The U.S. Supreme Court ruled that Maryland’s personal income tax scheme is Unconstitutional, and we see an opportunity to file refund claims for open years in the state of Indiana.
In a 5-4 decision, the U.S. Supreme Court has ruled that Maryland’s personal income tax scheme violates the federal dormant Commerce Clause. The Court primarily relied upon the “internal consistency” test in arriving at its conclusion that Maryland’s income tax discriminates against interstate commerce by operating as a tariff. (Comptroller of the Treasury of Maryland v. Wynne, U.S. S. Ct., Dkt. No. 13-485, 05/18/2015.)
In Maryland, personal income tax on state residents consists of a state income tax and a county income tax. Residents who pay income tax to another jurisdiction for income earned in that other jurisdiction are allowed a credit against the state tax, but not the county tax. Nonresidents who earn income from sources within Maryland must pay the state income tax and nonresidents not subject to the county tax must pay a special nonresident tax in lieu of the county tax. Despite the names that Maryland has assigned to these taxes, both are state taxes, and both are collected by the Maryland Comptroller of the Treasury. The effect of this scheme is that some of the income earned by Maryland residents outside the state is taxed twice. Maryland’s scheme creates an incentive for taxpayers to opt for intrastate rather than interstate economic activity.
If the Maryland tax sounds familiar, it is because it is very similar to the State of Indiana tax system. We believe that since this is a U.S. Supreme Court case, this case applies throughout the country, thus Indiana refund claims are available to taxpayers that have not been able to take credit for tax paid to another state against the county income tax.
Please contact your Somerset advisor or your Somerset contact if you are not a current client of Somerset, to assist you in the cost/benefit analysis of a potential refund claim for all open tax years.