Supreme Court upends Maryland tax law

The Supreme Court ruled Monday that Maryland essentially doubled taxes for some of its residents, potentially putting the state on the hook for millions of dollars in refunds.

In a divided 5-4 ruling, the court found Maryland’s law impeded interstate commerce by giving its residents incentives to only earn income within the state’s borders.

{mosads}Maryland has two separate income taxes, one is a state tax and another where the rate varies by county. The court ruling dealt with Maryland’s practice of not allowing residents credit for taxes paid to other states on the county portion of their income tax. Like other states, Maryland does give credit for taxes paid elsewhere on the state income tax.

Writing for the majority, Justice Samuel Alito said Maryland’s law basically acted as a state tariff, “the quintessential evil targeted by the dormant Commerce Clause.”

The Supreme Court is no stranger to 5-4 rulings, but the Maryland case did not split on familiar ideological lines. Justices Sonia Sotomayor and Stephen Breyer, both nominated by Democratic presidents, joined Alito, Chief Justice John Roberts and Justice Anthony Kennedy in the majority.

Two justices nominated by Republicans, Clarence Thomas and Antonin Scalia, and two picked by Democrats, Ruth Bader Ginsburg and Elena Kagan, all dissented.

The case could have a serious impact on Maryland’s budget. State officials had argued it could owe up to $120 million in refunds if the court ruled against Maryland, and could cost local governments up to $50 million a year.

The plaintiffs in the case, Brian and Karen Wynne of Howard County, Md., sued after Maryland blocked their efforts to claim credits for taxes paid to other states. The Wynnes had a stake in a healthcare company that was active in more than three dozen states.

In two separate opinions, the dissenters all argued that the majority went too far in saying the Commerce Clause could block state efforts to tax their residents. The Obama administration also backed Maryland in the case.

In her opinion, Ginsburg wrote that the court has long “recognized that state legislatures and the Congress are constitutionally assigned and institutionally better equipped” to deal with these sorts of tax issues.