United States v. State of Md.

• Decision Date: 31 March 1980
• Docket Number: Civ. No. K-78-1287.
• Parties: UNITED STATES of America v. STATE OF MARYLAND; and Louis L. Goldstein, Comptroller of the Treasury of the State of Maryland.
• Court: U.S. District Court — District of Maryland

488 F. Supp. 347

UNITED STATES of America v. STATE OF MARYLAND; and Louis L. Goldstein, Comptroller of the Treasury of the State of Maryland.

Civ. No. K-78-1287.

United States District Court, D. Maryland.

March 31, 1980.

Russell T. Baker, Jr., U. S. Atty. and Gale E. Rasin, Asst. U. S. Atty., Baltimore, Md., M. Carr Ferguson, John J. McCarthy, William L. Shraberg, Attys., Tax Division, U. S. Dept. of Justice, Washington, D. C., for plaintiff.

Stephen H. Sachs, Atty. Gen. of Maryland, Baltimore, Md., Gerald I. Langbaum, and Richard E. Israel, Asst. Attys. Gen., Annapolis, Md., for defendants.

FRANK A. KAUFMAN, District Judge.

Can a Member of Congress who represents a state other than Maryland and who maintains an abode in Maryland so that he can perform his duties in Washington, D. C. be subjected to individual income taxation imposed by Maryland and/or its political subdivisions in contravention of 4 U.S.C. § 113? The United States says "No"; Maryland and its Comptroller of the Treasury say "Yes."¹

On July 19, 1977, the following statute, now codified as 4 U.S.C. § 113, became law and provides in relative part:

§ 113. Residence of Members of Congress for State income tax laws

(a) No State, or political subdivision thereof, in which a Member of Congress maintains a place of abode for purposes of attending sessions of Congress may, for purposes of any income tax (as defined in section 110(c) of this title) levied by such State or political subdivision thereof —

(1) treat such Member as a resident or domiciliary of such State or political subdivision thereof; or

(2) treat any compensation paid by the United States to such Member as income for services performed within, or from sources within, such State or political subdivision thereof,

unless such Member represents such State or a district in such State.²

That statute prohibits any state in which a Member of Congress maintains an abode for purposes of attending to his duties in Washington, D. C., from imposing a state or local income tax on such Member. The practical effect, however, of that legislation is narrowly focused upon Maryland, Virginia and the District of Columbia since geographical considerations virtually require that Members of Congress maintain places of abode in or near the metropolitan area of Washington, D. C., i. e., either the District of Columbia, Virginia or Maryland. Both the District of Columbia and Virginia, by their own respective legislative enactments, presently exempt Members of Congress, representing jurisdictions other than Virginia and the District of Columbia respectively, who maintain abodes within their respective borders from state and local income taxes.³ Accordingly, the 1977 federal legislation, in reality, affects only Maryland.⁴

The facts and the relevant provisions of Maryland's income tax laws are not in dispute, and can be summarized as follows:

1. Every "resident" of Maryland is subject to state individual income taxation on his taxable net income.⁵

2. The term "resident" means ". . . an individual domiciled in this State on the last day of the taxable year, and every other individual who, for more than six months of the taxable year, maintained a place of abode within this State, whether domiciled in this State or not; . . ."⁶

3. Each of Maryland's political subdivisions is required to adopt a local income tax calculable as a percentage of the State income tax.⁷

4. Those local income taxes are administered and collected by the Comptroller of the Treasury. The State, upon collection of such taxes, remits the same to the political subdivision which has levied the tax.⁸

5. Md.Ann.Code, Art. 81, § 290, provides:

Credit allowed residents.

(a) Whenever a resident individual of this State has become liable for income tax to another state upon such part of his net income for the taxable year as is properly subject to taxation in such state, the amount of income tax payable by him under this subtitle shall be reduced by the amount of the income tax so paid by him to such other state upon his producing to the Comptroller satisfactory evidence of the fact of such payment; but application of such credit shall not operate to reduce the tax payable under this subtitle to an amount less than would have been payable if the income subjected to tax in such other state were ignored. The credit provided for by this section shall not be granted to a taxpayer when the laws of such other state allow a credit to such taxpayer substantially similar to that granted by § 291 hereof.

(b) Notwithstanding the aforegoing, with respect to the taxable year 1974 and each taxable year thereafter, the credit provided for by this section operates to reduce only the State income tax payable under this subtitle and does not operate to reduce any local income tax imposed under § 283 of this article.

6. Md.Ann.Code, Art. 81, § 291, provides in relevant part:

Credit against tax allowed nonresidents.

(a) When allowed; amount. — Whenever an individual not a resident of this State has become liable for income tax to the state where he resides upon his income for the taxable year including that taxable in this State, the amount of income tax payable by him under this subtitle shall be credited with such proportion of the tax so payable by him to the state where he resides, as his net income subject to taxation under this subtitle bears to his entire income upon which the tax so payable to such other state was imposed; but such credit shall be allowed only if the laws of said state (i) grant a substantially similar credit to residents of this State subject to income tax under such laws, or (ii) impose a tax upon the income of its residents subject to taxation in this State and exempt from taxation the income of residents of this State. No credit shall be allowed against the amount of the tax on any income taxable under this subtitle which is exempt from taxation under the laws of such other state.

7. "Local income tax," as that term is used in Section 290(b), refers to those local income taxes which are required by Section 283(a).

8. Defendants maintain — and it is so assumed arguendo in this opinion — that any Member of Congress who maintains a place of abode within Maryland for more than six months of a given taxable year is a "resident" of Maryland pursuant to § 279(i) and, thus, is subject to Maryland and local income taxes for that taxable year.

9. Following the 1977 federal enactment, and prior to the institution of the within case, several Members of Congress who maintain abodes in Maryland but who represent states other than Maryland filed claims with the Comptroller seeking refunds of taxes paid. All such refund claims were denied by the Comptroller on the basis that the 1977 federal statute constitutes an unconstitutional intrusion by the federal government into the reserved taxing powers of the states.

10. Thereafter, pursuant to Md.Ann. Code, Art. 81, §§ 229 and 310, at least several of those Members of Congress appealed those denials to the Maryland Tax Court. One of those appeals was noted in November 1977; another in July 1978. During February 1980, following the institution of this case, counsel for those appellants requested the Maryland Tax Court to continue those cases on its docket pending this Court's disposition of the within action. The Maryland Tax Court seemingly has in fact stayed those cases.⁹

11. Several non-Maryland Members of Congress, including the two whose appeals are presently pending before the Maryland Tax Court, have paid state and local income taxes to Maryland.¹⁰ Certain other non-Maryland Members of Congress who maintain Maryland abodes have seemingly not paid such taxes.

VALIDITY OF THE 1977 ACT

It has long been held that the federal government and its properties, functions, and instrumentalities enjoy implied constitutional immunity from state taxation. In McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 4 L.Ed. 579 (1819), the Supreme Court held that a state may not, through regulation or taxation, interfere with an instrumentality chosen by Congress to exercise the powers vested in the federal government by the Constitution. McCulloch involved a stamp tax imposed by Maryland on bank notes issued by "any Bank . . . established without authority from the State." The only such bank in Maryland was the Baltimore branch of the Bank of the United States, a corporation created and chartered by Act of Congress. Mr. Chief Justice Marshall, writing for a unanimous Court, noted that Congress had created national banks to carry out one or more of the federal government's enumerated constitutional functions. However, he also noted the importance of the taxing power of each of the states:

* * * It is admitted that the power of taxing the people and their property is essential to the very existence of government, and may be legitimately exercised on the objects to which it is applicable, to the utmost extent to which the government may choose to carry it. The only security against the abuse of this power is found in the structure of the government itself. In imposing a tax the legislature acts upon its constituents. This is in general a sufficient security against erroneous and oppressive taxation.

The people of a state, therefore, give to their government a right of taxing themselves and their property, and as the exigencies of government cannot be limited, they prescribe no limits to the exercise of this right, resting confidently on the interest of the legislator, and on the influence of the constituents over their representative, to guard them against its abuse. Id. at 428.

Continuing, the Chief Justice wrote:

But the means employed by the government of the Union have no such security, nor is the right of a state to tax them sustained by the same theory. Those means are not given by the people of a particular state, not given by the constituents of the legislature, which claim the right to tax them,

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