Brian and Karen Wynne, whose constitutional challenge to Maryland’s piggyback tax on money earned and taxed in other states won in the U.S. Supreme Court in 2015, might be on course for a return trip to the justices.
Maryland’s top court has agreed to hear the couple’s argument that the state’s remedy for its constitutional wrong was itself unconstitutional. The losing party at the Maryland Court of Appeals – be it the Wynnes or state Comptroller Peter Franchot – will likely seek review by the Supreme Court.
Four years ago, the justices struck down a Maryland law that barred Marylanders from deducting from city or county “piggyback” taxes any income tax they paid to other states on money earned there. In its 5-4 decision, the Supreme Court said the law violated the federal Constitution’s Commerce Clause by discouraging Marylanders from earning money outside the state.
As a remedy, the General Assembly enacted a law providing that those who paid the unconstitutional, non-deducted tax would be reimbursed at 3% interest, which was less than the state’s 13% interest on tax refunds due for overpayment during a calendar year.
The Wynnes, through counsel, argue that this 10 percentage point disparity in interest for out-of-state wage earners and the interest owed to taxpayers on conventional refunds similarly violates the Commerce Clause by punishing those who earned money outside the state.
That argument won in Maryland Tax Court but lost on appeal in Anne Arundel County Circuit Court. Judge Donna M. Schaefer said in December that the 3% remedy’s retroactive application would not discourage Marylanders from working out of state in the future, as they have not been unconstitutionally taxed since the Supreme Court’s 2015 ruling.
Schaefer’s holding “defies logic,” the Wynnes’ counsel wrote in the couple’s successful request for Court of Appeals review.
“Under it, states could always avoid … Commerce Clause scrutiny by making their discriminatory laws retroactive for a finite period,” wrote attorneys Steven F. Barley and Sean Marotta, of Hogan Lovells US LLP. “If Marylanders engaged in interstate commerce know that the state will discriminatorily slash interest on their refunds when they prevail in a tax-refund suit, they are less likely – on balance – to engage in interstate commerce.”
Barley and Marotta also successfully pressed the high court to hear the Wynnes’ appeal directly from the circuit court without it first being considered by the intermediate Court of Special Appeals. Direct review of the case by the Court of Appeals is “of significant importance to Maryland taxpayers,” as at least 440 of them have similar claims, the lawyers added.
The Maryland Attorney General’s Office, on behalf of Franchot, filed responsive papers with the high court criticizing the Wynnes’ “attenuated connection, if any connection exists at all, between the payment of interest to Maryland residents on prior-year refund claims and interstate commerce.”
Assistant Attorney General Brian L. Oliner wrote that the comptroller has no objection to the Court of Appeals eventually considering the constitutional question but said that the usual process should be followed and the appeal heard first by the intermediate Court of Special Appeals.
“(T)hat the outcomes of similar claims by other Marylanders hinge on the outcome of the Wynnes’ claim should not affect this (high) court’s calculation in ruling on this petition” for review, Oliner wrote.
“The interests of other taxpayers are indeed important, but they are present in every case in which a citizen makes a facial challenge to the validity of a legislative enactment,” Oliner added. “But this cannot be sufficient justification for granting review before judgment in the Court of Special Appeals is rendered. Indeed, if this were the case, then by rule every appeal emanating from the Tax Court should immediately proceed to this court.”
The Court of Appeals will hear arguments in the appeal in October, according to the clerk’s office. The high court is expected to render by Aug. 31, 2020, its decision in the case, Brian Wynne et al. v. Comptroller of Maryland, No 12 September Term 2019.