In a divided decision, the United States Supreme Court ruled that Maryland has been illegally double taxing some of its residents. In a 5-4 opinion, the Court held that Maryland must provide a full tax credit to its residents for income taxes paid outside the state.
The case, Comptroller of the Treasury of Maryland v. Wynne, involved taxpayers who were residents of Maryland but earned a substantial portion of their income outside of Maryland. As do most states, Maryland taxes its residents on all of their income earned both within the state as well as outside the state. To prevent double taxation, most states give their residents a credit for any taxes paid outside the state on any income so earned.
The Maryland income tax has two components: 1. The state income tax and 2. the local or “piggyback tax” that Maryland collects for the counties (and some cities). Prior to the ruling in this case, Maryland only provided credits against the state portion of the income tax. The Wynnes claimed credits against both the state portion and the local portion on their 2006 Maryland tax return. Their claim for the full credit was denied and the ensuing litigation wended its way to the Supreme Court which issued its opinion on May 18, 2015.
Due to the large number of Maryland taxpayers who earn some portion of their income outside of the state, this case has been closely watched. There have been estimates that the amount of refunds Maryland will eventually pay out will exceed $200 million.
If you or someone you know resides in Maryland and pays taxes to other states based on income earned outside of Maryland, you or they could be entitled to a refund.
- Chris Skinner, Esq.