Supreme Court Strikes Down Maryland Law That Double-Taxes Income Earned In Other States

[Purveyor]

Source: Associated Press

By SAM HANANEL
Associated Press

WASHINGTON (AP) -- The Supreme Court on Monday struck down as unconstitutional a Maryland tax that has the effect of double-taxing income residents earn in other states.

Maryland officials say the 5-4 ruling means the loss of hundreds of millions of dollars in tax revenues. It also could affect similar tax laws in nearly 5,000 local jurisdictions in other states, including New York, Indiana, Pennsylvania and Ohio.

The justices agreed with a lower court that the tax is invalid because it discourages Maryland residents from earning money outside the state.

The unusual split wasn't along ideological lines. Writing for the court, Justice Samuel Alito said the tax "is inherently discriminatory" under the Constitution's Commerce Clause. The court has interpreted that provision to ban states from passing laws that burden interstate commerce.

Read more: http://www.newser.com/article/e1b04bc9a2134b2d99a44b5c43c3a593/supreme-court-strikes-down-maryland-law-that-double-taxes-income-earned-in-other-states.html

[cosmicone]

1. Good. Unfair taxation should be discouraged. n/t

[maser]

14. MD going to be unhappy

Maryland will have a big sad at having something they can"t tax.

[madamvlb]

2. My hubby & son both work in NY and we live in PA....

they both pay taxes to NY & PA. It's about time!

[Scalded Nun]

3. I am by no means a tax expert

...but something within my tin-foil hat tells me that this is laying groundwork for corporations to avoid taxes on globally earned income. Hell, corporations (aka 'people') avoid pretty much everything already on income earned within US boundaries and this just seems to make it legal.

I can't say for certain yet, but somewhere down the road I believe this will pop up.

[Moliere]

4. Agreed that unfair double taxation should go away and

in NYC we have the privilege of paying federal, state and city taxes, but how do you account for using services in another state that you're no longer on the hook to pay for, ie roads, streeetlights, public transportation, police, firefighters, etc.. This is similar to the arguments flung around DU about Red staters not wanting to pay taxes but still wanting their public services. Am I missing something obvious?

[closeupready]

5. Well if you can be more specific, maybe you'll get an answer.

Your question as stated, however, is vague and unclear. How is it that if you are in New York City that you are 'using services in another state'? Is your question related to residency status and income taxes?

I'm sorry, but I'm just not understanding even the basics of what your question is.

[Jim Lane]

12. Here's my explanation, FWIW

I can't speak for Moliere but I know this issue came up several years ago when, as a result of political maneuvering, NYC lost its commuter tax. People live elsewhere in New York state, or in Connecticut or New Jersey, and commute into New York City to work. They take advantage of many services paid for by New York taxpayers (city and state) but they pay nothing for the roads they drive on, the police protection they take for granted, etc.

For many governments, this factor would net out. Commuters are commuting across the political boundary in both directions. State A provides services to commuters from State B for free but State A's commuters get the same benefit in State B. It's a major factor in New York City, however, because the number of people commuting in is overwhelmingly greater than those commuting out.

[FLPanhandle]

13. The way I understand it is...

If commuters are earning money in NYC; then NYC can tax the money earned there. Connecticut wouldn't be able to also tax that income.

You pay taxes on where the money is earned & taxed, so in the this case, Maryland can't tax money that was earned and taxed elsewhere.

[Jim Lane]

15. The NYC tax fell to politics, not constitutional law

You're right that the commuter tax applied only to money earned in NYC. Even as to that income, NYC didn't have the power to tax nonresidents; the commuter tax had to be approved by the State Legislature. In one of the campaigns, it became an issue. I think the Democrats in the State Assembly went along with repealing the tax in the hope that this would cause suburban commuters to look more favorably on the Democratic candidate for Governor.

It seems that NYC (and any other city similarly situated) is now getting the worst of both worlds. If a resident of Westchester County earns money in NYC, NYC can't tax it because the State Legislature won't allow it. If a resident of NYC earns money in another state, NYC can't tax it (nor can New York State) because the Supreme Court won't allow it.

[Xithras]

16. Tax the businesses.

The real problem with that line of thinking is that it presumes that the taxes should be paid for by the workers, and it basically amounts to the workers subsidizing their employers though their personal income taxes. If a business hires 1000 employees, and half of those employees are commuting in from outside the city, then the city is subsidizing the business by picking up the tab for the wear and infrastructure those 500 out-of-area employees are imposing on the community. However, those 500 employees are ONLY THERE because the company, which IS within the cities jurisdictions, hired them and asked them to come in. The solution, therefore, is to impose taxes on the companies to recover those funds. If the company is creating the problem, the company can pay the bill.

If cities did that, one of three things would happen. 1) The company would pay the taxes and the city would recover the money its losing. 2) The company would relocate out of the city to be nearer to its employees, reducing wear on the city and the shared financial loss the employer was imposing on its residents. 3) Companies would give preference to applicants who reside in the city to avoid the tax, allowing the city to collect taxes from the workers who already reside there AND reducing the infrastructure costs needed to support employees commuting in from outside of the city.

[closeupready]

6. Glad to hear it. Good ruling.

K&R

[cstanleytech]

7. So does this mean the state you live in cant take you for income or that

the state you earn it in cannot tax you and what about businesses? Does this mean businesses wont have to pay taxes for income earned in other states?

[FLPanhandle]

11. It means you can't be double taxed on the same income.

"Does this mean businesses wont have to pay taxes for income earned in other states?" - Yes, the businesses would only pay income in the state it was actually earned in.

[ieoeja]

8. Illinois taxes my Indiana income. But it deducts my Indiana income taxes.

So I pay 3.4% on my Indiana income to Indiana and 1.6% (5 minus 3.4) to Illinois.

Is this not how Maryland does it? Because I feel the extra tax I pay Illinois to be fair.

Of course, until recently it worked the other way around. Illinois tax was 3% so I actually received a 0.4% "refund" from Illinois for the excess tax I paid to Indiana!

[FLPanhandle]

9. I travel for work & earn income in multiple states per year

I have to pay taxes in each state. If I also had to pay taxes again on the same income, that's not fair.

Good ruling.

[truthisfreedom]

10. So, retroactive refunds, anyone?

[WestSideStory]

17. Rightly decided