A recent Maryland Circuit Court decision, Wynne v. Maryland Comp. of the Treas.,holding that the state's credit for state taxes paid provision violates the U.S. Commerce Clause is being challenged by Maryland’s Comptroller of the Treasury.
At issue is whether the credit for taxes paid to other states may be applied against local as well as state tax. Maryland's Tax Court upheld the comptroller's practice of allowing the credit to be applied against state income tax, but not county tax. However, a circuit court judge reversed this on appeal.
The case arose after Brian Wynne, a shareholder of S corporation Maxim Healthcare Services, computed Maryland's credit for taxes paid to other states to offset both the state and local components of Maryland's income tax. Upon audit, the comptroller determined that Wynne was only entitled to apply the credit to the state portion of Maryland's income tax.
The Maryland Tax Court upheld the comptroller's determination and Wynne appealed to the Maryland Circuit Court.
On review, the circuit court reversed the tax court's ruling. Excluding Maryland's county taxes from the application of the state's credit for taxes paid to other states violates the Commerce Clause, the court held.
Maryland’s Chamber of Commerce hailed the ruling as one that could result in substantial tax savings for owners of pass-through entities that operate in Maryland and other states. But some practitioners believe it was decided on questionable legal grounds and doubt that it will be upheld on appeal.
For full coverage of this development and its potential ramifications, check out Steven Roll’s story in this week’s issue of the Weekly State Tax Report.
In other developments,
The National Governors Association issues a letter opposing the Business Activity Tax Simplification Act of 2011.
A new report issued by the Center on Budget and Policy Priorities argues that the Digital Goods and Services Tax Fairness Act of 2011 would do more harm than good.
The constitutionality of the Texas Margin Tax comes under fire,Nixon Peabody reports.
Covington & Burling LLP partner William Paul is the new chair of the American Bar Association’s Section of Taxation.
Scott W. Smith is named as the deputy executive director of the Utah State Tax Commission.
By Steven Roll
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