By: Bill Turque
A divided Supreme Court said Monday that Maryland’s income tax law is unconstitutional because it does not provide a full tax credit to residents for money earned outside the state, a ruling likely to cost Maryland counties and localities across the country millions of dollars in revenue.
The court voted 5-4 to affirm a 2013 Maryland Court of Appeals decision that the state’s practice of withholding a credit on the county segment of the state income tax violated the Commerce Clause because it might discourage individuals from doing business across state lines.
In most states, income from outside is taxed both where the money is made and where taxpayers live. To guard against double taxation, states usually give residents a full credit for income taxes paid on out-of-state earnings.
The case was brought by a Howard County couple, Brian and Karen Wynne, who reported $2.7 million in 2006 income, about half from their stake in Maxim Health Care Services, a Columbia-based home care and medical staffing company that does business in more than three dozen states.
The Wynnes paid $123,363 in Maryland state income tax . They also claimed an $84,550 Maryland credit for taxes paid in other states on income from Maxim.
Maryland taxes personal income at up to 5.75 percent. It also collects and distributes a “piggyback” income tax of up to 3.2 percent for each of the 23 counties and Baltimore City. But Maryland offers no credit for the piggyback tax, in this case the 3.2 percent owed to Howard County.
The Wynnes and their attorneys contended that this represented about $25,000 in illegal double taxation.