Wynnes Challenge Constitutionality of Maryland’s Tax Repayment Remedy

Daily Record article (2019-05-23) provided an update on the efforts of Brian and Karen Wynne, who are currently challenging the constitutionality of Maryland’s tax repayment remedy. The remedy was put in place after the Wynnes won a 2015 United State Supreme Court decision striking down Maryland’s prohibition on deducting from local income taxes any out-of-state income or taxes paid.

The Wynnes initially challenged Maryland’s prohibition on the local income tax deduction and the case when all the way to the Supreme Court. In a 5-4 decision, the Supreme Court struck down Maryland’s prohibition, finding that it violated the Commerce Clause of the US Constitution.

Subsequently, the Maryland General Assembly enacted a new law that provided a refund interest rate of 3% for the out-of-state collected taxes instead of the state’s regular 13% refund interest rate. The remedy was estimated to save counties approximately $30 to $40 million.

However, the Wynnes challenged the remedy, arguing that that the different refund rates for out-of-state wage earners violated the Commerce Clause in a similar manner to original deduction prohibition.

The Maryland Tax Court found for the Wynnes but they lost on appeal in Anne Arundel County Circuit. The Wynnes then successfully appealed the case directly to the Court of Appeals, bypassing the Court of Special Appeals. From the article:

[Anne Arundel County Circuit Court] Judge Donna M. Schaefer said in December that the 3% remedy’s retroactive application would not discourage Marylanders from working out of state in the future, as they have not been unconstitutionally taxed since the Supreme Court’s 2015 ruling.

Schaefer’s holding “defies logic,” the Wynnes’ counsel wrote in the couple’s successful request for Court of Appeals review.

“Under it, states could always avoid … Commerce Clause scrutiny by making their discriminatory laws retroactive for a finite period,” wrote attorneys Steven F. Barley and Sean Marotta, of Hogan Lovells US LLP. “If Marylanders engaged in interstate commerce know that the state will discriminatorily slash interest on their refunds when they prevail in a tax-refund suit, they are less likely – on balance – to engage in interstate commerce.”

The article noted that the Court of Appeals will hear case arguments in October and will likely render a decision by the end of August in 2020. The losing party is expected to appeal to the Supreme Court.

The case is Brian Wynne et al. v. Comptroller of Maryland, No 12 September Term 2019.

Useful Links

Brian and Karen Wynne v. Comptroller of Maryland (Maryland Tax Court Order, May 23, 2018)

Judicial History of the Wynne Case

Prior Conduit Street Coverage of the Wynne Cases