Billy Thomas, CPA

In 2011, a ruling in the Maryland court system had very interesting implications for many resident taxpayers with out-of-state sourced taxable income.

The court case: Brian and Karen Wynne, et al v. Comptroller of Treasury.
In court the Wynne’s argued that it is unconstitutional for the state of Maryland to disallow a tax credit for taxes paid to another state against the income taxes paid to a Maryland county.
The case was originally heard in Howard County, MD and the court ruled in favor of the Wynne’s.  The Comptroller of the Treasury then filed an appeal hoping to overturn that decision.  An opinion was issued on Monday (01/28/2013) by the high court in MD in favor of the Wynne’s, thus upholding the ruling by the lower Court.

Current Maryland tax law does permit an out-of-state tax credit for residents on income taxed by another state, but does not permit the out-of -state credit to offset the county tax (1.25% – 3.2% rates).  According to the recent higher court ruling affirming the lower court, the out-of-state tax credit generated from this income should offset taxes at both the state and county levels.

Prior to this ruling, taxpayers were at a disadvantage if they participated in interstate commerce (having other state sourced income) and could potentially pay more tax than those who earned the same amount of income all from within Maryland.  Hence, according to the courts, this violates the Federal Commerce Clause.

Stay tuned for additional guidance from Maryland and for more updates on this court case.  In the meantime, if you are affected by this ruling, consider filing protective claims requesting a refund for all available years.

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