WASHINGTON — It’s welcome news for some tax payers, but a Supreme Court decision is putting local budgets in a vise. After the court ruled a Maryland tax law unconstitutional, the state stands to lose hundred of millions for years to come.
In a 5-4 decision, the Supreme Court ruled Howard County couple Brian and Karen Wynne were essentially double-taxed on income earned out of state. The justices agreed with a lower court that the tax is invalid because it discourages Maryland residents from earning money outside the state.
They are owed a refund, as are thousands of other Maryland taxpayers.
Montgomery County is hardest hit of Maryland counties. As it has the largest population, the county has the most business owners who stand to be eligible for a refund.
“So Montgomery County was taxing Montgomery County residents on income earned in other states, where the state was providing a credit for out of state taxes paid on that income. And the Supreme Court said that Montgomery County must treat that out-of-state income in the same way as the state of Maryland,” says Montgomery County Council President George Leventhal as his understanding of the decision.
The county planned for the possibility of an adverse decision on Wynne, Leventhal says. The county’s 2016 budget will lose $8 million to $10 million from the decision.
“That impact will be substantially larger in fiscal years ’17 and ’18, where we’re expecting a hit of $55 million a year,” Leventhal says.
It affects the county in perpetuity, which is especially difficult given Gov. Larry Hogan’s decision to withhold some school funding.
“Our school system, in particular, is taking a hit from Gov. Hogan’s decision not to release the GCEI money, but we’re not going to be able to make up that shortfall with county resources,” he says.
Prince George’s County is expecting a $2 million windfall in fiscal year 2016 due to the court’s decision and planned for it, says county executive Rushern Baker. What would help is if Gov. Hogan would release funds the legislature set aside for school assistance, Baker says.
“Having that $20 million not come to us is a cut. That’s a big part of what we’re using to move our schools forward,” Baker says.
