Supreme Court to Hear Case on States Taxing Out-of-State Income

The United States Supreme Court will hear a case involving a Maryland couple that believes their out-of-state income should not be taxed by their state of residence. 

Brian and Karen Wynne argue that the income they earn in several other states through Maxim Healthcare Services Inc., a company Mr. Wynne partially owns, should not be taxed by Maryland if they pay the income taxes in those other states.  Although Maryland has an out-of-state income tax credit that can be used to offset state income taxes, there is no equivalent credit that can be used to offset county income taxes. 

In Maryland Tax Court the Wynne’s claimed that the partial credit violates the dormant Commerce Clause.  However, University of Maryland Carey School of Law Professor Mark Graber said the dormant Commerce Clause says “there are some state regulations of interstate commerce that are unconstitutional even when Congress does not act. . .  So there is no federal law that prohibits or requires states to give tax credits for taxes paid in other states.  But the claim the Wynne’s are making is that, in fact, Maryland’s failure to do so sufficiently burdens interstate commerce.” 

The Wynne’s counsel explains he believes they “shouldn’t have to pay double taxes” and the way in which Maryland structures its taxes punishes Mr. Wynne for growing a successful business.  Yet, Maryland argued in court documents that it has the right as a sovereign state to tax the entirety of its residents’ income, regardless of where the income was generated or if taxes on that income were paid in other states. 

The Supreme Court will begin its next session on Monday.  The case is set to be argued November 12.

See Ashley S. Westerman, Supreme Court to Hear Case on Right of States to Tax Out-of-State Income, Southern Maryland Online, Oct. 2, 2014. 

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.