In an October 28 SCOTUSblog article, Santa Clara University School of Law Associate Dean Bradley Joondeph offered a summary and legal analysis of the pending United States Supreme Court case, Maryland State Comptroller of the Treasury v. Brian Wynne. The case will address the Constitutional parameters on state and local governments collecting income from residents that was earned in other states. A negative decision could cost Maryland local governments approximately $50 million a year. From the article:
This case thus presents an important, unanswered question: Does the dormant Commerce Clause permit a state to collect a tax on all of a resident’s personal income, even when a portion of that income is earned in – and taxed by – another state? …
Wynne lies at the confluence of three basic constitutional principles in the field of state taxation. First, as the Court has held on several occasions, states have the authority “to tax all income of their residents, including income earned outside their borders.” (This is often called residence-based jurisdiction.) Second, states also have the authority to tax the income of nonresidents, but only to the extent of the income earned within the state’s borders. (This is often called source-based jurisdiction.) Third, as a general rule, taxes resulting in multiple state-level taxation of the same value – whether that value be income, property, or something else – violate the dormant Commerce Clause, as they subject interstate commerce to a burden intrastate commerce does not shoulder.
Each of these points is undisputed. The question is how they are to be reconciled here.
The article summarized the background of the Wynne case and analyzed the arguments of both sides before concluding:
Ultimately, the case seems to turn on whether the Justices consider a personal income tax, imposed by a state on its own residents, qualitatively different from taxes imposed on corporations or nonresidents. If so, Maryland’s decision to collect a tax on one hundred percent of its residents’ income (without any sort of offsetting credit) would seem justified, a reflection of the special relationship between a sovereign and the natural persons residing within its borders. But if the Court sees Maryland’s tax – at least for purposes of the dormant Commerce Clause – as indistinct from other taxes a state might impose on interstate business activity, Maryland’s scheme almost certainly must fall, as it flunks two long-standing doctrinal requirements: it virtually assures that residents earning out-of-state income will be subjected to multiple taxation, and it systematically favors intrastate over interstate commerce.
This case presents a fascinating collision between the imperatives of state sovereignty and free markets – between the states’ autonomy in matters core to their separate existence, and the axiom that commerce among the states must be protected from parochial trade barriers. State tax disputes generally don’t raise fundamental questions about the role of the states in our constitutional structure. But this one does.
Oral arguments for the Wynne case are set for November 12. MACo has joined with other parties in an amicus brief submitted by the International Municipal Lawyers Association, arguing in favor of the Comptroller’s position. The United States is also participating as an amicus on the side of Maryland.
