Maryland State Comptroller of the Treasury v. Wynne


Does a state tax scheme violate the United States Constitution by taxing all resident income earned in-state and out-of-state and requiring residents to take out a credit against taxes paid on income earned in other states?

Oral argument: 
Court below: 

In this case, the Supreme Court will have the opportunity to address whether a state may tax its residents’ out-of-state income where the state in which the resident earned the income has already taxed the resident’s income earned in that state. The Maryland State Comptroller of the Treasury claims that the Supreme Court has recognized a state’s right to tax all of its residents’ income, whether earned inside or outside of the state, and even where the result is multiple taxation of the same income. Notwithstanding that, the Wynnes argue that Maryland’s tax scheme unduly burdens interstate commerce—and thereby violates the Commerce Clause—because it does not offset that multiple taxation through a credit, or otherwise. The Court’s ruling will determine the constitutionality of so-called “double taxation” schemes in light of a state’s sovereign power to tax its residents as well as constitutional requirements against discriminatory tax schemes.

Questions as Framed for the Court by the Parties 

Does the United States Constitution prohibit a state from taxing all the income of its residents-wherever earned-by mandating a credit for taxes paid on income earned in other states?


In 2006, Respondents Brian and Karen Wynne owned 2.4% of the stock in Maxim Healthcare Services, Inc. (“Maxim”), a national healthcare services company classified as an S corporation in Maryland. Under federal and Maryland law, income generated for S corporation stockholders “passes through” directly to its owners and is taxed only at the shareholder level, subjecting the income to the individual’s state and local tax rates rather than the rate imposed on the corporation. The Wynnes reported the pass-through income obtained from Maxim on their 2006 Maryland tax return. Because Maxim filed tax returns in thirty-nine states other than Maryland, the Wynnes were also subject to their pro rata share of the taxes that Maxim paid in those other states.

Under Maryland law, all taxpayers must pay state income tax, as well as either a county income tax or a “Special Non-Resident Tax.” As residents, the Wynnes were subject to both the state income tax and the county tax on their pass-through income obtained from Maxim. As a result, both Maryland and other states taxed a portion of the Wynnes’ income. When this “double taxation” effect occurs, to offset the similar tax paid to another state, Maryland allows a taxpayer to take a credit against the Maryland state tax. Maryland does not, however, allow a credit to be taken out against the county tax.

When the Wynnes filed their 2006 Maryland tax return, Petitioner Maryland State Comptroller of the Treasury (“Comptroller”) adjusted both the county tax computation scheme and the state tax credit scheme, which resulted in unpaid taxes for the Wynnes. The Comptroller gave a tax assessment to the Wynnes, which they subsequently appealed. The Comptroller then affirmed the assessment and the Wynnes appealed the assessment to the Maryland Tax Court (“Tax Court”). In the Maryland Tax Court, the Wynnes argued that Maryland’s partial tax credit scheme violates the Constitution’s Commerce Clause because the limitation on the credit allowed against county taxes discriminates against interstate commerce. The Tax Court did not accept this argument and affirmed the Comptroller’s assessment.

Next, the Wynnes then sought judicial review of the Tax Court’s administrative decision in the Circuit Court for Howard County (“Circuit Court”). The Circuit Court reversed the Tax Court’s decision and remanded for adjustment. The Comptroller appealed to the Court of Special Appeals, but the Court of Appeals of Maryland (“Court of Appeals”) granted certiorari before that hearing could be held. The Court of Appeals affirmed the Circuit Court on the grounds that Maryland’s refusal to apply a credit to the county income tax for a Maryland resident’s income earned from activities in another state was unconstitutional because it violates the Commerce Clause. Before the case could go back to the Tax Court on remand, the Supreme Court of the United States granted certiorari on May 27, 2014 to determine whether, as the Court of Appeals stated, the Constitution demands a credit system that would prevent a state from taxing all of its residents’ income.


Of concern in this case is income earned in a state other than where a citizen resides. The Comptroller argues, and the Wynnes agree, that states have the authority to tax all of the income of their residents—whether earned inside or outside of the state. At issue, however, is whether Maryland may do so when the result would require a resident to pay tax on the same income twice—once to the state where it was earned, and again to Maryland. Although the parties advance several arguments, much of their legal analysis (as well as the lower court’s holding) turns on the Commerce Clause. The Wynnes argue that the Commerce Clause prohibits the type of double taxation at issue here because it has the effect of discouraging interstate commerce. On the other hand, the Comptroller argues that multiple taxation is constitutional where, as here, each state—individually—has the authority to tax the income.


Relying on Supreme Court precedent, the Comptroller argues that it is well-settled law that each state may tax the entirety of their residents’ income. , And this taxing power, the Comptroller states, applies whether the income was earned in- or out-of-state. This taxing power would become a fiction, the Comptroller asserts, if Maryland was unable to tax interstate income merely because it had already been taxed by another state. The Comptroller believes that, consequently, no provision of the Constitution (including the Commerce Clause) may prohibit Maryland from taxing its residents’ interstate income—even when it would result in multiple taxation.

Contrary to what the Comptroller claims, the Wynnes argue that the Commerce Clause does prohibit the type of multiple taxation at issue here because it unduly burdens interstate commerce. The Wynnes argue that several Supreme Court decisions have affirmed the principle that states violate the Commerce Clause when they impose “multiple or unfairly apportioned” taxes on their citizens, and thereby disadvantage interstate commerce. The type of tax scheme Maryland imposes clearly discourages interstate commerce, the Wynnes urge, because it subjects interstate commerce to more onerous taxes than that imposed on purely local commerce.

The Comptroller responds by arguing that the lower court misapplied the Commerce Clause to its tax structure. Under the correct inquiry—the Comptroller claims—it is clear that Maryland’s tax scheme does not disadvantage interstate commerce. Rather than looking to the total amount of taxes paid to all states, the lower courts should have applied the test described by the Supreme Court in , which asks whether Maryland taxed the Wynnes’ interstate income more heavily than its intrastate income. Under that test, the Comptroller argues that Maryland’s scheme treats interstate income the same as in-state income, and therefore does not violate the Commerce Clause.


In finding that Maryland’s tax unduly restricted interstate commerce—and thereby violated the Commerce Clause—the lower court applied the test announced in Complete Auto Transit. Under the Complete Auto test, “a state may tax interstate commerce without offending the [] Commerce Clause so long as the tax (1) applies to an activity with a substantial nexus with the taxing state; (2) is fairly apportioned; (3) is not discriminatory towards interstate or foreign commerce; and (4) is fairly related to the services provided by the State.” The lower court concluded that Maryland’s tax fails the second (fair apportionment) and third (nondiscrimination) prongs.

Although the Comptroller questions whether the Complete Auto test even applies to income based on state residency, the Comptroller argues that nonetheless, the lower court’s conclusions were incorrect. Regarding discrimination, the Comptroller argues that Maryland’s tax is in fact nondiscriminatory for the reason that it treats interstate income exactly the same as intrastate income. The lower court reached the opposite conclusion, the Comptroller argues, because it relied on case law that is inapplicable to Maryland’s tax scheme. Specifically, the Comptroller notes that the discriminatory tax scheme in each case disadvantaged interstate commerce by giving tax breaks to those who engaged in in-state commerce. First, the Comptroller distinguishes Maryland’s tax, which does not give preferential treatment to in-state income at all. Second, the Comptroller argues unfair apportionment of a tax based on an individual’s residency does not offend the Commerce Clause for the reason that residency is a status that no other state has jurisdiction to tax. The Comptroller argues it is therefore irrelevant whether Maryland taxed more than its fair share of the Wynnes’ income. Moreover, the Comptroller asserts that apportionment would be considered fair anyway, since Maryland actually takes less than one-half of the interstate income in question.

By contrast, the Wynnes argue that Maryland’s tax fails prongs two and three of the Complete Auto test. Citing Goldberg, the Wynnes state that a tax on interstate income is “fairly apportioned” only if every state could impose the same tax without subjecting anyone to the risk of multiple taxation. The Wynnes then assert that Maryland fails this test because if every state had the same tax scheme as Maryland, residents would pay taxes on the same interstate income to both their home state and again to the state where it was earned. And this scheme results in double-taxation, the Wynnes argue, because Maryland does not grant its residents a full credit for the taxes they paid to other states. This unfair apportionment having been established, the Wynnes claim, it is clear that Maryland’s tax is also discriminatory with respect to interstate commerce, and fails the third (nondiscrimination) prong of the Complete Auto test. The Wynnes contend that the Supreme Court has previously stated that such unfairly apportioned taxes are discriminatory with respect to interstate commerce. In fact, the Wynnes assert that the Supreme Court has found similar taxes to Maryland’s to be discriminatory because they subject interstate income to a multiple taxation to which local commerce is not.


This case presents the Supreme Court with an opportunity to clarify the constitutionality of “double taxation” schemes, in which an individual’s income derived from economic activity in another state is taxed simultaneously by the individual’s state of residency and the state in which it was earned. The Comptroller argues that Maryland cannot be required to offer a full tax credit for out-of-state income because this would inhibit Maryland’s sovereign authority to tax the full income of its residents in order to provide state-funded services for Maryland residents’ benefit. The Wynnes counter that when multiple states tax the same income, the Constitution requires a credit scheme to eliminate any unfair burden on similarly situated residents. The Wynnes contend that a full credit tax scheme, in which the out-of-state income cannot be taxed again in the state of residency, is a viable alternative system.


In support of the Comptroller, multiple amici argue that a partial credit tax system like Maryland’s allows residents to enjoy state and local government benefits—such as public roads, schools, emergency services, and utilities—in exchange for shouldering some of the burden required to provide them. Amicus the United States points out that although taxes cannot constitutionally advance in-state economic interests at the expense of out-of-state competitors, state and local governments can constitutionally obtain tax revenue from in- and out-of-state income in order to serve residents of their states. The United States asserts that it would not be fair for a state to impose a tax scheme that would allow one resident to pay less than other residents to enjoy the same services, such as roads and police, simply because that resident pays taxes elsewhere too.

Amici in support of the Wynnes counter that Maryland’s “double taxation” scheme places an “impermissible burden” on businesses or individuals with out-of-state income. Amici National Federation of Independent Business (“NFIB”) and several tax scholars contend that credit systems exist to offset improper double taxation, yet Maryland’s partial credit scheme fails to do so. According to the tax scholars, Maryland’s tax burden on combined in-state and out-of-state income always exceeds the tax burden on in-state income alone, which proves that the tax scheme is discriminatory. Furthermore, amici argue that this discriminatory scheme discourages interstate expansion of business, because Maryland’s tax scheme pressures businesses to remain in Maryland. With regard to government benefits, NFIB argues that the state does not have free license to disregard the Constitution’s requirement that taxes be fairly apportioned.


Amici in support of the Comptroller emphasize that the state’s power to tax its residents is one of the cornerstones of state sovereignty. IMLA argues that the Constitution gives state and local officials the authority to choose between reasonable policy alternatives when fashioning a tax scheme. The United States adds that a policy that imposed an automatic tax credit scheme on out-of-state income would impede the state’s constitutionally mandated sovereignty. Additionally, the Multistate Tax Commission warns that disallowing Maryland’s tax credit scheme could induce challenges against other state credit schemes in courts nationwide, effectively allowing courts to make state legislative decisions.

On the other hand, the tax scholars in support of the Wynnes maintain that even though the state has a sovereign right to tax its residents and obtain revenue, it does not have a right to impose a discriminatory scheme to achieve this end. The tax scholars assert that the state’s sovereign abilities have limits—the state can tax the out-of-state income of its residents pursuant to any scheme it determines to be reasonable, only if the pooled tax rate applied of (1) the earnings of residents acquired out-of-state, plus (2) the earnings of nonresidents generated in-state does not surpass the state’s tax rate on resident in-state earnings. The tax scholars argue if a state violates this set-up, it will hinder business between states.


In this case, the Supreme Court will decide whether a state may constitutionally levy a tax that would require its residents to pay taxes on the same interstate income multiple times—to the states where it was earned, and again to the state of residency. The Court’s ruling will impact similar partial credit tax schemes nationwide, and may impact states’ abilities to collect revenue in order to provide public services to residents. The Court’s ruling will also touch on issues of state sovereignty and will likely determine to what extent one state must yield its sovereign authority to another.

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