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. A decision against Maryland’s comptroller in this case will limit state and local taxing authority nationwide.

The Wynnes of Howard County, Maryland, received S-corporation income that was generated and taxed in numerous states. Maryland’s tax code 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 the Wynnes 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 International Municipal Lawyers Association (IMLA) filed an amicus brief, joined by ICMA, the U.S. Conference of Mayors, and the National Association of Counties, asking the Supreme Court to decide this case. IMLA’s brief notes that the lower court’s decision could reduce local income tax revenue in Maryland by up to $50 million annually. More significantly, the brief points out “if every state is required to accord its residents a dollar-for-dollar credit for all income taxes paid to out-of-state recipients (including counties and cities in other states), the flow of funds to in-state municipalities will be vastly curtailed.” Almost 5,000 local governments levy local taxes and many do not grant a complete credit for all income taxes paid in other states.  

The State and Local Legal Center will file an amicus brief in support of the comptroller in this case.