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Attorneys file $38M lawsuit against Maryland comptroller

ANNAPOLIS — Attorneys filed a $38 million class action lawsuit against the Maryland comptroller’s office on Friday, alleging the state wrongly changed the law to lower the amount of interest it would owe people who became entitled to tax refunds due to a U.S. Supreme Court ruling.

In May, the Supreme Court ruled 5-4 that it is unconstitutional for counties and some city governments to, in effect, double-tax income residents earn in other states.

The Baltimore law firms of Brown, Goldstein & Levy LLP and the Law Offices of Stuart Levine LLC contend state lawmakers braced for losing the case by changing the law to lower the amount of interest to be paid on those refunds from 13 percent to 3.25 percent. The lawsuit, filed in Baltimore City Circuit Court, alleges that violates the takings and due process clauses of the U.S. Constitution.

In 2006, Brian and Karen Wynne sued the state for refusing to credit Maryland taxpayers for taxes paid in other states. While the state allowed residents to deduct income taxes paid to other states from their state of Maryland tax, that deduction was not extended on a local “piggyback” tax collected for local governments.

At that time, Maryland granted a right to interest of at least 13 percent to taxpayers entitled to a refund who did not receive it within 45 days of making the refund request. The lawsuit argues that many Maryland taxpayers made such refund requests for tax years beginning in 2006 in anticipation that the Wynnes would win the case.

Attorneys for the plaintiffs say that as the case made its way through the high court, the Maryland General Assembly created a special rule that singled out taxpayers entitled to such refunds, limiting interest at the average prime rate for 2015, or 3.25 percent, and applying the limit retroactively to taxpayers who had requested refunds before 2014.

“What has happened to the taxpayers who had the foresight to make claims for refunds, knowing that it was wrong for Maryland to tax income already taxed in other states is an unconstitutional taking without due process,” said Dan Goldstein, co-counsel with Stuart Levine for the plaintiffs. “We hope that the state of Maryland will quickly acknowledge the error of its ways and do right by these taxpayers.”

Andrew Friedson, a spokesman for Comptroller Peter Franchot, declined to comment on active litigation.

Franchot, a Democrat, and Republican Gov. Larry Hogan both warned that the lower interest rate might prompt litigation when they appeared together at a news conference in September to raise awareness for residents eligible for a refund. An estimated 55,000 taxpayers are eligible, and the total amount refunded could add up to more than $200 million, Hogan said at the time.