On Monday, the Supreme Court in a 5-4 decision agreed with the Maryland Court of Appeals that the Maryland income tax is unconstitutional. The tax had the effect of double-taxing income residents earned in other states by not allowing a credit for income taxes paid to other states against both the state and local portions of the Maryland income tax.
The Supreme Court held that the tax violates the dormant Commerce Clause and discriminates against interstate commerce. If every state adopted Maryland’s taxing scheme, then interstate commerce would be taxed at a higher rate than intrastate.
What does this 5-4 decision mean? To Maryland, it could result in the loss of hundreds of millions of dollars in revenue. To Maryland residents, it means larger tax credits for income tax paid to other states. If you are a resident of Maryland with income earned both inside and outside Maryland, you should contact your outside accountant to determine the impact to your return and determine if a refund is in order.
Residents of Ohio, New York and Pennsylvania could eventually be affected by the ruling. Skoda Minotti’s SALT group will continue to analyze the potential impact this Supreme Court case has on the local taxing scheme and continue to provide updates on any changes. For more information on how this change may affect your tax filing, call Mary Jo Dolson, CPA at 888-201-4484 in our Tax Planning and Preparation Department.