In a 5-4 decision issued today, the U.S. Supreme Court ruled a Maryland tax scheme unconstitutional because it forces state residents to pay taxes twice on income they earned outside of the state.
At issue in Comptroller of the Treasury of Maryland v. Wynne is a Maryland tax law that requires state residents to pay county income taxes on 100 percent of their personal income. Unlike most other states, however, Maryland takes no notice of the fact that many residents earn income—and pay taxes on it—outside of the state. Most other states offer a tax credit in this situation so that state residents don't end up paying twice. Maryland just makes its residents pay twice.
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Or at least it did until today. Because Maryland "creates an incentive for taxpayers to opt for intrastate rather than interstate economic activity," declared the majority opinion of Justice Samuel Alito, "its law has the same economic effect as a state tariff, the quintessential evil targeted by the dormant Commerce Clause."
The dormant Commerce Clause refers to the idea that the Commerce Clause, in addition to granting Congress a limited power to regulate interstate commerce, also provides a check on the regulatory and taxing authority of the states. That check, Alito explained, forbids the states "from discriminating against or imposing excessive burdens on interstate commerce," such as Maryland's now-defunct double-taxation scheme. Chief Justice John Roberts and Justices Anthony Kennedy, Stephen Breyer, and Sonia Sotomayor all joined Alito's opinion.
Alito's sharpest critics proved to be two of his most conservative colleagues, Justices Antonin Scalia and Clarence Thomas. Scalia and Thomas each filed separate dissenting opinions, as did Justice Ruth Bader Ginsburg, whose dissent was joined by Justice Elena Kagan. According to Scalia, the dormant Commerce Clause is a "judicial fraud" that allows federal judges to rewrite state laws according to their own preferences. Thomas, meanwhile, argued that Alito's take was totally at odds with constitutional history. "It seems highly implausible that those who ratified the Commerce Clause understood it to conflict with the income tax laws of their States and nonetheless adopted it without a word of concern," Thomas wrote.
Alito's majority opinion tackled those two dissents head on. "This supposedly fraudulent doctrine has been applied in dozens of our opinions, joined by dozens of Justices," Alito shot back at Scalia. As for Thomas, Alito described his arguments as "plainly unsound." The ratifiers of the Constitution appear unconcerned with this kind of out-of-state tax grab, Alito countered, because so few people back then lived in one state and earned income in another. "We are unaware of records showing, for example, that it was common in 1787 for workers to commute to Manhattan from New Jersey by rowboat or from Connecticut by stagecoach," Alito quipped.
In sum, Alito held, "our existing dormant Commerce Clause cases all but dictate the result reached in this case."
The Supreme Court's opinion in Comptroller of the Treasury of Maryland v. Wynne is available here.
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