Comptroller of the Treasury of Md. v. Wynne

• Decision Date: 18 May 2015
• Docket Number: No. 13–485.,13–485.
• Citation: 191 L.Ed.2d 813,135 S.Ct. 1787,575 U.S. 542
• Parties: COMPTROLLER OF the TREASURY OF MARYLAND, Petitioner v. Brian WYNNE et ux.
• Court: U.S. Supreme Court

575 U.S. 542

135 S.Ct. 1787

191 L.Ed.2d 813

COMPTROLLER OF the TREASURY OF MARYLAND, Petitioner

v.Brian WYNNE et ux.

No. 13–485.

Supreme Court of the United States

Argued Nov. 12, 2014.

Decided May 18, 2015.

William F. Brockman, Acting Solicitor General, Baltimore, MD, for petitioner.

Eric J. Feigin for the United States as amicus curiae, by special leave of the Court, supporting the petitioner.

Dominic F. Perella, Washington, DC, for respondents.

Bartow Farr, III, Washington, D.C., Douglas F. Gansler, Attorney General of Maryland, Steven M. Sullivan, Chief of Litigation, Julia Doyle Bernhardt, Deputy Chief of Litigation, William F. Brockman, Acting Solicitor General, Brian L. Oliner, Assistant Attorney General, Baltimore, MD, for Petitioner.

Neal Kumar Katyal, Dominic F. Perella, Counsel of Record, Frederick Liu, Sean Marotta, Hogan Lovells US LLP, Washington, D.C., for Respondents.

Justice ALITO delivered the opinion of the Court.

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.

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 That year, Maxim earned income in States other than Maryland, and it filed state income tax returns in 39 States. The Wynnes earned income passed through to them from Maxim. On their 2006 Maryland tax return, the Wynnes claimed an income tax credit for income taxes paid to other States.

Petitioner, the Maryland State Comptroller of the Treasury, denied this claim and assessed a tax deficiency. In accordance with Maryland law, the Comptroller allowed the Wynnes a credit against their Maryland "state" income tax but not against their "county" income tax. The Hearings and Appeals Section of the Comptroller's Office slightly modified the assessment but otherwise affirmed. The Maryland Tax Court also affirmed, but the Circuit Court for Howard County reversed on the ground that Maryland's tax system violated the Commerce Clause.

The Court of Appeals of Maryland affirmed. 431 Md. 147, 64 A.3d 453. That court evaluated the tax under the four-part test of Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977), which asks whether a "tax is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State." Id., at 279, 97 S.Ct. 1076. The Court of Appeals held that the tax failed both the fair apportionment and nondiscrimination parts of the Complete Auto test. With respect to fair apportionment , the court first held that the tax failed the "internal consistency" test because if every State adopted Maryland's tax scheme, interstate commerce would be taxed at a higher rate than intrastate commerce. It then held that the tax failed the "external consistency" test because it created a risk of multiple taxation. With respect to nondiscrimination, the court held that the tax discriminated against interstate commerce because it denied residents a credit on income taxes paid to other States and so taxed income earned interstate at a rate higher than income earned intrastate. The court thus concluded that Maryland's tax scheme was unconstitutional insofar as it denied the Wynnes a credit against the "county" tax for income taxes they paid to other States. Two judges dissented and argued that the tax did not violate the Commerce Clause. The Court of Appeals later issued a brief clarification that "[a] state may avoid discrimination against interstate commerce by providing a tax credit, or some other method of apportionment, to avoid discriminating against interstate commerce in violation of the dormant Commerce Clause." 431 Md., at 189, 64 A.3d, at 478.

We granted certiorari. 572 U.S. ––––, 134 S.Ct. 2660, 189 L.Ed.2d 208 (2014).

II

A

The Commerce Clause grants Congress power to "regulate Commerce ... among the several States." Art. I, § 8, cl. 3. These "few simple words ... reflected a central concern of the Framers that was an immediate reason for calling the Constitutional Convention: the conviction that in order to succeed, the new Union would have to avoid the tendencies toward economic Balkanization that had plagued relations among the Colonies and later among the States under the Articles of Confederation." Hughes v. Oklahoma, 441 U.S. 322, 325–326, 99 S.Ct. 1727, 60 L.Ed.2d 250 (1979). Although the Clause is framed as a positive grant of power to Congress, "we have consistently held this language to contain a further, negative command, known as the dormant Commerce Clause, prohibiting certain state taxation even when Congress has failed to legislate on the subject." Oklahoma Tax Comm'n v. Jefferson Lines, Inc., 514 U.S. 175, 179, 115 S.Ct. 1331, 131 L.Ed.2d 261 (1995).

This interpretation of the Commerce Clause has been disputed. See Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S. 564, 609–620, 117 S.Ct. 1590, 137 L.Ed.2d 852 (1997) (THOMAS, J., dissenting); Tyler Pipe Industries, Inc. v. Washington State Dept. of Revenue, 483 U.S. 232, 259–265, 107 S.Ct. 2810, 97 L.Ed.2d 199 (1987) (SCALIA, J., concurring in part and dissenting in part); License Cases, 5 How. 504, 578–579, 12 L.Ed. 256 (1847) (Taney, C.J.). But it also has deep roots. See, e.g., Case of the State Freight Tax, 15 Wall. 232, 279–280, 21 L.Ed. 146 (1873) ; Cooley v. Board of Wardens of Port of Philadelphia ex rel. Soc. for Relief of Distressed Pilots, 12 How. 299, 318–319, 13 L.Ed. 996 (1852) ; Gibbons v. Ogden, 9 Wheat. 1, 209, 6 L.Ed. 23 (1824) (Marshall, C.J.). By prohibiting States from discriminating against or imposing excessive burdens on interstate commerce without congressional approval, it strikes at one of the chief evils that led to the adoption of the Constitution, namely, state tariffs and other laws that burdened interstate commerce. Fulton Corp. v. Faulkner, 516 U.S. 325, 330–331, 116 S.Ct. 848, 133 L.Ed.2d 796 (1996) ; Hughes, supra, at 325, 99 S.Ct. 1727 ; Welton v. Missouri, 91 U.S. 275, 280, 23 L.Ed. 347 (1876) ; see also The Federalist Nos. 7, 11 (A. Hamilton), and 42 (J. Madison).

Under our precedents, the dormant Commerce Clause 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 (1977). This means, among other things, that 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 (1984). "Nor may a State 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 (1959) (citations omitted).

B

Our existing dormant Commerce Clause cases all but dictate the result...