The U.S. Supreme Court's ruling striking down a Maryland law that effectively double-taxed residents on income made outside the state is going to have some dramatic impact on local governments.
Early estimates from Maryland tax officials have put that price tag in the neighborhood of $43 million to local municipalities. The suit, originally brought by a couple from Howard County, argued that they should have received some kind of tax credit for income taxes they paid to other states. Taxpayers do have a credit against the state income tax, but they don't for the "piggyback" tax, the money the state collects for local jurisdictions. The decision may also impact thousands of other jurisdictions throughout the country.
Hardship or not on the local budgets, the Supreme Court's narrow 5-4 ruling was correct in ending what Justice Samuel Alito called a "tax scheme" that is "inherently discriminatory and operates as a tariff." Alito, in writing the majority opinion for the court, said "Maryland's tax unconstitutionally discriminates against interstate commerce, and it is thus invalid regardless of how much a particular taxpayer must pay to the taxing state."
In the immediate aftermath of Monday's decision, state and local officials bemoaned that loss of money which might amount to $200 million in tax refunds and as much as $50 million in annual collections. For Carroll, the figure could be $1 million. The loss of money would put an undue burden on budgets which, as one might expect, was put in terms of lost revenue for schools, public safety and infrastructure improvements. We don't want to be unsympathetic to these concerns because they are real. This money will have to made up either in terms of cuts to services or by finding other revenue streams.
But we're puzzled by those who thought this kind of tax strategy made sense in the first place. Why would anyone think that taxing income that has already been subject to a tax in another state where it was earned is fair? Doing so would have harsh consequences on those who do work in multiple states and might even discourage that kind of commerce.
It also serves as a reminder to us what we've already known for quite some time: Our state elected officials are looking for every way they possibly can to raise revenue. And again, we understand the budget pressures. But we think fairness is equally as important. And in this particular case, we don't believe this double taxing of income was reasonable. The Supreme Court made the right call.