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Md. high court upholds state’s remedy for illegal tax

Maryland’s top court has unanimously upheld the state’s remedy for Marylanders who had paid the state’s “piggyback” tax on money earned and taxed in other states, an assessment the U.S. Supreme Court later found unconstitutional in 2015.

In its 7-0 decision, the Court of Appeals ruled Friday that the General Assembly acted within the Constitution in providing that Marylanders who had paid the unconstitutional tax would be reimbursed at a 3% interest rate, though that was 10 percentage points less than the state’s 13% interest rate on tax refunds due for overpayment during a calendar year.

The court’s decision was a defeat for Brian and Karen Wynne, who had successfully challenged the 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 Commerce Clause by discouraging Marylanders from earning money outside the state.

The Wynnes then challenged the state’s remedy, saying the 10 percentage point disparity in interest rate reimbursement similarly discourages out-of-state earnings and is likewise unconstitutional.

The Court of Appeals rejected that argument, stating that being taxed for working in another state discourages such employment but receiving a lower refund after performing such work does not.

“A provision that prospectively affects one’s anticipated tax liability can have a direct impact on interstate commerce by its distorting effect on the geography of production or capital investment,” Judge Robert N. McDonald wrote for the high court.

“In contrast, it is considerably less likely that those involved in commercial activity consider tax refund procedures in their decision-making,” he added. “In short, the rate of interest paid on tax refunds is too attenuated from interstate commerce as to substantially affect or interfere with the decision-making that directs the flow of capital or the location of transactions.”

The Wynnes’ attorney, Sean M. Marotta, declined to comment Monday on the Court of Appeals’ decision and on any potential plans to seek review by the U.S. Supreme Court. Marotta is with Hogan Lovells US LLP in Washington.

The office of Maryland Comptroller Peter Franchot said in a statement Monday that “we’re pleased with the court’s ruling and believe that the law, as amended, balances the interests of taxpayers and local jurisdictions.”

In its decision, the Court of Appeals affirmed Anne Arundel County Circuit Judge Donna M. Schaefer’s ruling in December 2018 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.

The Wynnes’ attorneys successfully requested that the Court of Appeals hear the 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, stated Marotta and his co-counsel, Steven F. Barley, also with Hogan Lovells.

The Wynnes’ constitutional challenges began when the Maryland comptroller said they could not deduct from their Howard County tax bill the $84,550 the couple paid in income taxes to other states in 2006. The Wynnes’ out-of state income was derived from Brian’s ownership share in Maxim Healthcare Services Inc., a Columbia company that operates nationwide.

The Court of Appeals rendered its decision Friday in Brian Wynne et al. v. Comptroller of Maryland, No 12 September Term 2019.


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