May 22, 2015|
In a win for Maryland residents that are working in other states, the Supreme Court struck down a Maryland tax law that, in essence, has been double-taxing those residents that are employed outside of Maryland. In short, on the Maryland resident tax forms a State income tax and a separate local (county) tax is calculated. If a taxpayer had tax liability from another State, they would receive a tax credit against their Maryland State portion of tax.
Prior to the ruling, if a taxpayer had paid more income tax to another state than they owed for the State portion of tax, Maryland would not allow the excess credit to be applied to the local (county) taxes the taxpayer owed. Most states give residents a full credit for all income taxes paid on money they have earned outside of the state in which they reside. In a 5-4 ruling, the Supreme Court decided that the way in which Maryland was calculating the tax was unconstitutional because it discouraged Maryland residents from earning money outside of the state. This ruling will allow the credit for taxes paid to other states to also go against the local tax.
Maryland residents may claim any portion of the credit they were owed by filing amended returns for the past 3 years. The State of Maryland estimates that they may be forced to refund up to $200 million in taxes.
While Maryland residents have received a respite from this “double-tax law”, Maryland is not the only state with such practices. Similar laws in other states, such as Pennsylvania, Ohio, New York, and Indiana could also be impacted by the Court’s ruling.