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U.S. Supreme Court strikes down Maryland “piggy back” tax

On Behalf of | May 19, 2015 | Income Taxes

Georgia residents may be interested to learn that the U.S. Supreme Court has ruled a Maryland tax unconstitutional because it essentially results in the double taxation of income that its residents earn in other states. The 5-4 decision, which came down on May 18, means Maryland will lose out on hundreds of millions of dollars in tax revenues. It could also affect tax laws in nearly 5,000 local governments in other states, including Indiana, New York, Ohio and Pennsylvania.

The ruling strikes down a Maryland law, known as a “piggy back” tax, that allows residents to deduct income taxes paid to other states from their state taxes but not from their local county and city taxes. The case before the high court involved a couple who argued they were unfairly subjected to double taxation because they were not allowed to deduct $84,550 that they had paid in income taxes to 39 other states. Maryland argued it had the right to tax all income in order to pay for public services, such as schools and police service.

Writing for the majority, Justice Samuel Alito agreed with a lower court’s 2013 ruling that the tax is “inherently discriminatory” under the Constitution’s Commerce Clause, which has been interpreted as banning states from passing laws that are burdensome to interstate commerce. The ruling means Maryland must refund an estimated $200 million to residents, and its local governments will lose approximately $42 million each year.

Tax laws are extremely complex and are frequently changed. Any Georgia taxpayer who must pay income taxes to multiple states may wish to consult with a tax attorney in order to avoid overpayment or penalties.

Source: ABC News, “Supreme Court Strikes Down Maryland Tax Law,” Sam Hananel, May 18, 2015