SALT Alert - US Supreme Court Decision in Wynne May Impact Taxpayers in Other States

By Steven P. Bryde  |  June 11, 2015  |  Download PDF

The United States Supreme Court, in a 5-4 decision, recently issued its decision in Comptroller of the Treasury of Maryland v. Wynne et ux. According to the Court, Maryland’s personal income tax scheme violates the dormant Commerce Clause of the Constitution of the United States.

Potential Tax Planning

Potential Tax Planning

As a result of this decision, taxpayers in other states and localities who have their taxes doubled with no applicable credits may seek refunds for similar double taxation found in Wynne. For example, a domiciliary of New York State and City that earns income from sources outside of New York State will receive a credit from New York State based on the portion of taxes paid on the income sourced to the other State, but the taxpayer will not receive a credit from New York City for any portion of taxes paid to the other State. In addition, Yonkers imposes a tax on nonresidents without offering them a credit for other state taxes paid.

In both scenarios, the taxpayer is paying double taxes, and the Yonkers tax is similar to the Maryland county tax under Wynne. Taxpayers under these circumstances may, therefore, wish to consider applying for a refund for all open years under the three year statute of limitations.

However, while the New York State Department of Taxation and Finance collects the New York City income tax, not every resident of New York State is subject to the New York City income tax. Since the New York City tax does not tax nonresidents like the county tax in Maryland does, the New York City taxing scheme may be constitutional based on the Wynne decision.

Lastly, while there is also a double tax in the instance of a taxpayer who is a domiciliary of New York State and City and a statutory resident of another State, with respect to the taxes paid on unearned income, the Wynne case provides no insight for such taxpayers as to the constitutionality of such a taxing scheme. What is more, New York’s highest court ruled on the constitutionality of this double taxing scheme in In the Matter of John Tamagni v. Tax Appeals Tribunal of the State of New York, 91 N.Y. 2d 530 (1998), holding that New York State’s taxing scheme did not fail the internal consistency test and thus was constitutional.

Since Wynne did not address the matter of dual-residency taxing schemes, New York State and City are likely to push back and not grant any refunds. A taxpayer’s recourse under such circumstances may be to file a refund claim and if denied, seek a legal determination from the State courts as to the constitutionality of New York’s taxing scheme.

Even though the Court in Wynne did not address the issue of statutory resident taxpayers, the Wynne case may render the Tamagni decision inapplicable since the New York court did not think the dormant Commerce Clause applied to personal income taxes. The US Supreme Court in Wynne was very clear that the dormant Commerce Clause applies to personal income taxes.

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About Steven P. Bryde

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Steven P. Bryde, JD, is a Senior Consultant in the Tax Practice at Marks Paneth LLP. He specializes in state and local taxation for corporations and flow-thru entities in a cross section of industries as well as for individuals. With more than 30 years of tax experience, Mr. Bryde has spent nearly his entire career in public accounting. Over the years, he has held positions at both global and regional accounting firms. Among his accomplishments... READ MORE +

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