Following Monday’s U.S. Supreme Court decision that Maryland’s personal income tax regime is unconstitutional, join Sutherland SALT and Professor Wally Hellerstein, University of Georgia Taxation Law Professor and author of State Taxation, on Thursday, May 21 at 2:00 p.m. EST for a discussion including an analysis and potential implications of the Court’s ruling.
A divided U.S. Supreme Court ruled that Maryland’s personal income tax regime is unconstitutional. Comptroller of the Treasury v. Wynne, 575 U.S. __ (2015). The Court affirmed the Maryland Court of Appeals in a 5-4 decision and held that Maryland unconstitutionally created the risk of multiple taxation.
This morning the U.S. Supreme Court ruled that Maryland’s personal income tax regime is unconstitutional. By failing to provide a full credit to its residents for taxes paid to other states, Maryland unconstitutionally created the risk of multiple taxation. The Maryland Court of Appeals was affirmed. The decision was 5-4, with the majority opinion authored…
A decision by Maryland’s highest court illustrates the complexities taxpayers face in reporting federal income tax audit changes for state income tax purposes. The Maryland Court of Appeals held that an individual must claim a state income tax refund resulting from a “final” federal audit change within one year of the Internal Revenue Service’s issuance of Form 4549A, Income Tax Examination Changes, rather than the date when the taxpayer could no longer appeal the Service’s determination. King v. Comptr. of Treas., 2012 WL 592788 (Md. Feb. 24, 2012), aff’g Md. App. (unreported), rev’g 2009 WL 6767497 (Calvert Cnty Cir. Ct. Nov. 12, 2009), rev’g Md. Tax Ct. (Aug. 28, 2008), aff’g Md. Comptr. Off. Hrg. and App. Section.
The taxpayer, who is the ex-wife of author Tom Clancy, owned a limited partnership interest in the Baltimore Orioles baseball team. A federal income tax audit of the partnership resulted in the IRS adjusting certain partnership items using Form 870-PT, Agreement for Partnership Items and Partnership Level Determinations. The partnership adjustments flowed through to the taxpayer’s personal income tax return and permitted her to utilize additional losses, thereby reducing her federal taxable income. The IRS reported the impact of the partnership’s flow through adjustments to the taxpayer on Form 4549A, after which the taxpayer had a minimum of six months to challenge the IRS’ adjustments.
Maryland is known for crabcakes, a beautiful capital city, a mediocre baseball team, a great law school (Jeff Friedman snuck this edit in), and, now, unconstitutional tax laws. A taxpayer won a constitutional challenge to the Maryland personal income tax, which prohibited a credit against the local income tax for taxes paid to other jurisdictions. Brian Wynne v. Md. State Comptroller, Case No. 13-C-10-80987 (June 20, 2011).
Maryland, like most states, permits resident taxpayers a credit for taxes paid to other jurisdictions to offset the state’s personal income tax. Md. Code Ann. § 10-703(a). The Maryland statute, however, only provided a credit against the state income tax and did not provide a credit against county income taxes. The Howard County Circuit Court, reversing the Maryland Tax Court, held that a Maryland statute violated the Commerce Clause because it did not permit the taxpayer to take a credit against the Baltimore portion of the personal income tax for taxes paid to other jurisdictions.
Thomas Jefferson once described jury trials as “the only anchor yet imagined by man by which a government can be held to the principles of its constitution.” Jefferson would likely be disappointed by the California Supreme Court’s recent decision holding that taxpayers have no right to demand a jury trial in California income tax refund…
Georgia’s grand experiment to comprehensively rewrite its state tax code came to an anti-climactic halt on April 11, 2011, when the Georgia House of Representatives adjourned without taking up the tax reform bill. In its final form, the bill was unable to withstand a substantial political attack with uncertainty as to the net revenue impact of the bill and whether changes in the personal income tax calculation would create a tax increase on the middle class.
The 10-month tax reform saga began in June 2010, with legislation creating the Special Council on Tax Reform and Fairness for Georgians (the Council), which issued a comprehensive report on January 7, 2011, generally recommending a transition from income taxes to more broad-based consumption taxes. (See Sutherland’s January 10, 2011 Legal Alert for detailed coverage of the Council’s report). The original tax reform bill, H.B. 385, was originally introduced to the Special Joint Committee on Georgia Revenue Structure (the Joint Committee) mirroring the recommendations of the Council and intending to be revenue neutral.