In the closely-watched court case of Comptroller v. Wynne, the US Supreme Court yesterday heard the details of the Maryland system of local income taxes, and debate over their application to out-of-state income. At risk (if Maryland loses the case) are potentially hundreds of millions of taxes paid by Maryland residents, which could be ordered as refunds for prior years – plus a permanent dent in county income tax revenues estimated at nearly $50 million per year.
The justices’ questions Wednesday generally focused on two topics. One was whether Maryland’s tax principles were consistent because it collects a local tax on income earned out-of-state but it also has a 1.25 percent tax on income earned in Maryland by non-residents. The other topic was on the fairness of excusing some residents from paying local taxes because they earn income elsewhere.
On the issue of the fairness, the justices’ wondered why, as residents who used their local resources, the Wynnes should be excused from paying all their local taxes. Justice Ruth Bader Ginsburg probed Perella about why it was fair that one resident pay nothing in local taxes while theoretically he or she could be sending five kids to the area’s public schools. Perella started to rationalize that Maryland was still benefiting because it was taxing non-residents but was interrupted by Chief Justice John Roberts who said, “This man is getting a free ride.”
The full transcript of the oral arguments are now available online:
Argument Transcript – Comptroller v Wynne
An analysis of the oral arguments is also online at the SCOTUSblog website, where the author (Bradley W. Joondeph from the Santa Clara University School of Law ) gauges the outcome of the case as “unclear.”
His comments include this assessment:
On the one hand, the Court’s failure to fully explore the nature of a state’s relationship with its own residents – or the priority between the state of residence and the state of source when both seek to tax the same income – bodes well for the Wynnes, as these were the central points of Maryland’s principal submissions. On the other hand, Justice Scalia and Justice Clarence Thomas have basically rejected the idea of the dormant Commerce Clause. If they adhere to that view here, then Maryland would only need to pick up three other votes to prevail. And at various points in the argument, Justices Ginsburg, Sotomayor, and Kagan sounded quite sympathetic to the state’s plight.