Clark Calhoun, partner in Alston & Bird’s State and Local Tax Group, explained the significance of the U.S. Supreme Court ruling in Comptroller of the Treasury of Maryland v. Wynne, which reaffirmed the U.S. Constitution’s dormant Commerce Clause and overturned Maryland’s scheme of taxing residents for all income – without credit for out-of-state taxes paid – and out-of-state residents for income earned in Maryland.
“Contrary to what a number of outlets are reporting, today’s ruling does not require a full credit for taxes paid to other states,” Calhoun said. “Rather, what it held is that in devising its scheme of taxation, a state may not have it both ways – i.e., it cannot fully tax the income of nonresidents earned in the state while providing less-than-full credit for income earned by residents outside the state.
“The 5-4 majority opinion re-affirms the essentially per se rule barring discrimination against interstate commerce. For multistate businesses, this means that they continue to have an important judicial protection against state laws that impose a higher rate or burden of taxation on out-of-state businesses.
“It also may have important implications for states’ growing use of their alternative apportionment powers. As the opinion forcefully affirms, the effect of a state’s taxing scheme may not discriminate against interstate commerce, regardless of the number of taxpayers that are actually discriminated against.”