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We recently wrote about the Supreme Court’s May 18, 2015, decision in Comptroller v. Wynne, in which the Court concluded that Maryland’s tax scheme was unconstitutional because it amounts to double taxation of out-of-state income. This amounts to the unlawful discrimination of interstate commerce, according to both the Supreme Court and the Maryland Court of Appeals, from which the case was appealed.

The Maryland arrangement that the Court struck down gave residents a credit for the state tax assessed on income earned outside the state, but did not allow the credit on county tax liability. As a result, The Baltimore Sun reported, the state may end up refunding payments to about 55,000 taxpayers. Even before the decision came out, the comptroller had received claims for $200 million in refunds from 8,000 filings. Going forward, the combined loss from the counties is estimated to be $42 million. Considering both the cost of the lost revenue and the cost of refunds, the projected loss for 2017 could exceed $50 million.

Maryland will likely not suffer alone. A Supreme Court decision impacts all states, and other states that have similar tax schemes will also be required to provide refunds and withstand revenue losses.

In an amicus brief, the International Municipal Lawyers Association, the United States Conference of Mayors, the National Association of Counties, the International City/County Management Association, and the Maryland Association of Counties all urged the Court to reverse the Maryland Court of Appeals’ decision on the grounds that the scheme is lawful and conflicts with holdings in other states.

According to the amicus brief, Wisconsin and North Carolina are two such states that “expressly disallow credits for city, county, and other local income taxes paid out of state.” Likewise, in the 2011 Tennessee Court of Appeals case Boone v. Chumley, the court denied the Tennessee taxpayers the credit they sought for income taxes they paid in South Carolina on corporate income, because it would “only deprive Tennessee of revenue.” It reasoned that it did “not believe that the General Assembly intended to enact a reciprocity agreement with a sister state under which Tennessee could not receive a reciprocal benefit.”

The amicus brief named several other jurisdictions that also impose a tax on residents without allowing a credit for taxes paid out-of-state—Philadelphia, Cleveland, Detroit, Indiana’s counties, Kansas City, St. Louis, and Wilmington.

Some, like Bloomberg, predict that other states will begin to change their tax laws in an effort to remove any discriminatory provisions. This could have the added benefit of avoiding litigation that could force the change anyway.

In the meantime, the Maryland Comptroller's Office has issued guidance in the form of frequently asked questions on how to request refunds pursuant to the decision, which will be updated regularly as additional information becomes available. The comptroller notes that it will not issue refunds automatically.

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