Maryland went all the way to the U.S. Supreme Court to defend its income tax law against a constitutional challenge, losing in the spring when justices ruled that some residents with out-of-state earnings had been illegally double-taxed.
But that defeat became the cause for a victory lap Monday as Gov. Larry Hogan (R) and Comptroller Peter Franchot (D) encouraged residents to check whether they are among the estimated 55,000 taxpayers eligible for $200 million in refunds mandated by the Wynne case.
The taxpayer windfall is the result of a 5-to-4 decision in which the high court ruled that Maryland’s practice of withholding a credit on the county segment of the state income tax wrongly exposed residents with out-of-state income to illegal double taxation. The case was brought in 2006 by a Howard County couple, Brian and Karen Wynne, who owned a stake in a medical staffing company that did business in more than three dozen states.
At a midafternoon news conference Monday, Hogan and Franchot announced a new Web page (governor.maryland.gov/you-may-be-owed-a-tax-refund) that answers questions about eligibility for Wynne refunds and instructs residents how to apply for them. Residents who filed “protective claims” — claims entitling them to potential refunds — as early as 2007 could be eligible if they did so within the three-year legal window, officials said. Residents who filed and paid income tax to another state in 2011 and subsequent years should fill out the form available on the page, they said.
As comptroller, Franchot was the petitioner in the case argued before the court late last year. He said Monday that he had an obligation to oppose the Wynnes’ challenge and fight to uphold the state’s tax law as written.
But he added, “I always kind of secretly agreed with them.”
Hogan, who was running for governor in 2013 when the state asked the Supreme Court to overturn a Maryland Court of Appeals ruling in favor of the Wynnes, said he thought justice was served by delivering the largest tax refund in state history.
“I wholeheartedly believe that this money will do more good in the hands of our citizens than in the hands of the government,” said Hogan, who campaigned on a promise of tax relief and an improved business climate for Maryland residents.
Any resident who has paid taxes on income in any other state or in the District of Columbia may be due a refund. But, as the Web page notes, much of the $200 million will go to residents who own businesses that are “pass through” entities, or companies that pay no corporate income tax, only individual income tax.
The state will pay the refunds and then essentially dock counties for the amount in future tax revenue distributions. Montgomery County, which has the state’s highest concentration of residents with out-of-state earnings, stands to take the hardest hit from the refunds — about $115 million (including interest) in back claims and a loss going forward of about $24 million a year.
Del. C. William Frick (D-Montgomery) said it was unseemly for Hogan to be celebrating the court-ordered refunds in light of his decision earlier this year to withhold $68 million in state education funding from localities.
“Our counties are hurting for local aid,” said Frick, who accused Hogan of “spiking the football in the end zone.”