BALTIMORE (AP) — The U.S. Supreme Court is signaling interest in a dispute over Maryland’s “piggyback tax” for residents who earn income outside the state.
The Daily Record reports the justices on Monday asked for the Obama administration’s views on the constitutionality of barring state residents from deducting income taxes paid to other states from their local city or county taxes owed in Maryland.
Last year, the Maryland Court of Appeals found the state law unconstitutional, saying it violates the Commerce Clause. The court said the law discourages Maryland residents from earning money outside the state.
Maryland law allows residents to deduct income taxes paid to other states from their Maryland state tax. But the state says that provision does not apply to the “piggyback tax” the state collects for local governments.
In a brief to the Supreme Court, Maryland Attorney General Douglas Gansler said the state has broad authority to “tax all income of its residents, even income earned outside the taxing jurisdiction.” He noted that the Court of Appeals’ decision could cost local governments $45 million to $50 million annually. If the law is found unconstitutional, Maryland also might have to refund up to $120 million in taxes, Gansler noted in his petition.
The case arose after Brian and Karen Wynne challenged their Howard County tax bill. They had been blocked from deducting $84,550 from their county tax bill that they had paid in income taxes to other states. Brian Wynne’s out-of-state income resulted from his ownership stake in a company that operates nationwide.
Christopher Handman, an attorney for the Wynnes, told the justices that “the magnitude of an unconstitutional tax is no basis to uphold it.” He said Maryland’s highest court had ruled correctly that the ban on deducting income taxes paid to other states is a regulation of interstate commerce.
The Maryland court ruled in its 5-2 decision that such regulation is the domain of Congress, not state legislatures.
In a dissent to the Maryland court’s January 2013 ruling, Judge Clayton Greene Jr. said the state’s denial of an out-of-state tax credit for city and county taxes maintains fairness among neighbors. He wrote that deducting out-of-state taxes paid could have “the possible absurd result of the taxpayers paying little or no local tax for services provided by the county, while a neighbor with similar income, exemptions and deductions might be paying a substantial local tax to support those services.”
Information from: The Daily Record of Baltimore, http://www.mddailyrecord.com
(Copyright 2013 by The Associated Press. All Rights Reserved.)