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Brian Gordon, CPA, is the Director of State and Local Taxes at Sanders Thaler Viola & Katz LLP. Previously, Brian was with NYS Department of Taxation and Finance as the District Audit Manager in Manhattan and Brooklyn. He is a member of the NYSSCPA New York, Multistate & Local Taxation Committee and writes and speaks on various tax issues. He can be reached at 516-704-7130 or 516-510-6041, and email: bgordon@st-cpas.com.

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Supreme Court Decision on Maryland case May effect New York’s Resident Credit

By Brian Gordon

The Wynne case – a Maryland case – involved the credit for taxes paid to other states (Resident Credit).

All states that have an income tax, charge their residents tax on all of their income. If the taxpayer earns income from other states, they also have to pay a nonresident tax to the other state for income earned there; however their home state will allow a credit for taxes paid to the other states. If the tax rate in the state where the income is earned is greater than in the home state, the credit will reduce the home state tax to zero, leaving the taxpayer with only the nonresident state tax to pay. The reason for this is to ensure that the taxpayer pays tax on this income only once, so as not to inhibit interstate commerce as per the Commerce Clause of the U.S. Constitution.

The issue with this case is that in addition to the Maryland state tax there are also local taxes for the city of Baltimore and other Maryland counties. New Yorkers must pay close attention to this case, because New York state also has tax for New York City and Yonkers residents.

The Wynnes are Maryland residents. They had pass-through income from an S corporation in 2006 that was sourced to several other states which resulted in tax liability to those other states. The issue that the Wynnes brought forward was that they were allowed a credit against the Maryland state tax, but not against their county tax. They claimed that this results in double taxation, inhibiting interstate commerce.

After winding its way through the court system, this case went to the U.S. Supreme Court to be decided. The Court decided in favor of the Wynnes, stating that Maryland is in violation of the Commerce Clause.

As a result of this decision, Maryland is accepting refund claims for all years open under the statute of limitations. Since NYS also has local taxes in addition to the state tax, I expect to hear something from New York with regard to this situation. In the meantime, if you are a NYC or Yonkers resident with out of state source income, you may want to consider filing a protective refund claim.

If you have any questions involving this issue, or other state and local tax issues, please call Brian Gordon at 516-938-5219 or email at bgordon@st-cpas.com.

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