gavel-and-pile-of-money

The U.S. Supreme Court has ruled that Maryland’s county income tax scheme is unconstitutional because it has the potential to subject Maryland residents’ out-of-state income to double taxation.

The 5-4 ruling comes in the case Comptroller of the Treasury of Maryland v. Winne.  The case involved Maryland’s county income tax, which the state applies to income earned both in and out of the state by Maryland residents. Residents who earn income out of the state can claim a credit against Maryland’s state income tax if they paid income taxes in the state where the income was earned, but not against the county income tax.

According to the court’s majority opinion written by Justice Samuel Alito, “Despite the names that Maryland has assigned to these taxes, both are State taxes, and both are collected by the State’s Comptroller of the Treasury.”

Because the county tax is a state tax, and because no credit for out-of-state tax payments is allowed against it, “part of the income that a Maryland resident earns outside the State may be taxed twice,” wrote Alito.

This violates what is known in constitutional jurisprudence as the Dormant Commerce Clause, which holds that states cannot impose laws that discriminate against interstate commerce (doing business across state lines), to the advantage of intrastate commerce (doing business in one’s state of residence).

“In this case, the and economic analysis—indeed, own concession—confirm that the tax scheme operates as a tariff and discriminates against interstate commerce, and so the scheme is invalid,” wrote Alito.

ralejandro@afro.com