Maryland loses legal battle in double taxation case

Maryland’s taxation policy violated the U.S. Constitution by taxing income that state residents earned in other states, the U.S. Supreme Court ruled on Monday. The nation’s apex said the state’s controversial policy imposed form of double taxation on residents.

The court in its ruling said Maryland cannot impose form of double taxation on residents by not giving them credit for some taxes paid on income earned in other states.

In a 5-4 ruling, the justices took the side of taxpayers Brian and Karen Wynne. The justices stated that Maryland’s taxation policy violated the US Constitution by discriminating against interstate commerce, upholding lower-court decisions favouring the couple.

Maryland offers a tax credit for income taxes paid by residents to other states. But the state said the credits available to the Wynnes for their out-of-state income did not apply to the couple’s county income tax.

It was found that the Wynnes were denied a full $84,550 tax credit based on their healthcare business that paid taxes in 39 states in 2006.

According to a brief filed by the US Conference of Mayors and other groups that backed the state, the ruling could reduce tax revenues collected by local jurisdictions in Maryland by up to $50 million per year.

Justice Samuel Alito on behalf of the majority, said, “That Maryland’s existing tax unconstitutionally discriminates against interstate commerce is enough to decide this case”.

It has been found that there are some other US states that offer a full credit for taxes paid in other states. The states that will be affected by the apex courts’ ruling includes Wisconsin and North Carolina, according to a brief filed by the International Municipal Lawyers Association.

In a rebellious opinion, Justice Ruth Bader Ginsburg said that nothing in the Constitution prevents more than one state from seeking taxes on the same income.

He wrote in a situation like this, the constitution must not prefer one lawful basis for state taxation of a person’s income over the other.