Last week the United States Supreme Court made a ruling (yes another 5-4 split ruling, but not on “partisan lines”), on a case regarding Maryland’s tax system.  As we discussed before, a state can constitutionally tax a person so long the tax in question:

• There is substantial nexus between the state and the person;

• The tax is fairly apportioned;

• The tax does not discriminate against interstate commerce; and

• The there is a reasonable relationship between the tax and the services the state provides.

What the issue was in this case was that Maryland imposes both a state income tax, as well as a county-level based income tax on full time Maryland residents, but for Maryland non-residents, a “special nonresident tax”, which is the lowest county income tax rate.  The issue before the Court is the discriminatory nature of the county-based income tax.

What the Court found (in the leading opinion by Associate Justice Samuel J. Alito) that Maryland’s county tax scheme between full-time Maryland residents and Maryland nonresident as a “. . .  tax schem[e] that inherently discriminate [Emphasis Added] against interstate commerce without regard to the tax policies of other States”, due to this discriminatory nature of giving Maryland nonresident taxpayers a lower county income tax rate, compared to full-time residents, and also the Court noted that county income tax was not fairly apportioned, due to a lack of an “other state tax credit” against the county income taxes for income earned and/or received outside of Maryland.  Some commentators have noted that in local income taxes (e.g. New York City, some Pennsylvania counties and/or cities, etc.) may suffer or be challenged based on the Court’s holding on this case (the case is Comptroller of Maryland vs. Wynne).

So if you are a full-time Maryland resident, and/or a earned/received income from Maryland sources, please let us know at [email protected], and we would more than happy to look into this Court ruling further to see if apply to your fact scenario. Kayatax is is the premier tax and bookeeping company in Irvine California.