Maryland May Have to Refund Residents Who Have Been Paying Double Taxes
Are you unhappy with your tax bill? A lot of people are, which is no surprise, because most people like to keep as much of their hard earned money as they can. Chances are if you had a small refund this past tax season, or even worse, you owed the IRS money, then you probably weren’t too excited about your tax return. In fact, you might have even been a little peeved. Well, just imagine how you would feel if you found out that the state you lived in had been charging you a double tax illegally? Not too happy, or course.
However, that is exactly what happened to about 55,000 taxpayers from Maryland over the last decade. According to reports, this group of taxpayers had been the victim of a law that had essentially made them susceptible to a double taxation. Residents of Maryland are allowed to deduct any income taxes they pay to other states from their Maryland income tax. However, the state tax officials would not permit them to apply the same deduction to a tax that is already collected by the state for Baltimore as well as for state counties.
However, the U.S. Supreme Court recently affirmed a previous ruling by the Maryland Court of Appeals that that practice was unconstitutional. The court ruled that because the law does not give a full tax credit to Maryland residents for the income tax they pay outside of the state it was not legal. The ruling could end up costing many counties millions of tax revenue. In fact, because the U.S. Supreme Court affirmed the previous court’s decision, the 55,000 Maryland residents that tried to claim the credit between 2006 and 2014 will most likely now be eligible for greater refunds.
That’s not all. The state could lose more than $40 million every year in additional tax revenue because thanks to the ruling small businesses could be getting a big break. That’s because owners of small businesses who have to pay income tax to any other state on the income they earn in that state can now claim the credit for both portions of the Maryland tax. It appears that Montgomery County will be hit especially hard, as it will have to hand out nearly $115 million in refunds and be hit with a loss of about $24 million every year in additional tax revenue.
Meanwhile, the ruling was anything but a slam-dunk among the nine Supreme Court justices. The nation’s highest court upheld the previous ruling by the narrowest of margins, 5-4, with three of the four dissenters writing separate opinions as to why they disagreed with the previous ruling. So while the 55,000 taxpayers affected by this law are the winners in this situation, it appears to still be the source of much discord. In any case, the Supreme Court has spoken and now those individuals who were being unfairly double-taxed may be able to get to see a little more of their hard earned money going to their own pockets.