Tax Credit Ruling Could Adversely Affect Counties

As reported by SALTonline, in June 2011, the Howard County Circuit Court ruled that a Maryland statute violated the Commerce Clause “because it did not permit the taxpayer to take a credit against the Baltimore portion of the personal income tax for taxes paid to other jurisdictions.” This ruling, which was heard by the Maryland Court of Appeals a few months ago, could have an adverse affect on local governments if upheld.  From the article:

Maryland, like most states, permits resident taxpayers a credit for taxes paid to other jurisdictions to offset the state’s personal income tax. Md. Code Ann. § 10-703(a). The Maryland statute, however, only provided a credit against the state income tax and did not provide a credit against county income taxes.

The taxpayer challenged the Maryland statute, arguing that the statute violated the Commerce Clause because it burdened Maryland residents that conducted interstate business.  In holding the statute unconstitutional under the Commerce Clause, the court stated that the “county income tax” was really a state tax because components of it are not a “local” tax.

The Court of Appeals has not yet rendered its decision. MACo will be following this issue closely and will post further developments on Conduit Street.

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