Maryland’s income tax holding only adds to school funding woes
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A guest post by Derek Black
Earlier this month, the U.S. Supreme Court, in a 5-4 decision, declared a Maryland income tax provision unconstitutional. According to Maryland officials, this ruling leaves the state of Maryland with a predicted annual revenue loss of about $42 million and also a debt of approximately $200 million owed in refunds to certain residents. This decision could significantly impact public education in Maryland because the money received through the tax at the county level currently contributes to funding local school systems.
The tax provision struck down by the Supreme Court essentially allowed for the income of Maryland residents earned out-of-state to be taxed twice (once in the state where the income was earned and then once in the Maryland county where the resident lived). While most states protect against this “double taxation” by providing a credit for income earned out-of-state, Maryland did not allow a credit against a “county” income tax of 3.2 percent. Alito, for the majority, called Maryland’s tax system the equivalent of a state tariff and therefore void under the dormant Commerce Clause because it improperly burdened interstate commerce. The dissent, however, highlighted the need for a state to be able to tax its resident’s out-of-state income in order to continue to provide services – like public education – to those same residents.
With this cut in funding, Maryland will face an uphill battle in continuing to provide the same level of educational and other important services to it’s residents. This also comes on top of the announcement two weeks ago that the governor was diverting $68 million from education funding to the state’s pension program. The culmination of these two events will almost certainly necessitate a tax hike or school funding litigation.
The post originally appeared on Education Law Prof Blog and was republished with permission.
Derek Black is a Professor of Law at the University of South Carolina School of Law. His areas of expertise include education law and policy, constitutional law, civil rights, evidence, and torts.