The Maryland attorney general's office has asked the U.S. Supreme Court to review a ruling by the Court of Appeals about the way Maryland handles the taxation of out-of-state income that could cost counties $50 million a year.
Maryland provides credits for taxes that are paid to other states but does not extend those credits to the local portion of the state taxes that is used to partly fund counties and Baltimore. Brian and Karen Wynne, a Howard County couple, contested the second part of the law and the state's top court ruled this year that it violates the Commerce Clause of the U.S. Constitution.
In a petition to the U.S. Supreme Court, the attorney general's office said the nation's top court has long recognized the power of states to tax the entire income of their residents and called the Maryland high court's finding "unprecedented."
"The Constitution furnishes no basis for invalidating Maryland's long-standing tax system or casting doubt on the validity of similar regimes maintained in other states," the state's lawyers wrote in the filing.
An attorney for the Wynnes declined to comment on the petition.
Brian Wynne owned a stake in a medical supply business that operates around the country and is set up in such a way that its profits are treated as personal income. In his 2006 tax return, Wynne applied for credits on his portion of the company's income that was taxed elsewhere, but Maryland tax authorities said that he had underpaid, according to court documents.
Wynne contested that finding, sparking the lawsuit.
The Maryland Court of Appeals found in May that by not offering a credit for the local portion of the tax, the state's code could discourage corporations from doing business across state lines.
The tax system "may encourage Maryland residents to invest in purely local businesses, and discourage businesses from seeking to operate both in Maryland and in other states," Judge Robert J. McDonald wrote. "In effect, it acts as an extra tax on interstate income-earning activities."