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Supreme Court to Hear Wynne Case: Decision Impacts Taxpayers Earning Income in Multiple States


What Does CohnReznick Think?

This question was big enough for the federal government to weigh in on this case. The Obama Administration issued a brief in April of this year, supporting the state’s position. These matters do not move quickly and taxpayers shouldn’t expect oral arguments on this matter before the fall of this year. In the meantime, taxpayers are advised to continue to file protective claims that are still within the statute of limitations.

Synopsis
The Supreme Court has agreed to hear the case Comptroller v. Wynne, in which a married couple was denied Maryland tax credits for the taxes they paid on income earned in other states.

Issue
As a background to the Supreme Court’s decision, the Wynnes reported taxable net income of $2.7 million dollars on their Maryland state tax return. More than half of that amount was income from earnings in a business that operated in 39 states as well as Maryland. The Wynnes claimed a credit on their Maryland tax returns for the taxes paid to the 39 other states. However, under its existing law, Maryland only allows its residents a credit for taxes paid to another state to offset Maryland’s state tax, not its local or municipal taxes. Consequently, the Comptroller ruled that the Wynnes could only use their credits to offset Maryland’s state, but not local, taxes. The Wynnes contested Maryland’s decision.

Thus far, the courts have agreed with the Wynnes, ruling that a state may not tax a resident’s entire income if the resident paid taxes on that income to another state. The Supreme Court will determine the constitutionality of this issue, and whether a state has the right to tax all of the income of its residents, wherever earned, without granting a credit for taxes paid on income earned in other states to offset both state and local taxes. The Supreme Court has not set a date for hearing the Wynne case.

CohnReznick will continue to monitor the status of taxpayers that may be affected by this decision. Taxpayers should be aware that Maryland allows three years to file amended tax returns to account for any refund claims they may have.

Contact
For more information, please contact Lee Isaacson, Partner, at 301-657-7750.


Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

 

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