Comptroller of Treasury of Md. v. Wynne
Headline: Court strikes down Maryland rule that denies residents a county tax credit for out-of-state income, blocking a tax scheme that causes double taxation and pressures people to work only inside the State.
Holding: The Court held that Maryland’s denial of a county-level credit for income taxes paid to other States violates the Constitution’s dormant Commerce Clause because it discriminates against interstate commerce.
- Prevents states from denying residents credits that cause double taxation on out-of-state income.
- Protects workers and small businesses with out-of-state income from state tax penalties favoring in-state work.
- Requires Maryland to revise its tax scheme or offer credits to avoid constitutional violation.
Summary
Background
Brian and Karen Wynne are Maryland residents who received pass-through income from an S corporation that reported income in many other States. On their Maryland return they claimed a credit for income taxes paid to other States. Maryland’s Comptroller allowed a credit against the State portion of the tax but denied any credit against the separately labeled county portion, creating a risk that some out-of-state income would be taxed twice. The Wynnes challenged the denial; Maryland courts reached opposite results until the State’s highest court struck down the county-credit rule and the Supreme Court agreed.
Reasoning
The central question was whether denying a county-level credit for taxes paid to other States unlawfully burdens interstate commerce. The Court relied on prior cases warning against state taxes that act like tariffs and on the “internal consistency” test showing Maryland’s scheme discriminates against interstate activity by creating a risk of multiple taxation. The majority concluded the county-credit rule operates like a tariff, discriminates against interstate commerce, and therefore violates the Constitution’s limit on state laws that burden interstate commerce (the dormant Commerce Clause). The Court treated individual income the same as corporate income for this rule and affirmed the Maryland high court’s judgment.
Real world impact
The decision protects Maryland residents who earn income in other States from a state tax feature that permitted double taxation and reduced the financial incentive to work across state lines. It requires Maryland to change the county-credit practice or otherwise eliminate the unconstitutional discrimination. The ruling applies to similar tax features that functionally favor in-state economic activity.
Dissents or concurrances
Several Justices dissented, arguing the Court should not apply the dormant Commerce Clause here; one dissenters urged reliance on long-standing state taxing power and historical practice supporting residence-based taxation.
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