Clark Calhoun explores the implications of a decision from the U.S. Supreme Court in an article published in IPT Insider. (See p. 10 of the linked document.)
In Comptroller of the Treasury of Maryland v. Wynne, the U.S. Supreme Court declared Maryland’s income tax credit scheme unconstitutional, holding that the state’s failure to provide a full credit for the state and local taxes paid to other states was internally inconsistent and, therefore, violated the dormant Commerce Clause. Calhoun’s article focuses on a similar tax credit issue, the constitutionality of which seems highly suspect in light of the holding and reasoning of Wynne. Specifically, a number of states limit the amount of resident taxpayers’ credits for taxes paid to other states so that the credit is no more than the amount of tax that would have been due on the same income computed under the home state’s base and rate. These limitation provisions commonly result in a reduction of the amount of the credit that the home state will provide for the taxes paid to the other state; furthermore, they have the effect of imposing tax on residents at a higher rate than if all of the residents’ income had been earned within their state of residence—an unconstitutional result. Calhoun’s article explores the law and related guidance of just a few of the states that apply such a scheme.
This article was originally published by the Institute for Professionals in Taxation in the November 2016 edition of the IPT Insider and is reprinted here with the Institute’s permission.
