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Top court OKs extra tax on nonresidents

Maryland’s highest court on Thursday upheld a piggyback tax on nonresidents, which brought in nearly $50 million last year and an estimated $500 million since it was enacted in 2004.

The challengers — three partners in Philadelphia-based Saul Ewing LLP, and their spouses — claimed the tax is unconstitutional because out-of-state taxpayers wind up contributing more of their income to the general fund than state taxpayers do.

However, the Court of Appeals said the Special Non-resident Tax of 1.25 percent simply “ensures that all individuals competing in Maryland’s marketplace compete on equal footing,” since residents must also pay taxes to their home county or Baltimore city.

“[E]ven if nonresident taxpayers contribute more in taxes to the General Fund, the total amount contributed by nonresidents and residents to funding the costs of providing State and local governmental services is the same…,” Judge Mary Ellen Barbera wrote for the majority. “Thus, nonresidents and residents who earn taxable income in Maryland are treated equally even though the laws distinguish between them.”

Partnership income

Saul Ewing partners David S. Antzis, Timothy Frey, and Rudolph Garcia (who has since left the firm) neither lived nor worked in Maryland. They paid Maryland income tax because their partnership made money here.

They willingly paid the basic state tax of 4.75 percent for 2004. However, they balked at the additional 1.25 percent, which added between $300 and $1,600 to their tax bills for that year.

The state comptroller also assessed penalties of 10 percent on the amount due, as well as interest ranging from about $20 to $100 each.

The comptroller, the administrative Tax Court and every court to hear the matter has found the tax constitutional. However, the Tax Court also found there was a good-faith dispute and rescinded the penalties.

The partners also wanted the Tax Court to eliminate interest charges, but it refused. It said that state law authorizes only the tax collector to waive interest.

The Court of Appeals, which heard argument on Jan. 8, 2010, disagreed on that point, remanding the case for a hearing on the interest charges.

The dissenters, Chief Judge Robert M. Bell and Judge Clayton Greene Jr., would have gone further and struck down the tax.

The challengers and Harry Shapiro, a Baltimore-based Saul Ewing partner who argued the case at the Court of Appeals, could not be reached for comment Thursday. John K. Barry, senior counsel to the comptroller’s office, did not return a call before press time.

Perfection not required

Reports from the comptroller’s office show the tax brought in $48.4 million in tax year 2009, the most recent total available. That was down from $62.9 million in tax year 2008. In fact, it was the first time the amount slipped below $50 million since 2005.

Between 2004 and the 2009 tax year, the comptroller collected $454.9 million. Figures for tax year 2010 have not yet been released.

The partners claimed that the piggyback levy is an illegal local tax on nonresidents rather than a state tax.

The court disagreed, saying the local tax is part of a two-tiered state funding process and that eliminating the local tax “would result in a windfall to nonresidents.”

It could also mean the state would have to come up with a new tax scheme, “which, given the effectiveness of the current system, would be nothing more than a wasteful substitute,” Barbera wrote.

“As we have already explained, the Equal Protection Clause does not mandate that the State create a perfect tax scheme, merely a reasonable one,” the majority concluded.



Frey et al. v. Comptroller, CoA No. 62, September Term, 2009. Argued Jan. 8, 2010; published Sept. 29, 2011. Opinion by Barbera, J., dissent by Bell, CJ.


(1) Does the Special Non-resident Tax violate the Equal Protection, Commerce or Privileges and Immunities Clauses? (2) Does the Tax Court lack authority to abate interest assessed by the tax collector?


No; affirmed. (1) Nonresidents and residents are treated equally even though the laws distinguish between them. (2) The Tax Court’s statutory authorization to hear appeals carries with it the authority to abate interest.


Harry Shapiro for petitioners; John K. Barry for respondent.

RecordFax #11-0929-20