In January 2013, the Maryland Court of Appeals held that Maryland’s law that provided a credit for income taxes paid to other states against Maryland state income tax violated the U.S. Commerce Clause because the credit was not available to offset county-level income taxes in Maryland. Wynne v. Comptroller of the Treasury, Md. Ct. App., Dkt. No. 107 (Jan. 28, 2013). Maryland’s state individual income tax is divided into two parts: a state portion and a county portion. The state portion is uniformly applied to all Maryland residents, but the county portion varies by county. Maryland law provides a credit to residents to offset taxes paid to nonresident states. The credit, however, does not extend to the county portion of the Maryland individual income tax. The taxpayers in Wynne claimed a credit for taxes paid in other states against both the state and county portions of the Maryland individual income tax. The Maryland Court of Appeals, applying the internal consistency test of Oklahoma Tax Comm’n v. Jefferson Lines, Inc., 514 U.S. 175 (1995), found that if each state imposed a county tax without a credit as Maryland does, intrastate commerce would be favored over interstate commerce. This type of discrimination against interstate commerce was found impermissible by the Maryland Court of Appeals. On May 17, 2013, the Maryland Court of Appeals denied the Comptroller’s motion for reconsideration of the case. Thus, the ruling still stands, but the effective date of the ruling is still on hold to give Maryland time to petition the U.S. Supreme Court for certiorari. Comptroller of the Treasury v. Wynne, Md. Ct. App., Dkt. No. 107 (May 17, 2013).
Co-author - Patrick Smith, Director Baker Tilly Virchow Krause, LLP
Mr. Ely is a partner and Messrs. Thistle and Rhyne are associates with the multistate law firm of Bradley Arant Boult Cummings LLP in its Birmingham, Alabama office. Mr. Ely is Chair of the firm’s State & Local Tax Practice Group. Messrs. Ely, Thistle, and Rhyne co-author a chapter on the state taxation of PTEs in the treatise “Keatinge, Conaway and Ely on Choice of Business Entity” (West). Mr. Smith is the Tax Director at Baker Tilly Virchow Krause, LLP and is head of State & Local Tax Services for the firm’s Chicago office. Mr. Smith is a co-author of “State Taxation of Pass-Through Entities and Their Owners,” a treatise published by Warren Gorham and Lamont/West since 2005. Messrs. Ely and Smith have co-presented on this topic at NYU’s Institute on Federal Taxation, as have Messrs. Thistle and Smith for a webinar hosted by Strafford Publications in early June.