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By Lisa Soronen

Every U.S. Supreme Court tax case comes down to an argument perhaps most familiar to small children: "It isn’t fair.” 

NCS is involved in a tax case arguing that states should be able to devise tax schemes without judicial interference.The State and Local Legal Center (SLLC)/International Municipal Lawyers Association (IMLA) amicus brief, which NCSL joined, in Comptroller v. Wynne argues that the tax policy choice the Maryland legislature made is fair (or at least fair enough) and that state legislatures should be able to devise tax schemes without judicial interference. 

In Comptroller v. Wynne, the Supreme Court will determine whether the U.S. Constitution requires states to give a credit for taxes paid on income earned out-of-state. 

Forty-three states and nearly 5,000 local governments tax residents’ income. Many of these jurisdictions do not provide a dollar-for-dollar tax credit for income taxes paid to other states on income earned out-of-state. A decision against Maryland’s comptroller in this case will limit state and local government taxing authority nationwide.

The Wynnes of Howard County, Md., received S-corporation income that was generated and taxed in numerous states. Maryland’s tax Ccode includes a county tax. While Maryland law allowed the Wynnes to receive a tax credit against their Maryland state taxes for income taxes paid to other states, it did not allow them to claim a credit against their Maryland county taxes.

Maryland’s highest state court held that Maryland’s failure to grant a credit against Maryland’s county tax violated the U.S. Constitution’s dormant Commerce Clause, which denies states the power to unjustifiably discriminate against or burden interstate commerce. Among other things, the Maryland Court of Appeals noted that if every state imposed a county tax without a credit, interstate commerce would be disadvantaged. Taxpayers who earn income out of state would be “systematically taxed at higher rates relative to taxpayers who earn income entirely within their home state.”

The SLLC/IMLA amicus brief points out that state and local governments must make complex policy choices and tradeoffs when devising a taxing system. If Maryland was required to provide a dollar-for-dollar tax credit, a neighbor with substantial out-of-state income would contribute significantly less to pay for local services than a neighbor earning the same income in-state, even though both take equal advantage of local services.

And to counterbalance a dollar-for-dollar tax credit, a county would need to raise some other tax, which would fall disproportionately on some other neighbor and often be more regressive. The brief argues that Maryland’s policy choice to avoid these results “does not cross any constitutional line.”

Paul Clement and Zack Tripp of Bancroft wrote the SLLC/IMLA brief. The National Conference of State Legislatures, National League of Cities, U.S. Conference of Mayors, National Association of Counties, International City/County Management Association, and the Government Finance Officers Association joined the brief. 

Lisa Soronen is the executive director of the State and Local Legal Center and writes frequently for the NCSL blog about the U.S. Supreme Court.

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This blog offers updates on the National Conference of State Legislatures' research and training, the latest on federalism and the state legislative institution, and posts about state legislators and legislative staff. The blog is edited by NCSL staff and written primarily by NCSL's experts on public policy and the state legislative institution.

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