Supreme Court Voids Maryland Double Taxation

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The U.S. Supreme Court overturned a Maryland income tax law that prohibits Maryland residents from deducting from county piggyback income taxes any tax paid to other states on income earned in those states. The 5-4 decision affirmed a similar conclusion by the Maryland Court of Appeals in 2013.

In the case of Maryland State Comptroller of the Treasury v. Brian Wynne, the Court held that the State’s failure to allow credits against Maryland’s piggyback income tax for taxes paid to other states violated the Commerce Clause. The Wynnes successfully argued that the Comptroller’s refusal to allow a credit against the county income tax for the taxes paid by their S corporation to other states constituted double taxation.

AOBA members who are Maryland residents and pay Maryland individual income taxes with pass-through entities such as S corporations and LLCs while conducting business in multiple states should consider filing refund claims based on the decision to preserve possible refunds. The State Comptroller’s Office has estimated that refunds could cost Maryland local governments $200 million, with an ongoing annual revenue reduction of $40 to $50 million.