Corporate Close-Up: Will the Wynne Decision Result in a Windfall for Pass-Through Entity Owners?


 Individual partners and S corporation shareholders who earn income from the business activities of their companies in multiple jurisdictions have a real interest in how the U.S. Supreme Court decides the case of Maryland Comp. of the Treas. v. Wynne. 

Wynne, a Maryland resident and shareholder in a health care services business organized as an S corporation for federal tax purposes, paid tax to 39 states on his share of corporate income. He claimed a credit for the taxes paid in other states against both his Maryland state and county income taxes, although Maryland law allows for a credit only against state taxes.

In 2013, the Maryland Court of Appeals upheld a lower court ruling that Maryland law, by not allowing a credit against county taxes for taxes paid to other states, discriminates against interstate commerce. The U.S. Supreme Court granted certiorari to the Maryland Comptroller, after seeking input from the U.S Solicitor General, who expressed the view that the Maryland court’s decision was incorrect.

Should Wynne prevail, other Maryland business owners may be lining up for refunds of county taxes as a result of taxes previously paid to other states. The Maryland Association of Counties joined an amicus curiae brief in support of the Comptroller’s petition, raising concern over the “significant reductions in personal income tax collections” that could result if the Maryland court’s decision is upheld and estimating a prospective revenue loss of $45 to $50 million annually.

Of course, the ultimate disposition of the Wynnecase could end up costing business owners money depending on their state of residence. According to a 2011 study by the Tax Foundation, cities and counties in 17 states impose an income tax.  Pennsylvania, for one, according to tax return instructions, applies a credit for taxes paid to other states first against state income tax liability and then against local income tax liability. Local jurisdictions in Pennsylvania may call for elimination of the credit against local taxes if the Supreme Court sides with the Maryland Comptroller.

 By: Mike Dazé

  Continue the discussion on Bloomberg BNA’s State Tax Group onLinkedIn: Are you with the majority or the dissent in Wynne?

 More information about tax credits for taxes paid to other states can be found in Bloomberg BNA’s Individual Income Tax Navigator, available with a free trial to the Bloomberg BNA Premier State Tax Library.

 Follow BBNA on Twitter at: @BBNATax.