Maryland Public Schools Have Big Stake in Supreme Court Case
This post is written by guest blogger Ann Blyberg
Schools, counties and other local jurisdictions should be making contingency plans in case the U.S. Supreme
Court rules against Maryland in a challenge to part of the state’s tax system. If they don’t, the consequences may be drastic, with more than $40 million a year in tax revenue and $250 million in claims for refunds at stake.
Montgomery County alone “could lose $25 million annually and be liable for $150 million in back claims,” according to the Washington Post. An adverse decision could hardly come at a worse time. Schools and counties are only beginning to recover from the 2008 recession and the substantial cuts made to education, public facilities, and public safety in the wake of that crisis.
At issue is whether the state has improperly failed to give some tax credits to Maryland residents for income taxes they paid in other states.
The decision in the case (Comptroller of the Treasury of Maryland v. Wynne) will have significant ramifications for other states as well, as was evident by the number of legal briefs filed. Siding with Maryland: the US Solicitor General, the International Municipal Lawyers Association, the National Conference of State Legislatures, the National League of Cities, and the U.S. Conference of Mayors. On the other side: the U.S. Chamber of Commerce, the Maryland Chamber of Commerce, and the National Federation of Independent Business.
The plaintiffs, the Wynnes, live in Howard County. The case arose when they had to pay Maryland state income tax on income they earned in 2006 in other states, for which they paid taxes in those other states. While the case is complex, it boils down to this: Maryland gives taxpayers credits for taxes paid in other states for income earned in those states, but it does not apply the credits to the portion of the state income tax that is passed on to counties. The Wynnes maintain that this amounts to a “double tax” paid on income made in other states and puts a burden on interstate commerce.
At its Nov. 13 hearing on the case, the Supreme Court justices gave no clear indication of the way they are inclined to rule, with Justices Antonin Scalia and Clarence Thomas reportedly hostile to any argument relying on the “dormant Commerce Clause,” an interpretation of article 1 of the US Constitution that prohibits states from passing legislation that improperly burdens or discriminates against interstate commerce. Chief Justice Roberts, along with Justices Alito and Kennedy appeared inclined to agree with the Wynnes, while Justices Breyer, Ginsberg, Kagan and Sotomayor seemed concerned about the implications for states and localities of the loss of important revenue if credit for taxes paid elsewhere must also be applied to county-level taxes.
Some commentators have suggested that given the important constitutional provisions involved and the complexity of tax laws, the court should rule very narrowly. A sweeping endorsement or rejection of Maryland’s position could result, for example, in double taxing non-residents who owe tax on income earned in Maryland, or alternatively, depriving localities of essential revenue to fund local services. Regardless of what counties think of the plaintiff’s argument, they must plan ahead for an adverse decision.
