__ U.S. __ (2015), 13-485, Comptroller of Treasury of Maryland v. Wynne

Docket Nº:13-485
Citation:__ U.S. __, 135 S.Ct. 1787, 191 L.Ed.2d 813, 25 Fla.L.Weekly Fed. S 233
Opinion Judge:ALITO, JUSTICE
Party Name:COMPTROLLER OF THE TREASURY OF MARYLAND, PETITIONER v. BRIAN WYNNE ET UX
Attorney:William F. Brockman argued the cause for petitioner. Eric J. Feigin argued the cause for United States, as amicus curiae. Dominic F. Perella argued the cause for respondents
Judge Panel:ALITO, J., delivered the opinion of the Court, in which ROBERTS, C. J., and KENNEDY, BREYER, and SOTOMAYOR, JJ., joined. SCALIA, J., filed a dissenting opinion, in which THOMAS, J., joined as to Parts I and II. THOMAS, J., filed a dissenting opinion, in which SCALIA, J., joined except as to the f...
Case Date:May 18, 2015
Court:United States Supreme Court
SUMMARY

Maryland has a “state” income tax, Md. Tax-Gen. Code 10–105(a), and a “county” income tax, sections 10–103, 10–106. Residents who pay income tax to another jurisdiction for income earned in that other jurisdiction get a credit against the state tax but not the county tax. Nonresidents who earn income from Maryland sources must pay the state income tax; nonresidents not subject to the county tax must pay ... (see full summary)

 
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Page __

__ U.S. __ (2015)

135 S.Ct. 1787, 191 L.Ed.2d 813, 25 Fla.L.Weekly Fed. S 233

COMPTROLLER OF THE TREASURY OF MARYLAND, PETITIONER

v.

BRIAN WYNNE ET UX

No. 13-485

United States Supreme Court

May 18, 2015

Argued November 12, 2014

ON WRIT OF CERTIORARI TO THE COURT OF APPEALS OF MARYLAND

431 Md. 147, 64 A. 3d 453, affirmed.

SYLLABUS

[191 L.Ed.2d 818] Maryland's personal income tax on state residents consists of a " state" income tax, Md. Tax-Gen. Code Ann. § 10-105(a), and a " county" income tax, § § 10-103, 10-106. Residents who pay income tax to another jurisdiction for income earned in that other jurisdiction are allowed a credit against the " state" tax but not the " county" tax. § 10-703. Nonresidents who earn income from sources within Maryland must pay the " state" income tax, § § 10-105(d), 10-210, and nonresidents not subject to the county tax must pay a " special nonresident tax" in lieu of the " county" tax, § 10-106.1.

[191 L.Ed.2d 819] Respondents, Maryland residents, earned pass-through income from a Subchapter S corporation that earned income in several States. Respondents claimed an income tax credit on their 2006 Maryland income tax return for taxes paid to other States. The Mary-land State Comptroller of the Treasury, petitioner here, allowed respondents a credit against their " state" income tax but not against their " county" income tax and assessed a tax deficiency. That decision was affirmed by the Hearings and Appeals Section of the Comptroller's Office and by the Maryland Tax Court, but the Circuit Court for Howard County reversed on the ground that Maryland's tax system violated the Commerce Clause of the Federal Constitution. The Court of Appeals of Maryland affirmed and held that the tax unconstitutionally discriminated against interstate commerce.

Held : Maryland's personal income tax scheme violates the dormant Commerce Clause. Pp. 4-28.

(a) The Commerce Clause, which grants Congress power to " regulate Commerce . . . among the several States," Art I, § 8, cl. 3, also has " a further, negative command, known as the dormant Commerce Clause," Oklahoma Tax Comm'n v. Jefferson Lines, Inc., 514 U.S. 175, 179, 115 S.Ct. 1331, 131 L.Ed.2d 261, which precludes States from " discriminat[ing] between transactions on the basis of some interstate element," Boston Stock Exchange v. State Tax Comm'n, 429 U.S. 318, 332, n. 12, 97 S.Ct. 599, 50 L.Ed.2d 514. Thus, inter alia, a State " may not tax a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the State," Armco Inc. v. Hardesty, 467 U.S. 638, 642, 104 S.Ct. 2620, 81 L.Ed.2d 540, or " impose a tax which discriminates against interstate commerce either by providing a direct commercial advantage to local business, or by subjecting interstate commerce to the burden of 'multiple taxation,'" Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 458, 79 S.Ct. 357, 3 L.Ed.2d 421. Pp. 4-6.

(b) The result in this case is all but dictated by this Court's dormant Commerce Clause cases, particularly J. D. Adams Mfg. Co. v. Storen, 304 U.S. 307, 311, 58 S.Ct. 913, 82 L.Ed. 1365, Gwin, White & Prince, Inc. v. Henneford, 305 U.S. 434, 439, 59 S.Ct. 325, 83 L.Ed. 272, and Central Greyhound Lines, Inc. v. Mealey, 334 U.S. 653, 662, 68 S.Ct. 1260, 92 L.Ed. 1633, which all invalidated state tax schemes that might lead to double taxation of out-of-state income and that discriminated in favor of intrastate over interstate economic activity. Pp. 6-7.

(c) This conclusion is not affected by the fact that these three cases involved a tax on gross receipts rather than net income, and a tax on corporations rather than individuals. This Court's decisions have previously rejected the formal distinction between gross receipts and net income taxes. And there is no reason the dormant Commerce Clause should treat individuals less favorably than corporations; in addition, the taxes invalidated in J. D. Adams and Gwin, White applied to the income of both individuals and corporations. Nor does the right of the individual to vote in political elections justify disparate treatment of corporate and personal income. Thus the Court has previously entertained and even sustained [191 L.Ed.2d 820] dormant Commerce Clause challenges by individual residents of the State that imposed the alleged burden on interstate commerce. See Department of Revenue of Ky. v. Davis, 553 U.S. 328, 336, 128 S.Ct. 1801, 170 L.Ed.2d 685; Granholm v. Heald, 544 U.S. 460, 469, 125 S.Ct. 1885, 161 L.Ed.2d 796 (2005). Pp. 7-12.

(d) Maryland's tax scheme is not immune from dormant Commerce Clause scrutiny simply because Maryland has the jurisdictional power under the Due Process Clause to impose the tax. " [W]hile a state may, consistent with the Due Process Clause, have the authority to tax a particular taxpayer, imposition of the tax may nonetheless violate the Commerce Clause." Quill Corp. v. North Dakota, 504 U.S. 298, 305, 112 S.Ct. 1904, 119 L.Ed.2d 91. Pp. 12-15.

(e) Maryland's income tax scheme discriminates against interstate commerce. The " internal consistency" test, which helps courts identify tax schemes that discriminate against interstate commerce, assumes that every State has the same tax structure. Maryland's income tax scheme fails the internal consistency test because if every State adopted Maryland's tax structure, interstate commerce would be taxed at a higher rate than intrastate commerce. Maryland's tax scheme is inherently discriminatory and operates as a tariff, which is fatal because tariffs are " [t]he paradigmatic example of a law discriminating against interstate commerce." West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 193, 114 S.Ct. 2205, 129 L.Ed.2d 157. Petitioner emphasizes that by offering residents who earn income in interstate commerce a credit against the " state" portion of the income tax, Maryland actually receives less tax revenue from residents who earn income from interstate commerce rather than intrastate commerce, but this argument is a red herring. The critical point is that the total tax burden on interstate commerce is higher. Pp. 18-26.

431 Md. 147, 64 A. 3d 453, affirmed.

William F. Brockman argued the cause for petitioner.

Eric J. Feigin argued the cause for United States, as amicus curiae.

Dominic F. Perella argued the cause for respondents

ALITO, J., delivered the opinion of the Court, in which ROBERTS, C. J., and KENNEDY, BREYER, and SOTOMAYOR, JJ., joined. SCALIA, J., filed a dissenting opinion, in which THOMAS, J., joined as to Parts I and II. THOMAS, J., filed a dissenting opinion, in which SCALIA, J., joined except as to the first paragraph. GINSBURG, J., filed a dissenting opinion, in which SCALIA and KAGAN, JJ., joined.

OPINION

ALITO, JUSTICE

This case involves the constitutionality of an unusual feature of Maryland's personal income tax scheme. Like many other States, Maryland taxes the income its residents earn both within and outside the State, as well as the income that nonresidents earn from sources within Maryland. But unlike most other States, Maryland does not offer its residents a full credit against the income taxes that they pay to other States. The effect of this scheme is that some of the income earned by Maryland residents outside the State is taxed twice. Maryland's scheme creates an incentive for taxpayers to opt for intrastate rather than interstate economic activity.

[191 L.Ed.2d 821] We have long held that States cannot subject corporate income to tax schemes similar to Maryland's, and we see no reason why income earned by individuals should be treated less favorably. Maryland admits that its law has the same economic effect as a state tariff, the quintessential evil targeted by the dormant Commerce Clause. We therefore affirm the decision of Maryland's highest court and hold that this feature of the State's tax scheme violates the Federal Constitution.

I

Maryland, like most States, raises revenue in part by levying a personal income tax. The income tax that Maryland imposes upon its own residents has two parts: a " state" income tax, which is set at a graduated rate, Md. Tax-Gen. Code Ann. § 10-105(a) (Supp. 2014), and a so-called " county" income tax, which is set at a rate that varies by county but is capped at 3.2%, § § 10-103, 10-106 (2010). Despite the names that Maryland has assigned to these taxes, both are State taxes, and both are collected by the State's Comptroller of the Treasury. Frey v. Comptroller of Treasury, 422 Md. 111, 125, 141-142, 29 A. 3d 475, 483, 492 (2011). Of course, some Maryland residents earn income in other States, and some of those States also tax this income. If Maryland residents pay income tax to another jurisdiction for income earned there, Maryland allows them a credit against the " state" tax but not the " county" tax. § 10-703; 431 Md. 147, 156-157, 64 A. 3d 453, 458 (2013) (case below). As a result, part of the income that a Maryland resident earns outside the State may be taxed twice.

Maryland also taxes the income of nonresidents. This tax has two parts. First, nonresidents must pay the " state" income tax on all the income that they earn from sources within Maryland. § § 10-105(d) (Supp. 2014), 10-210 (2010). Second, nonresidents not subject to the county tax must pay a " special nonresident tax" in lieu of the " county" tax. § 10-106.1; Frey, supra, at 125-126, 29 A. 3d, at 483. The " special nonresident tax" is levied on income earned from sources within Maryland, and its rate is " equal to the lowest county income tax rate set by any Maryland county." § 10-106.1. Maryland does not tax the income that nonresidents earn from sources outside Maryland. See § 10-210.

Respondents Brian and Karen Wynne are Maryland residents. In 2006, the relevant tax year, Brian Wynne owned stock in Maxim Healthcare Services, Inc., a Subchapter S corporation. 1...

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