On May 17, 2013, the Maryland Court of Appeals denied the Comptroller’s motion for reconsideration of the Court’s taxpayer-favorable decision issued earlier this year in Comptroller v. Wynne. The Court held the resident credit for taxes paid to other states must include the local tax in addition to the state portion of the tax. Specifically, the decision ruled that the failure to allow a credit for the county tax for out-of-state taxes paid to other states on “pass-through” income earned in those states unconstitutionally discriminates against interstate commerce.
Maryland’s income tax has a state portion with a maximum rate of 5.75% and a county portion with rates that range from 1.25% to 3.2%. The state has interpreted credit for taxes paid in other states for Maryland residents as being allowed only against the state portion of the income tax. The court ruled this treated residents investing in multi-state businesses unfairly because income earned out-of-state incurred both out-of-state taxes and the Maryland county tax, whereas a similar investment in a business that earns all of its income in Maryland incurs only the county tax.
The decision in Wynne allows taxpayers to claim a refund for all open years where nonresident taxes exceeded Maryland state tax. However, the Court of Appeals delayed enforcement of its ruling to allow the Comptroller time to decide if it will appeal the decision to the U.S. Supreme Court. Still, the Comptroller is accepting protective claims for refunds, which will be processed in the order received, if the decision ultimately stands.
If you have any questions regarding filing a refund claim in Maryland, please contact your Aronson tax advisor or call 301.231.6200.