Md. to high court: State has a right to tax all out-of-state income to support local services

Maryland’s acting solicitor general told the Supreme Court on Wednesday that the state has the right to tax all income that residents earn in other states in order to help pay for local government services they enjoy, such as schools and police and fire protection.

Maryland allows shareholders of some companies a credit on their state income tax returns for taxes paid in other states. But that credit does not apply to the “piggy­back tax” — the segment of the income tax that Maryland collects and distributes to its 23 counties and Baltimore City.

A Howard County couple, Brian and Karen Wynne, are challenging that policy. In 2006, the Wynnes held a 2.4 percent stake in Maxim Health Care Services, a Howard-based home-care and medical staffing company doing business in 39 states. About half of the Wynnes’ $2.7 million income that year came from their share of Maxim’s distributions of out-of-state earnings.

The Wynnes claimed an $84,550 Maryland credit for taxes paid in those states. But Maryland officials disallowed a credit against Howard’s 3.2 percent piggyback income tax. As a result, the Wynnes contend, they were subjected to about $25,000 in illegal double taxation.

More