SCOTUS to decide on double taxation across state lines

posted at 9:31 am on June 1, 2014 by Jazz Shaw

A rather wonky interstate commerce case has been granted a writ of certiorari and will be heard by the Supreme Court during the fall session. The reason this particular petition should interest you is that it has the potential to affect so many people, specifically those who derive income from any sources outside the state where they live. As explained in this Forbes article, the fundamental question being put to the court is as follows:

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?

The specifics of the original case:

In this case, a married couple, the Wynnes, reported taxable net income of approximately $2.7 million. More than half of that amount represented a share of earnings in an S corporation with operations in several states. The Wynnes claimed a credit on their Maryland tax returns for taxes paid to 39 other states but not for any county or local government taxes. The State of Maryland denied the credits and issued a notice of deficiency and the Wynnes appealed. At a hearing, the assessment was affirmed.

So the Wynnes lost the first two rounds in court, even though they were apparently taxed by the states where the income was generated and then taxed again in Maryland But they then amended their original request, asking the courts to answer the question, “whether a state had the unconditional right to tax all income based on residency.”

When they phrased it that way, the Circuit Court agreed with the Wynnes. The state appealed and the Court of Appeals sides with the Wynnes as well, since they were being subjected to double taxation. Not suprisingly, the Obama administration has weighed in with an amicus curiae brief supporting the state, though their argument mainly seems to be, Hey! This could cut out a lot of tax money!

The feds argued in their brief that “though States often choose to grant tax credits to their residents for income taxes paid in other States, nothing in the Commerce Clause compels a State to offer such credits or otherwise defer to other States in the taxation of its own residents’ income.” Further, “[t]he decision… may lead to challenges to similar tax schemes in other jurisdictions; and is inconsistent with statements made by the highest courts in other States.”

Don’t expect a quick answer here, since we’ll be lucky to have a decision by Christmas. But as wonky as it may sound, you should probably keep an eye on this one. It doesn’t only affect wealthy investors. If you commute across state lines for work and don’t receive a full credit for taxes paid in the state where you work, this could directly impact your bottom line too.


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The Feral Grabberment trying to steal any and everything it can.

oscarwilde on June 1, 2014 at 9:37 AM

So the defense for Roberts’ ruling on obozocare was that he was crafting a secret interstate commerce clause attack on the progressives. Is this where we find out of that was true?

Flange on June 1, 2014 at 9:40 AM

The Supreme Court has about as much credit with me as Obama does. Kennedy and his emotional whims and Roberts gymnastics on Obamacare…

sorrowen on June 1, 2014 at 9:48 AM

Another case for the Fair Tax

BierManVA on June 1, 2014 at 9:48 AM

It doesn’t only affect wealthy investors. If you commute across state lines for work and don’t receive a full credit for taxes paid in the state where you work, this could directly impact your bottom line too.

Often for people who aren’t wealthy investors though, states have cooperative agreements allowing people who work across state lines to only remit taxes to one of the states.

Stoic Patriot on June 1, 2014 at 9:52 AM

The Supreme Court has about as much credit with me as Obama does. Kennedy and his emotional whims and Roberts gymnastics on Obamacare…

sorrowen on June 1, 2014 at 9:48 AM
………….
Sad commentary on our times but you are absolutely correct.

rodguy911 on June 1, 2014 at 9:55 AM

If income is to be taxed at all it should only be where it’s earned.

ConstantineXI on June 1, 2014 at 9:57 AM

Often for people who aren’t wealthy investors though, states have cooperative agreements allowing people who work across state lines to only remit taxes to one of the states.
Stoic Patriot on June 1, 2014 at 9:52 AM

That’s the case here, I work in WV but live in KY so I have KY taxes withheld. Greedier states try and double dip which seems to be the case here.

ConstantineXI on June 1, 2014 at 10:00 AM

Often for people who aren’t wealthy investors though, states have cooperative agreements allowing people who work across state lines to only remit taxes to one of the states.

Stoic Patriot on June 1, 2014 at 9:52 AM

And knowing the nature of tyrannical bureaucracies, just how long do you think that’s going to last in the Age of Obama?

MistyLane on June 1, 2014 at 10:00 AM

I hope it takes out my obligation to pay NYC “commuter tax” because my partnership has an office in NY even though I personally am never in the state, let alone the city.

Outlander on June 1, 2014 at 10:00 AM

Hey, NSA blackmailing of Supreme Court Justices isn’t just for ACA anymore, kids!

Taxes, Taxes, TAXES FOR EVERYONE!

Tard on June 1, 2014 at 10:04 AM

I hope it takes out my obligation to pay NYC “commuter tax” because my partnership has an office in NY even though I personally am never in the state, let alone the city.

Outlander on June 1, 2014 at 10:00 AM

Several years ago I was talking to a NJ paralegal whose husband worked in NY. Since they filed jointly on federal tax, they had to do this for his NY income. So her NJ income got taxed by NY even though she never set foot there for work.

Wethal on June 1, 2014 at 10:05 AM

California comes to mind. They tax worldwide earnings if you have a business representation in the state. Have offices in all 50 states to collect. They could lose in this and have to raise the income tax rate to 15%. Must be great to work in California.

COgirl on June 1, 2014 at 10:05 AM

Further, “[t]he decision… may lead to challenges to similar tax schemes in other jurisdictions; and is inconsistent with statements made by the highest courts in other States.”

How dare taxpayers challenge the state!

And a split in jurisdictions is actually a good reason to grant cert.

Wethal on June 1, 2014 at 10:06 AM

It is a tax, it is thus automatically constitutional. Ask Chief Traitor Roberts on this one.
No wonder they want to hear this case. The state courts failed miserably to fund big government!

astonerii on June 1, 2014 at 10:06 AM

rodguy911 on June 1, 2014 at 9:55 AM My biggest issue though is with Kennedy and his,homosexual marriage ruling it was blatant emotionalism not logical at all. Then again emotionalism is used to often as a excuse today. It was a how dare you disagree with homosexuality if you do your a hateful bigot. At that point I pretty much knew Kennedy was a coward bad did not give a damn if his Judical moralism
eventually destroyed those who he thinks he was helping.

sorrowen on June 1, 2014 at 10:07 AM

COgirl on June 1, 2014 at 10:05 AM

According to California, they are owed taxes from you for up to 2 years after you leave the state.

astonerii on June 1, 2014 at 10:08 AM

COgirl on June 1, 2014 at 10:05 AM
According to California, they are owed taxes from you for up to 2 years after you leave the state.
astonerii on June 1, 2014 at 10:08 AM
California taxes everything including celebrity divorces and Nancy’s Botox treatments…

sorrowen on June 1, 2014 at 10:10 AM

This case will be followed very closely in entertainment/pro-sports circles.

Another Drew on June 1, 2014 at 10:17 AM

Doesn’t Maryland have a special form for part-year residents and one for “Other State Tax Credit?” Virginia has such a form: Virginia Schedule OSC.
.
Maryland also has a tax credit form for earnings in another state, a 502CR. ONE other state. The form also mentions “W-2,” not an 1120S Schedule K-1.

ExpressoBold on June 1, 2014 at 10:20 AM

Here’s a simple statement.

“No taxation without representation.”

If you are a resident of one state, but work in another, and have to pay taxes to the state you work in, you are not allowed to vote in their elections.

Therefore, you have no representation regarding the money taken from you in taxes.

Anyone for some tax free popcorn?

evilned on June 1, 2014 at 10:21 AM

Anyone for some tax free popcorn?

evilned on June 1, 2014 at 10:21 AM

Just mentioning the idea of something being tax free caused at least one tax collector to drop dead of a heart attack.

ConstantineXI on June 1, 2014 at 10:31 AM

The US Constitution deals with how the Federal government can levy taxes. It is silent on the States’ ability and manner of doing so. That is, it is neither Constitutional nor unConstitutional. This isn’t a dispute between States; this is a dispute of the Wynnes vs. Maryland. So how is SCOUTS even in here?

But SCOTUS accepted the case, so they must see something that allows them to do that. It will be interesting and instructive to hear SCOTUS’ arguments as to why they granted certiorari and can even weigh-in on the case. (Or do we not have the whole story here?)

I guess it isn’t only the Executive Branch that’s into power-grabs. Time for an overhaul there, too?

ss396 on June 1, 2014 at 10:47 AM

Had a similar incident with Alexandria VA. I have a business in Fairfax County and sold product to an Alexandria gov, agency. They tried to send me a tax bill for doing business in Alexandria. Took a year to get them off my back.

faol on June 1, 2014 at 10:53 AM

This isn’t a dispute between States; this is a dispute of the Wynnes vs. Maryland. So how is SCOUTS even in here?

ss396 on June 1, 2014 at 10:47 AM

.
Here’s a new one that I just learned by reading about this case: dormant Commerce Clause. That’s the SCOTUS interest.
.
wiki has a discussion as a starting point
.
The case is also complicated by the fact the the Wynn’s are complaining they didn’t get credit for county taxes in their tax credit.

ExpressoBold on June 1, 2014 at 11:01 AM

The case is also complicated by the fact the the Wynn’s are complaining they didn’t get credit for county taxes in their tax credit.

As residents of Kansas City, KS who work in KC, MO, my wife and I will be very interested in this. We pay a 1% “earnings tax” to KC, MO, but are not allowed to take the “credit for taxes paid to other states” on that when we file our KS returns like we can for the “income tax” sent to Jefferson City. I know because I tried to file for it one year and the KS DOR told me I couldn’t do it.

My contention is that because the city government of Kansas City, Missouri is a creation of the Missouri General Assembly, which passed legislation specificially authorizing KC and St. Louis to levy these “earnings taxes” on workers (many of whom are not represented in the MO GA because we live in KS and IL) whether Missouri directs us to send the money to Kansas City or Jefferson City is irrelevant; the taxes are taken from income in Missouri under the authority of the Missouri state government, and we should get the credit.

The Monster on June 1, 2014 at 11:14 AM

As residents of Kansas City, KS who work in KC, MO, my wife and I will be very interested in this.

The Monster on June 1, 2014 at 11:14 AM

.
You might be interested in reading the complaint and its details. The complaint does mention details similar to what you just described.

ExpressoBold on June 1, 2014 at 11:20 AM

Heck, our stupid Uncle Sam taxes the he** out of any US citizen anywhere on the planet regardless of country of residency, and that is “held up” somehow as being legal.

You can’t expect a fair decision from the SCOTUS. Those 9 idiots have proven time after time that they are bought and paid for shills of the DC establishment, and couldn’t care a wit about the Constitution or the rights of citizens (aka serfs).

Smegley on June 1, 2014 at 11:20 AM

Taxation without representation indeed.

sorrowen on June 1, 2014 at 11:23 AM

If you commute across state lines for work and don’t receive a full credit for taxes paid in the state where you work, this could directly impact your bottom line too.

Tis affects a of people in this area as we are so close to many several state lines and a lot of people commute between TN, VA, KY, NC…

ladyingray on June 1, 2014 at 11:27 AM

This has implications on the Federal practice of taxing US companies on overseas profits when that money is brought back to the US,even though the money was already taxed in the country where it was earned. It’s the same principle and has kept trillions of dollars from being brought home and invested here.
The US is the only country in the world that does this.

Curmudgeon on June 1, 2014 at 11:32 AM

…can’t wait to hear what rollover Roberts thinks!…already know how the other girls will vote!

KOOLAID2 on June 1, 2014 at 11:38 AM

If the SCOTUS approves double-taxation, what’s to stop triple-taxation or more when States start taxing income earned in multiple other states? The person who earned the income could end up with zero after the income taxes were paid to multiple-State (multiple times over) and Federal income taxes.

Mahdi on June 1, 2014 at 11:41 AM

Depending on how far SCOTUS goes, it could also affect ex-pats and the IRS’s desire for what they deem to be their share of all their income. No wonder why Team SCOAMT wants to continue double taxation.

Steve Eggleston on June 1, 2014 at 11:42 AM

So the defense for Roberts’ ruling on obozocare was that he was crafting a secret interstate commerce clause attack on the progressives. Is this where we find out of that was true?

Flange on June 1, 2014 at 9:40 AM

I’m pretty sure the citizen will get the shaft from SCOTUS. They rarely see an expansion of government power they don’t like.

DRayRaven on June 1, 2014 at 11:43 AM

If income is to be taxed at all it should only be where it’s earned one lives.

ConstantineXI on June 1, 2014 at 9:57 AM

ReWrite™ engaged for simplicity.

Steve Eggleston on June 1, 2014 at 11:48 AM

If income is to be taxed at all it should only be where it’s earned one lives.

ConstantineXI on June 1, 2014 at 9:57 AM

ReWrite™ engaged for simplicity.

Steve Eggleston on June 1, 2014 at 11:48 AM

Where someone earns, OR where they live. I can accept one or the other, but not both.

Taxation without representation was one of the primary causes of our Revolution. The right to not be taxed without representation IS A NATURAL LAW recognized by our Founders, and thus, in force. Remember, the Constitution is supposed to enumerate ALL POWERS of government, NOT ALL RIGHTS THAT WE HAVE.

Ultimately, I believe the Revolution is going to be caused by taxes, as a shrinking productive class (there are no more rich and poor, the dividing line is producer and parasite) is “asked” (at gunpoint) to pay more and more and more taxes to buy the votes of parasites.

Unless Obama starts it first by declaring all in opposition to the Left to be criminals…

ConstantineXI on June 1, 2014 at 12:26 PM

the Obama administration has weighed in with an amicus curiae brief supporting the state, though their argument mainly seems to be, Hey! This could cut out a lot of tax money!

Arguing from the premise that all profits belong to the government, it’s just a question of how much the munificence of the government allows the person who earned it to keep.

Socratease on June 1, 2014 at 12:40 PM

Taxation is a holy sacrament of secular humanism.

You will be perfected.

Murphy9 on June 1, 2014 at 12:49 PM

Not suprisingly, the Obama administration has weighed in with an amicus curiae brief supporting the state, though their argument mainly seems to be, Hey! This could cut out a lot of tax money!

A compelling argument, when you consider where judges’ salaries come from.

PersonFromPorlock on June 1, 2014 at 1:07 PM

If income is to be taxed at all it should only be where it’s earned. – ConstantineXI on June 1, 2014 at 9:57 AM

Just think about professional football, basketball, golfers just for a starter. As a former CPA the tax code should be simplified, period. In forty years I have been reading and trying to understand it, it has become a damn monster.

SC.Charlie on June 1, 2014 at 1:07 PM

Income taxes should be taken at the state’s rate in the state where the work is performed. That being said, I wish all states would abolish income taxes.

SouthernGent on June 1, 2014 at 1:31 PM

A compelling argument, when you consider where judges’ salaries come from.

PersonFromPorlock on June 1, 2014 at 1:07 PM

Which is why federal judges should NEVER be the final authority on federal power…

ConstantineXI on June 1, 2014 at 1:45 PM

Professional athletes that live in California and New York are going to be huge fans of this. You know, the ones that are constantly invited to the White House for photo ops?

JeffinOrlando on June 1, 2014 at 1:55 PM

Professional athletes that live in California and New York are going to be huge fans of this. You know, the ones that are constantly invited to the White House for photo ops?

JeffinOrlando on June 1, 2014 at 1:55 PM

Ever stopped to think that this taxation might be one of the reasons why no NFL team has opted to move INTO California in the last few decades, and why LA has no team?

ConstantineXI on June 1, 2014 at 2:34 PM

I have a friend who lives in NYC and is a partner in a prestigious law firm there…she pays NY state, county, city taxes…and income taxes in every state (and country) the firm does business in, whether she is involved in said business or not…she will be interested in this.

But then again, she’s kind of a libtard, so she might very well be okay with quadruple taxation…

ladyingray on June 1, 2014 at 4:03 PM

Taxation without Representation is Tyranny.

Therefore: if you are taxed in both states, you must be allowed to VOTE in both states.

jaydee_007 on June 1, 2014 at 4:22 PM

It is already bad for professional atheletes. Read this link: http://www.bankrate.com/finance/taxes/taxes-cost-professional-athlete.aspx

SC.Charlie on June 1, 2014 at 4:25 PM

Therefore: if you are taxed in both states, you must be allowed to VOTE in both states.

jaydee_007 on June 1, 2014 at 4:22 PM

Don’t give the Democrats any ideas …

AesopFan on June 1, 2014 at 10:57 PM

Another case for the Fair Tax

BierManVA on June 1, 2014 at 9:48 AM

How 1996 of you. Not that I don’t completely agree with you but we are so far off from that reality we might as well discuss reforming Social Security.

Ann NY on June 2, 2014 at 4:40 AM

The Feral Grabberment trying to steal any and everything it can.

oscarwilde on June 1, 2014 at 9:37 AM

Ummmm, read the article? It isn’t the federal government involved in the taxation, at all.

GWB on June 2, 2014 at 9:44 AM

This could cause headaches in cities like New York, St. Louis and Kansas City, where the bounds of the greater metropolitan area stretch beyond state lines.

The Schaef on June 2, 2014 at 11:02 AM