The case is the State’s appeal of the Maryland Court of Appeals ruling of January 28, 2013, in which the court held that Maryland’s provision granting only partial credit against its resident individual income tax, i.e. only against the “state” portion of the tax, for taxes the individual paid to other states on interstate commerce income generated in the other states violates the Commerce Clause of the U.S. Constitution. The result of not granting credit against the “local” portion of the state tax is that Maryland is taxing non-Maryland income and subjecting interstate commerce to an impermissible extra burden, the burden of paying two taxes on the same income – Maryland’s “local” tax plus the other state’s tax. The provision is discriminatory because a business whose operations are totally in Maryland pays only one tax, Maryland’s.
Maryland is a small business state. We have thousands of small businesses organized as S-corporations, LLCs, partnerships and proprietorships that pay the personal income tax instead of the corporate income tax. Many of those small businesses are paying double tax because Maryland’s credit isn’t complete. That’s not fair and it’s unconstitutional. Corporations are allowed to apportion their income so that they are not taxed by Maryland on non-Maryland income (same for all states). Flow-through businesses don’t get to apportion, they have to deal with the credit after calculating tax on 100% of their income. Our research shows that Maryland is the only state that doesn’t give full credit. We believe that the U.S. Constitution should apply equally to all businesses that do interstate commerce, no matter whether the business is a corporation or a flow-through entity, so that no one is paying multiple income taxes on their multistate business income. The Maryland Chamber is happy to support the interests of these flow-through businesses and their Maryland resident owners that create thousands of jobs for Marylanders and are the backbone of our economy.
The Supreme Court is scheduled to hear oral argument in the case on November 12. We will have representation in the gallery and will report to you afterward.
We would like to thank our counsel on the brief, Jeff Friedman of Sutherland Asbill & Brennan LLP and Professor Walter Hellerstein of the University of Georgia Law School; as well as the Chamber’s Tax Policy Committee Chairman Herman Rosenthal of Whiteford Taylor and Preston, and the Chamber’s State Tax Consultant Karen Syrylo, CPA, of SC&H Group, who also assisted in the process.
If you have any questions about the brief or about the case, please contact Karen Syrylo at 410-218-2898 or firstname.lastname@example.org.