Search by date
By Mary Alexander and Prentiss Willson
The disallowance of a credit for income taxes paid to other states against Maryland’s county income tax was ruled unconstitutional as a violation of the dormant Commerce Clause by the Court of Appeals of Maryland. Maryland’s income tax, which includes both state and county components, is imposed on all income of a Maryland resident, whether earned within or outside Maryland. Maryland allows a credit for taxes paid outside the state to be taken against a resident’s state income tax but does not allow the same credit against a resident’s county income tax. The Wynnes, Maryland residents and owners of a 2.4% interest in an S corporation, reported the income earned from the S corporation on their Maryland income tax return and claimed a credit for their pro rata share of the taxes paid by the S corporation outside the state, reducing both their state and county income tax. The Comptroller disallowed the credit taken against the Wynnes’ county income tax, creating a situation where the same income was being taxed by both Maryland and the other states where the S corporation paid tax—i.e., double taxation. On appeal, the court determined that the “operation of the credit with respect to the county tax may affect the interstate market for capital and business investment, and, accordingly, implicate the dormant Commerce Clause.” Thus, the court concluded the “failure of the Maryland income tax law to allow a credit against the county tax” violated the dormant Commerce Clause because it was not fairly apportioned, and it discriminated against interstate commerce. A motion for reconsideration was filed by the Maryland Comptroller requesting the court to reconsider its decision or alternatively to declare that its decision will operate only prospectively for non-parties. Maryland State Comptroller of the Treasury v. Brian Wynne, et ux., No. 107, September Term 2011 (Md. filed Jan. 28, 2013).