• U.S. Supreme Court Strikes Down Income Tax Scheme as Unconstitutional
  • May 26, 2015 | Authors: David H. Godenswager; David M. Kall; Susan Millradt McGlone
  • Law Firm: McDonald Hopkins LLC - Cleveland Office
  • On Monday, the U.S. Supreme Court released its decision in Comptroller v. Wynne, in which it considered the constitutionality of Maryland’s personal income tax on state residents. Maryland’s law provides for both a state and county income tax, but when a resident earns income - and pays tax on that income - in another state, the law only allows for a credit against the resident’s state tax liability, not the county tax liability. The court concluded this double taxation scheme, in which income earned outside the state is taxed twice, first by the state in which it’s earned and then by Maryland, amounts to unlawful discrimination against interstate commerce.

    Justice Alito wrote the 5-4 decision, and Chief Justice Roberts, and Justices Kennedy, Breyer and Sotomayor joined.


    Brian and Karen Wynne are Maryland residents. Brian owned stock in an out-of-state corporation, Maxim Healthcare Services, Inc., and earned income passed through from Maxim. They claimed a credit for the income tax they paid outside of Maryland, but the Maryland State Comptroller of the Treasury assessed a deficiency for their failure to pay county taxes.

    The Opinion

    In its decision, the court relied on the dormant Commerce Clause, a “negative command” not contained in the language of the Commerce Clause. The Commerce Clause gives Congress the power to regulate commerce between the states, whereas the dormant Commerce Clause “prohibits certain state taxation even when Congress has failed to legislate on the subject.”

    The court justified its holding with references to well-established precedents that “all but dictate the result:” a state “may not tax a transaction or incident more heavily when it crosses state lines...” Similarly, a state may not impose a tax that advantages local businesses or that subjects interstate commerce to “the burden of multiple taxation.” The prior cases addressed corporate, rather than individual income, but the court did not view the distinction between corporate and individual taxes in this context as relevant.

    ScotusBlog noted that during the oral arguments, Justices Ginsberg and Kennedy seemed troubled by the result that could stem from a decision in the Wynnes’ favor, such that Maryland could receive nothing in tax from residents who benefit from their residency. Justice Ginsberg opined that this would leave the state “without a penny from this resident who may have five children that he sends to school in Maryland.” Justice Kennedy worried about the resident getting a free ride.

    The court did not agree with the argument that individuals could be treated differently from corporations because individuals uniquely benefit from the provision of services, like schools, roads, police and fire protection, and health and welfare benefits. Instead, it reasoned that there was no basis to treat individuals and corporations differently because corporations “also benefit heavily from state and local services.”

    For example, trucks hauling a corporation’s supplies and goods, and vehicles transporting its employees, use local roads. Corporations call upon local police and fire departments to protect their facilities. Corporations rely on local schools to educate prospective employees, and the availability of good schools and other government services are features that may aid a corporation in attracting and retaining employees. Thus, disparate treatment of corporate and personal income cannot be justified based on the state services enjoyed by these two groups of taxpayers.


    The opinion doesn’t answer the question of how Maryland could solve the problem the court left it with. The court opined, “while Maryland could cure the problem with its current system by granting a credit for taxes paid to other states, we do not foreclose the possibility that it could comply with the Commerce Clause in some other way.”