The State Should “Wynne,” Says U.S. Solicitor General

April 14, 2014

The main argument put forth by the Solicitor General is that a state does not lose its authority to tax the entire income of its own residents merely because a state where the income is earned also taxes that income.  The brief further reasons that any discriminatory effect of the state’s application of the credit has only an incidental impact on interstate commerce and that the county tax lacks a protectionist purpose.

All states have some form of credit for taxes paid, which is available to individual taxpayers that pay income tax in more than one state. However, it’s important to note that a credit for taxes paid is not required under the Due Process clause under the Court’s current case law. If the Court takes the case, the focal issue may be whether the Commerce Clause requires such a credit for residents in order to prevent burdens on interstate commerce due to double taxation.  It’s clear that taxing the entire income of a multistate corporation violates the Commerce Clause. The Court may now be forced to address the same issue for individuals earning income from multi-state pass-through entities.

The Comptroller is still accepting protective claims for refunds. However, if the Court hears the case, it is unlikely that those refunds are coming anytime soon, if at all.

If you have any questions Maryland income taxes, please contact your Aronson tax advisor or call Michael L. Colavito, 301.231.6200.