Supreme Court Rejects Out Of State Income Tax

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spIn a 5-4 decision, the U.S. Supreme Court ruled today that a Maryland law is unconstitutional because it allows residents only a partial tax credit for out-of-state income that is taxed in other states. ?The decision not only invalidates the Maryland law but may also limit similar taxes in New York, Pennsylvania, Indiana, and Ohio. And the closely-watched ruling will discourage other states from trying to tax such interstate income.

The case, Comptroller of Maryland v. Wynne, puts a spotlight on the tension between the freedom of states to tax their residents and their ability to enact laws that could curb interstate commerce. In today?s decision, a bare majority of justices tilted in favor of interstate economic activity.

The High Court ruled that the Maryland law violates the Constitutional prohibition against double-taxation that impedes interstate commerce. However, the decision also exposed a major rift over whether states must adjust their tax laws to accommodate revenue regimes in other states.

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