Maryland Taxpayers Win in the U.S. Supreme Court

On May 18, 2015, the U.S. Supreme Court ruled that the Maryland Comptroller’s practice of limiting the credit for taxes paid to other states to only the state tax portion of the personal income tax liability violated the dormant Commerce Clause of the U.S. Constitution. In a five to four decision, the Supreme Court affirmed the 2013 Maryland Court of Appeals decision in Maryland State Comptroller v. Brian Wynne, which ruled that the taxpayers were entitled to a credit for taxes paid to other states against both the state and the local tax portion of the tax liability. See Andersen’s July 25, 2013 tax release, Maryland Residents May Be Due Refunds for Taxes Paid to Other States for related information.

Maryland's personal income tax consists of two parts: state income tax and local income tax. Like many other states, Maryland allows a credit for income taxes paid to other states. However, the Maryland Comptroller has historically allowed this credit to be taken only against the state tax portion of the income tax liability and not against the local portion of the tax. 

The Supreme Court’s decision opens the door for taxpayers to receive refunds for prior years where the credit for taxes paid to other states was not allowed to be taken against the local portion of the tax. The decision also applies to 2014 personal income tax returns. 

On May 15, 2014, the Maryland Governor signed into law a special reduced interest rate that will apply to Wynne claims for refund. Therefore, the Comptroller will only be paying the average prime rate of interest (currently 3.25%) on the Wynne claims rather than statutory 13% for all other overpayments.

The Takeaway

Individual taxpayers who have not already filed protective claims for refund should review their Maryland income tax returns and consider filing claims for refund for all years open under the statute of limitations where taxes paid to other states exceeded the Maryland state tax.

Individual taxpayers who have already filed their 2014 Maryland income tax return should consider filing amended returns where taxes paid to other states exceeded the Maryland state tax.

Individual taxpayers who have not yet filed their 2014 income tax returns should claim a credit for taxes paid to other states against both the Maryland state tax and the local portion of their tax liability.