Posted on 06/01/2014 6:39:57 AM PDT by SeekAndFind
A rather wonky interstate commerce case has been granted a writ of certiorari and will be heard by the Supreme Court during the fall session. The reason this particular petition should interest you is that it has the potential to affect so many people, specifically those who derive income from any sources outside the state where they live. As explained in this Forbes article, the fundamental question being put to the court is as follows:
Does the United States Constitution prohibit a state from taxing all the income of its residents — wherever earned — by mandating a credit for taxes paid on income earned in other states?
The specifics of the original case:
In this case, a married couple, the Wynnes, reported taxable net income of approximately $2.7 million. More than half of that amount represented a share of earnings in an S corporation with operations in several states. The Wynnes claimed a credit on their Maryland tax returns for taxes paid to 39 other states but not for any county or local government taxes. The State of Maryland denied the credits and issued a notice of deficiency and the Wynnes appealed. At a hearing, the assessment was affirmed.
So the Wynnes lost the first two rounds in court, even though they were apparently taxed by the states where the income was generated and then taxed again in Maryland But they then amended their original request, asking the courts to answer the question, “whether a state had the unconditional right to tax all income based on residency.”
When they phrased it that way, the Circuit Court agreed with the Wynnes. The state appealed and the Court of Appeals sides with the Wynnes as well, since they were being subjected to double taxation. Not suprisingly, the Obama administration has weighed in with an amicus curiae brief supporting the state, though their argument mainly seems to be, Hey! This could cut out a lot of tax money!
The feds argued in their brief that “though States often choose to grant tax credits to their residents for income taxes paid in other States, nothing in the Commerce Clause compels a State to offer such credits or otherwise defer to other States in the taxation of its own residents’ income.” Further, “[t]he decision… may lead to challenges to similar tax schemes in other jurisdictions; and is inconsistent with statements made by the highest courts in other States.”
Don’t expect a quick answer here, since we’ll be lucky to have a decision by Christmas. But as wonky as it may sound, you should probably keep an eye on this one. It doesn’t only affect wealthy investors. If you commute across state lines for work and don’t receive a full credit for taxes paid in the state where you work, this could directly impact your bottom line too.
Cash is still King.
Another issue is retirement and pension funds earned in one state , while you have residency in another state.
The 'legislative grace' that has been the norm in the recent past involves 'reciprocity' of non-taxation between the two states on pensions.
The SCOTUS resolution of the Wynne legal case could have much further ramifications on retirees , and people on fixed incomes.
Agreed , this case needs to watched .
Taxes should be applicable in the location in which the taxable item is earned/obtained. If your business does half of its business in two different states, then each state should only be able to tax on the stuff done within their borders. Any income tax would be just like property/sales tax: only applicable where the physical item/transaction occurs.
Would this affect the owner of an Amway business in CA since Amway is located in Michigan?
how about a long distance truck driver?
What matters is where the income is earned and where the earner lives. So in your scenario, if the earner lives in CA and the income is earned in MI, then yes. If the earner lives and earns in CA, then no.
IANAL and IA(definitely)NA(tax)L either.
“So the Wynnes lost the first two rounds in court, even though they were apparently taxed by the states where the income was generated and then taxed again in Maryland But they then amended their original request, asking the courts to answer the question, “whether a state had the unconditional right to tax all income based on residency.””
In theory a state could do anything its constitution permits including charge a fee for just living there based upon what you have. That is called property tax but apparently Maryland also calls it income tax.
I have to side with states rights here. Maryland has every right to be an asshole state in which nobody with money or industry should live.
“No state has a right to tax the income of a non-resident. Even if they pass laws allowing it.”
I agree, but theses people are residence of Maryland, they own a house and live there. That was their first mistake. If you want to live in a den of thieves don’t be shocked when you get robed.
“Taxes should be applicable in the location in which the taxable item is earned/obtained. If your business does half of its business in two different states, then each state should only be able to tax on the stuff done within their borders. Any income tax would be just like property/sales tax: only applicable where the physical item/transaction occurs.”
I agree with that, although it would be rather complicated, but such is the concept of an income tax.
If an Income tax is on the individual then it can be only applied by the State and/or locality in which they live and only against that which they earn. This is in essence a “New” property taxes.
I just don’t see how that is legal.””
You dont huh? Just wait until they Tax You for DIsagreeing with the New Tax.
what do tyrants care about the law???
RE: “Taxes should be applicable in the location in which the taxable item is earned/obtained. If your business does half of its business in two different states, then each state should only be able to tax on the stuff done within their borders. Any income tax would be just like property/sales tax: only applicable where the physical item/transaction occurs.”
I agree wholeheartedly with the above statement. Next question -— should it not also apply to individuals working and earning their salaries OVERSEAS?
Now that is an interesting question, as it is indeed double taxation, as its taxation at the instant of acquisition, and taxation at the location of residency.
I would require any government in law to clearly define whether their income/property tax apply to one or the other. If it apply’s to both then they should equally tax their own citizens on both.
But to otherwise Tax anther State’s citizen on one while taxing their own Citizens exclusively on other is a violation Privileges and Communities clause Article 4 section 2.
I suppose the error is in presuming the Taxing entity
It happened to me.
I wasn’t even on a trip. My daughter simply made the charge in the local Dell Store in Nevada and NYS charged me sales tax. I called to complain and they said they had the right. I think they are making it up, but I got the bill, nonetheless.
New York has been known to visit shopping malls in Pennsylvania, write down the license plate numbers of NY visiting mall shoppers and then send them an estimated sales tax bill based on an estimate of what the tax people thought is an average purchase.
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RE: “Taxes should be applicable in the location in which the taxable item is earned/obtained. If your business does half of its business in two different states, then each state should only be able to tax on the stuff done within their borders. Any income tax would be just like property/sales tax: only applicable where the physical item/transaction occurs.”
I agree wholeheartedly with the above statement. Next question -— should it not also apply to individuals working and earning their salaries OVERSEAS?
“
It does apply to individuals working and earning their salaries over seas. the foreign government will tax you if you got income tax there. The fascist IRS just doesn’t know its own bounds there anymore than it knows its bounds anywhere else.
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