively in one state."
Meanwhile, at Reason magazine's Hit&Run Blog, Damon Room notes that Justice Alito wrote the majority opinion, and then adds:
" . . . Chief Justice John Roberts and Justices Anthony Kennedy, Stephen Breyer, and Sonia Sotomayor all joined Alito’s opinion.
"Alito’s sharpest critics proved to be two of his most conservative colleagues, Justices Antonin Scalia and Clarence Thomas. Scalia and Thomas each filed separate dissenting opinions, as did Justice Ruth Bader Ginsburg, whose dissent was joined by Justice Elena Kagan. According to Scalia, the dormant Commerce Clause is a “judicial fraud” that allows federal judges to rewrite state laws according to their own preferences. Thomas, meanwhile, argued that Alito’s take was totally at odds with constitutional history. “It seems highly implausible that those who ratified the Commerce Clause understood it to conflict with the income tax laws of their States and nonetheless adopted it without a word of concern,” Thomas wrote."
At the Tax Foundation's Tax Policy Blog, Joseph Henchman, Vice President, wrote:
"This is a broad victory for taxpayers. Today’s 5-4 decision upholds what should be noncontroversial: state tax powers do not extend to harming interstate commerce by levying multiple taxes on it. This is important not just for one Maryland business, but for anyone who does business in more than one state, travels in more than one state, or lives in one state and works in another. The court also held that these protections apply not only to businesses, but to individuals as well.
"As explained in the Tax Foundation’s brief in the case, state tax practitioners knew these were the rules even though the Supreme Court never explicitly said so. Today, the Supreme Court explicitly said so. Anyone who thought that a state’s tax power extends to all income earned by its residents anywhere in the world, now knows they were wrong."
Patrice Lee, writes at Independent Women's Forum:
Click here for Google's "full coverage"
"Some 55,000 Maryland taxpayers have in essence been double taxed. One couple learned that the hard way paying an estimated $25,000 in taxation which the Supreme Court now says are not legal. The Wynnes owned half of a homecare and medical staffing company that does business in more than 36 states and reported an income of $2.7 million in 2006.
"The state is nervous; they are on the hook for an estimated $200 million in refunds and interest to taxpayers like the Wynnes. They are also losing an estimated $42 million a year in revenue going forward.
< . . . >
"State officials are balking at the lost revenue, especially in Montgomery County, one of the nation’s wealthiest counties, which stands to lose big from the busted piggyback tax."
of Maryland v. Wynne.
Given the justices who jointed in the majority opinion, anyone wish to venture how the Justices will rule in the ObamaCare exchanges case?
Congratulations to the Maryland taxpayers for taking this case to the Supreme Court.