Maryland Income Tax Law Deemed Violation of Commerce Clause of the US Constitution by Supreme Court
In the case of Comptroller of the Treasury of Maryland vs Wynne, the Supreme Court ruled against double taxation on May 18, 2015. That decision will result in millions of Maryland tax dollars, plus interest, being refunded to qualifying Maryland residents.
On Monday, the final decision had Justices siding with taxpayers in a case that brought into question Maryland’s longstanding tax policy that did not grant taxpayers a tax credit against both the Maryland state income tax and the Maryland local county income tax.
Maryland residents are responsible for paying a Maryland state income tax (approx 5%) and a local County income tax (approx 3%) on their annual income. While Maryland residents must report all of their income, from all state sources, on their Maryland tax return, the state does allow the taxpayer to reduce their Maryland state income tax for income taxes they had to pay to another state. Prior to this ruling, Maryland did not allow taxpayers to reduce their Maryland local county tax obligation based on income taxes they had to pay to another state. The denial of any tax credit against the Maryland local county tax obligation resulted in Maryland residents, with out of state income, being taxed twice on the same income.
For example, if an employee lived in Maryland and commuted to New York, that employee would be responsible for reporting their wages to the state of New York and paying New York nonresident income taxes on the wages. Since the employee is a Maryland resident, the employee would also have to report the same wages to the state of Maryland and calculate the Maryland income tax and the county tax on those wages. Maryland would then allow the employee to reduce their Maryland income tax liability based on the taxes paid to New York. Maryland did not allow the employee to reduce their county income tax based on the taxes paid to New York.
Taxpayers affected by the ruling have the opportunity to file claims for refunds for any tax years that are not closed by the statute of limitations. These years may include 2011, 2012, 2013 and 2014. Refunds for years prior to 2011 may be obtainable if the taxpayer filed a timely protection of refund claim in prior years.
