Change in Tax Refund Interest Rate Being Challenged

As reported by the Baltimore Sun, a constitutional challenge has been filed against the change in the interest rate payable on local income tax refunds associated with the local income tax case, Maryland State Comptroller of the Treasury v. Brian Wynne.

From the article,

The high court ruled in May that Maryland could not refuse to give taxpayers credit for taxes they paid on out-of-state income. That ruling could cost local governments up to $42 million a year and leaves tax authorities on the hook for about $200 million in refunds, officials have estimated.

In 2014, the General Assembly passed a law slashing the interest rate on potential tax refunds stemming from the case from 13 percent to about 3 percent, a move designed to save the state about $38 million.

In May 2015, the US Supreme Court ruled in a 5-4 decision that Maryland’s income tax system, specifically the application of the local income tax, is unconstitutional and must be altered to grant more credits for Maryland residents’ out-of-state income. At issue in the case, was whether the failure to allow a credit against the county income tax violates the commerce clause because it discriminates against interstate commerce.

For further information on the fiscal consequences of the Wynne decision and MACo’s coverage and participation in the case, visit Conduit Street.