(Nov. 28, 2014) Even though Worcester County enjoys the lowest “piggyback tax” rate in the state at 1.25 percent — equaling what the state charges nonresidents — the effect of the U.S. Supreme Court’s decision in Comptroller v. Wynne could have significant implications on local tax bills.
The high court heard arguments in the case on Nov. 12, after the State Comptroller’s Office appealed a Maryland Court of Appeals ruling in favor of Howard County resident Brian Wynne and his wife, who argued that they were subject to dual taxation.
They contended that the county’s piggyback tax on their out-of-state earnings was unconstitutional because they had already paid taxes to the state where that income was earned.
The Supreme Court is not expected to deliver its opinion until sometime next year.
Maryland state tax is comprised of two components, the familiar state portion and a portion that is distributed and managed by the state’s counties.
The vanilla state tax is not at issue in the case, as conceded by the state’s attorney during oral arguments.
The problem arises in the county portion. Maryland does not provide a credit for income taxes already paid to states where the income was earned, leaving the earner to pay the full amount required by the tax on the already-taxed income.
That’s particularly pertinent in Worcester County, where many residents have jobs or gain income from neighboring Delaware.
The Wynnes’ argument, as outlined in court documents, is this structure violates the dormant commerce clause of the Constitution.
The commerce clause gives Congress the power to regulate commerce between states.
The dormant section is the reverse inferred, but not expressly written, in the clause: a restriction on states that burdens interstate commerce.
SCOTUSblog reports in their analysis of the arguments that the decision is too close to call at this point.
County Commissioner President J. Bud Church said Worcester County set its rate low, “because we wanted to have the lowest rate in the state.”
Church said the commissioners were briefed on the piggyback tax litigation some time ago, and estimated the net effect to the state between $220-250 million.
“It’s a Catch-22. Residents would have to file for a refund and no one knows how many will do that. No one knows how it will work,” he said.
Commissioner Virgil Shockley said it was simpler and more effective to raise money through the property tax increases.
Commissioners M. Jim Bunting and Merrill Lockfaw both reported the issue required further study.
When put to Ocean City Today’s Facebook followers, commenters were not in favor of the existing structure. All respondents appear to live in Maryland, if not in Worcester County.
“No one should pay double tax on income,” Suzanna Ahalt said, “My point is, property tax is based on the location of the property. Income tax should be based on one thing, either where it is earned or where the earner lives.”
Peggy Kay said income tax should be based solely on where the earner lives.
“The problem is Maryland wants it both ways…It violates the internal consistency test,” Beverly Bareham, who self-reports as a tax professional on her profile, said.
Michael Smith carpet-bombed the entire idea.
“Maryland tries to tax everything that’s why they have a Republican governor because people are fed up with the way Maryland taxes everything you can think of and constantly needs more taxes because of wasteful spending and handouts to anyone who wants them they drive business and citizens to other states,” he said.