Must Domiciliary State And Local Taxes Provide A Credit For Taxes Imposed By Other Jurisdiction?


Many states and local jurisdictions impose income taxes on all of the income of their residents. Some of this income may be from sources outside of the state or locality, and thus the source of income jurisdiction may also impose income taxes on that same income.

There is no denying the authority of the state or local jurisdiction of residence to tax the income. However, if no credit is granted for taxes on that income imposed by the source jurisdiction, is that an unconstitutional restraint on commerce that is not permitted under the Commerce Clause of the U.S. Constitution?

I don’t have an answer for you on that question…yet. But the U.S. Supreme Court has taken on a case that will likely decide this issue.

Note that the U.S. Commerce Clause explicitly only limits federal government restrictions on commerce between the states. However, an implied limitation on state and local action under the Commerce Clause has arisen under what is referred to as the “dormant Commerce Clause” that limits state and local power to unjustifiably to discriminate against or burden the interstate flow of articles of commerce. Whether the dormant Commerce Clause requires the above tax credits is the issue the U.S. Supreme Court will decide.

The case has the potential to limit the tax revenues of those states and localities that do not provide a tax credit for income taxes of the source jurisdiction.

Maryland State Comptroller of the Treasury v. Brian Wynne


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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Charles (Chuck) Rubin, Gutter Chaves Josepher Rubin Forman Fleisher P.A. | Attorney Advertising

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