AG: Court Should Reconsider County Income Tax Case

As reported on Conduit Street, a recent Maryland Court of Appeals decision found that the “failure to allow a credit with respect to the county income tax for out-of-state income taxes paid to other states on “pass-through” income earned in those states discriminates against interstate commerce and violates the Commerce Clause of the Federal Constitution.”  The Attorney General’s Office has filed a motion to reconsider this decision.  From the Gazette:

In the state’s appeal filed Feb. 27, Maryland Attorney General Douglas F. Gansler (D) asked the court reconsider its ruling, and if it did not, make the judgment only apply to successive years for non-parties of the lawsuit.

Gansler also requested the court stay enforcement of the judgment “pending possible legislative action and an anticipated further appeal,” if it did not reconsider its ruling.

As one would expect, this ruling would have a fiscal impact on the counties.

If the economy continues to recover, the effect on local taxes statewide would be between $45 million and $50 million annually, Andrew Schaufele, director of the Bureau of Revenue Estimates with the Maryland Comptroller’s Office, said in an affidavit filed with the court.

An article published by Tax Analysts assessed the successful outcome of the Maryland Comptroller’s motion for reconsideration. (A subscription is required to access the full article.)

It is unlikely the comptroller will persuade the court to reconsider this matter. First, as a practical matter, it was a 7-2 decision and the tone of the opinion was fairly decisive. One does not get the feeling that members of the court were on the fence about the constitutionality of this credit. It is unlikely they would be persuaded at this late date to reconsider the case…

…On the other hand, this would be a huge financial hit for local governments that have already spent the money in question. And it is not as if the state’s application of the credit was obviously problematic. The comptroller did convince one lower court and two members of the court of appeals that the credit scheme is constitutional. Finally, as the comptroller notes in his motion, the purported goal of protecting interstate commerce is not achieved by offering refunds in this situation. It is not as if the commerce of years past will be magically unhampered as a result of the opinion. From a practical and public policy perspective, it is a close call.