Supreme Court Calls Maryland Income Tax Law 'A Tariff'

In a ruling that will trigger the loss of millions of dollars in tax revenue and is likely to affect many other states, the U.S. Supreme Court has struck down Maryland's practice of double-taxing residents' income earned in other states.

The case challenged Maryland's refusal to grant residents who paid income tax on money earned in other states a credit against that amount when they tally up the taxes they owe to their home counties (and some cities). The state allows the credit to be applied only against the state taxes; county income taxes can be as high as 3.2 percent.

Agreeing with two lower courts, the Supreme Court said Monday that Maryland's law unconstitutionally raises the cost of doing business in more than one state. It also noted that the state's comptroller collects the "county" tax for the local governments.

"Maryland's tax scheme is inherently discriminatory and operates as a tariff," the court wrote in its summary, "which is fatal because tariffs are '[t]he paradigmatic example of a law discriminating against interstate commerce.' "

The ruling could affect "similar tax laws in nearly 5,000 local jurisdictions in other states, including New York, Indiana, Pennsylvania and Ohio," the AP says.

From the AP:

"The case arose after Maryland residents Brian and Karen Wynne challenged their tax bill. They had been blocked from deducting $84,550 that they had paid in income taxes to 39 other states. Brian Wynne's out-of-state income resulted from his ownership stake in a health care company that operates nationwide. ....

"Maryland officials said an adverse ruling could cost local governments in the state $45 million to $50 million annually and warned that Maryland might have to refund up to $120 million in taxes."

In the 5-4 ruling, Chief Justice John Roberts was joined by Justices Anthony Kennedy, Stephen Breyer, Sonia Sotomayor, and Samuel Alito, who wrote the majority opinion. On the other side were Justices Antonin Scalia, Ruth Bader Ginsburg, Clarence Thomas, and Elena Kagan — who among them produced three different dissenting opinions.

Addressing some dissenters' concerns that the nation's highest court shouldn't be concerned with a state matter that could be addressed in local voting and legislation, Alito wrote, "the notion that the victims of such discrimination have a complete remedy at the polls is fanciful. It is likely that only a distinct minority of a State's residents earns income out of State."