Does Maryland make mistakes in tax law?

Big stuff happening in Maryland! The Supreme Court has ruled Maryland’s income tax law unconstitutional. For years many Maryland residents and businesses were being double taxed on their out of state earnings. The State’s previous practice of withholding a credit on each county’s portion of state income tax harms some residents and businesses with out of state income. The Justices found that this law previously affirmed in 2013 would dissuade Maryland taxpayers from doing business across state lines.

In most states, income from outside that state is taxed in the state in which it was made. To protect against double dipping those states tend to give their residents and businesses a full credit for the income paid on out of state earnings.

Previously, Maryland residents and businesses were only permitted to deduct income taxes paid in other states from what they pay in Maryland, they were not afforded to the same deduction on piggyback tax collected for each of the 23 counties and Baltimore City.

Taxpayers who previously tried to claim the credit but were denied are now eligible for refunds. The years considered will be from 2006-2014. Early estimates say these refunds could cost the state $200 million plus interest.  Going forward the loss of revenue for Maryland State is estimated around $42 million a year.

The Office of the Comptroller is set to review over 8,000 cases starting as far back as 2006. The money for the refunds will have to come from Maryland’s income tax reserve fund. The implications of these findings we are yet to find. If you were a small business in operation between 2006 and 2014, with out of state income, it may be in your best interest to contact a tax attorney regarding a possibly claim to refund. If you or someone you know would like us to review a possibly appeal or amendment, feel free to contact our firm at 410-727-6006.