Incentives Watch: U.S. Supreme Court Grants Cert in Tax Credit Case Involving County Taxes

The U.S. Supreme Court granted certiorari today in a state case, Maryland Comp. of the Treas. v. Wynne, dealing with the availability of a credit against state tax, but not county tax, for taxes paid to other jurisdictions.  Many states offer credits for taxes paid to other jurisdictions, so the Court’s decision could affect many areas across the country.

In 2013, the Maryland Court of Appeals upheld a lower court ruling that Maryland’s tax statute, which does not allow an income tax credit against the county tax for taxes paid to other states, is unconstitutional.  The U.S. Supreme Court will now hear oral arguments on the case in October of this year. 

The case involves a taxpayer who was one of several owners of a health care services company treated as an S corporation for federal income tax purposes.  The S corporation allocated the pro rata share of taxes paid to other states to its shareholders. 

The taxpayer then claimed an income tax credit for the out-of-state taxes paid; however, the credit was disallowed as it related to the county tax.  The Comptroller subsequently issued an assessment against the taxpayer.

Currently, an income tax credit is available in Maryland against the state tax for taxes paid to other states.  The credit had been available against the county tax as well, but the tax law was amended in 1975 to eliminate that portion of the credit.

The Maryland Court of Appeals held that “the application of the county tax to pass-through S corporation income sourced in other states that tax that income, without application of an appropriate credit, discriminates against interstate commerce.”

For more information about tax credits for out-of-state taxes paid, check out Bloomberg BNA’s Individual Income Tax Navigator by signing up for a free trial of the Bloomberg BNA Premier State Tax Library today.

In other developments . . .

Colorado recently extended the amount of time businesses may receive the job growth credit from five years to eight years, according to a Bloomberg BNA Weekly State Tax Reportarticle.

By: Kathleen Caggiano

Follow Kathleen on Twitter at:  @katcaggiano .

Follow BBNA on Twitter at: @BBNATax .