Blaise Sonnier, The ATA Journal of Legal Tax Research
 

 
 

 
Nichols, N., Sonnier, B. M.
We identify four possible tax regimes that meet the internal consistency test under Wynne and provide an example of the impact of each regime on state and local government revenue in both the resident and nonresident state.

The Consequences of Wynne and a Proposed Congressional Response

The U.S. Supreme Court's decision in Comptroller of the Treasury of Maryland v. Wynne held that Maryland's individual income tax law violates the Dormant Commerce Clause of the U.S. Constitution because it failed to grant a full credit against both the state and county income tax for income taxes paid to other states. The extension of the Dormant Commerce Clause and the application of the internal consistency test to individual income taxes may lead to taxpayer challenges in other states with individual income taxes. We identify four possible tax regimes that meet the internal consistency test under Wynne and provide an example of the impact of each regime on state and local government revenue in both the resident and nonresident state. We then review current state and local tax regimes, focusing on the 14 states with local income taxes and those that do not grant a tax credit for out-of-state local taxes paid by residents. We evaluate whether those tax regimes may be subject to challenge based on the Wynne decision. Finally, we suggest three policy options that Congress should consider to lessen the budgetary impact of Wynne on county and municipal governments and to allocate the cost of government based on income.