Maryland's record tax refund

Is the double-taxation refund a cause for celebration? It is for some but not for the cause of tax fairness.

Gov. Larry Hogan may be a devout Catholic, but he clearly knows the meaning of the word, "chutzpah," too. The Yiddish term for "shameless audacity" was evident in the presentation he made this week trumpeting a Supreme Court ruling that provides as many as 55,000 Maryland taxpayers with what is collectively the biggest refund in state history as evidence the nation's highest court "agreed" with his view on taxes.

That's pretty rich given that the current governor had absolutely nothing to do with the ruling in a case argued before the Supreme Court in 2014; that it's not costing the state a dime; and that it merely affirmed what Maryland's highest court ruled in 2013 long before Mr. Hogan even ran for office.

Of course, if taxpayers received a dollar every time some Maryland elected officeholder claimed an event wholly out of his or her control as a personal victory, they'd be entitled to way more than the $200 million in taxes at stake in the court decision. Governor Hogan is simply following a Maryland political tradition of long-standing: Claim victory whenever possible. It's certainly not a custom lost on the guy standing next to him on Monday, Comptroller Peter Franchot, who jumped on the tax refund bandwagon despite having defended the state's position in court for the last two years. Let's just say he was for double taxation before he was against it.

Here's a reminder of what actually happened. Previously, state residents were afforded a credit to their Maryland income taxes for taxes they paid on income earned in other states, but they did not get a similar credit for the "piggyback" income tax, which the state collects on behalf of local governments. A Howard County couple, Brian and Karen Wynne, sued on the grounds that this amounted to double taxation.

They had a point — but local governments did, too. This involved mostly higher-end earners who could have investments in multiple states. Is it fair for the affluent to pay less in local income taxes than others simply because their paychecks are scattered about? In the case of the Wynnes, the dispute centered on partial ownership of a health care company that does business in multiple states.

The Supreme Court's decision turned on how the tax interfered with interstate commerce, Justice Samuel Alito claimed in writing for the majority, making no mention of Governor Hogan and his anti-tax platform. Nor, frankly, did he credit the heretofore hidden feelings of Mr. Franchot, who revealed Monday that his previous position on the matter was half-hearted. "I actually kind of secretly agreed with [the Wynnes] that it was double-taxation," he told reporters.

Both Governor Hogan and Comptroller Franchot are correct on at least one count — to encourage eligible taxpayers to apply for a refund. The court has made its ruling, and now it's up to the state to help make sure the money winds up with the folks who won. Those who want to know more about how to apply should visit www.wynnetaxrefund.maryland.gov.

The usual anti-tax crowd can certainly cheer the decision, as no doubt will those who will share in the proceeds. But the rest of us should remember that this is a closer question than all the hoopla suggests, turning as it does on questions of internal consistency peculiar to Maryland's unique system of piggyback local income taxes. The 5-4 decision scrambled the court's usual ideological lines, with some of the most liberal and conservative justices on each side.

Meanwhile, local governments have gotten socked with an immediate $200 million shortfall and a continuing budgetary hit that could require either reduced services or increased taxes or fees. And since Baltimore and the 23 counties have far fewer arrows available in their tax and fee quivers than the state legislature, it's eventually likely to put greater pressure on property taxes, their chief source of revenue.

Nobody enjoys paying taxes, but most people expect a continuation (and sometimes an expansion) of the government services that those taxes underwrite. In a world made increasingly more complicated by a fast-changing, often online-driven economy married to a creaky, generations-old tax structure to finance government, it's not surprising that disputes should arise. And while it's advantageous for Maryland and local governments to keep taxes as low as practical, it's also important to keep them as fair as possible.

Congratulations to the Wynnes and those in similar posture who, as Mr. Hogan stressed, should apply for tax refunds as soon as possible. But the decision also underscores the need to look at tax reform broadly and make decisions — including potential tax reductions — in the overall public interest and not by random chance or vagary of a court action.

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