AG Considering Federal Appeal of County Income Tax Case

The Maryland Court of Appeals recently denied a motion for reconsideration of a decision that could cost counties millions of dollars by requiring the State to provide a credit against the local income tax for income that is earned out-of-state.  Although the motion for reconsideration was denied, the Court of Appeals did Stay the effective date of the ruling pending an appeal to the United State Supreme Court.

As summarized in a previous post on Conduit Street, in this case, Maryland State Comptroller of the Treasury v. Brian Wynne, et ux., Mr. Wynne challenged the Maryland statute, arguing that the statute violated the Commerce Clause because it burdened Maryland residents that conducted interstate business.  As reported by the Baltimore Sun (limted free views available):

The case involves income earned by the Wynnes through an S corporation, which under federal tax law passes its income and losses directly to its shareholders. Under Maryland law, taxpayers receive a state income tax credit to offset out-of-state income earned through a S corporation and for which taxes have been paid in another state. However, the state does not offer a credit for the local “piggyback” part of the income tax, which ranges from 1.2 percent to 3.2 percent depending on the county.

The Court of Appeals ruled in the Wynne’s favor.

The Attorney General’s Office is now considering further action.

The state’s high court stayed its ruling pending a possible appeal to the U.S. Supreme Court. David Paulson, a spokesman for Gansler, said Monday that the office has 90 days to file a petition with the Supreme Court asking it to hear an appeal. He said a decision would likely come well before that deadline.

Andrea Mansfield, legislative director of the Maryland Association of Counties, said the organization hopes Gansler takes the case to the high court.
“There will be a fiscal impact on our Maryland counties,” Mansfield said. “It’s a big hit.”

Additional coverage can be found in the Washington Examiner.