Tax Court Upholds Reduced Rate for Wynne Refunds

The Maryland Tax Court rejected assertions that the Maryland Comptroller’s decision to apply a reduced interest rate for unpaid refunds resulting from the U.S. Supreme Court’s 2015 decision in Comptroller of Maryland v. Wynne violated the Fourteenth Amendment’s established right to due process, the Fifth Amendment’s protection against takings without just compensation, and the prohibition on legislation impairing vested rights established by the Maryland Constitution and Maryland Declaration of Rights.

The decision is the latest chapter in litigation between Brian and Karen Wynne and the Comptroller of Maryland. The Wynnes initially challenged the constitutionality of Maryland’s income tax system — in particular, the credit allowed against a  resident’s income tax liability based on taxes paid to other states on out-of-state-income.

Maryland’s income tax law provided a credit for out-of-state income tax payments against the State income tax, but not the local income tax. The prohibition on the local income tax deduction went all the way to the U.S. Supreme Court. In a 5-4 decision, the Court ruled that the failure to take out-of-state taxes into account in determining the Maryland residents’ county taxes violated the dormant Commerce Clause.

Subsequently, the Maryland General Assembly enacted a new law that provided a refund interest rate of three percent for the out-of-state collected taxes instead of the 13 percent rate paid on certain other refunds. The reduced rate is estimated to have saved counties approximately $30 to $40 million.

However, the Wynnes challenged the remedy, arguing that the different refund rates for out-of-state wage earners similarly violated the Commerce Clause. 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. In a unanimous decision, the Maryland Court of Appeals in 2019 ruled that the General Assembly was warranted in setting a reduced interest rate for the refunds from the Wynee decision.

The amount of money owed by counties for the refunds paid is extraordinarily high, at around $250 million. While affected taxpayers have already received their proper refunds and interest, as previously reported on Conduit Street, the General Assembly last year passed HB 621 – County Tax Fairness Act, legislation that delays the requirement for local governments to repay the Local Income Tax Reserve Account for refunds paid under the Wynne case.

Stay tuned to Conduit Street for more information.

Useful Links

Previous Conduit Street Coverage: Maryland High Court Upholds State’s Remedy for Wynne Refunds

Maryland Tax Court: Brian and Karen Wynne v. Comptroller of Maryland, Memorandum and Order

Maryland Court of Appeals Decision: Brian Wynne et al. v. Comptroller of Maryland, No 12 September Term 2019

Previous Conduit Street Coverage: General Assembly Passes County Tax Fairness Act

MACo Testimony on HB 621 – County Tax Fairness Act