BLOGS Did Ohio Residents Just Wynne?

Dec 01, 2015

Ohio city taxes could be decreasing in the next few months thanks to Brian and Karen Wynne. They are residents of Maryland who own a pass-through business being taxed in 39 states. When the Wynnes filed their tax return for Maryland, they claimed a credit against their income tax, which is comprised of Maryland state taxes and Howard County taxes (a county in Maryland). However, the Comptroller of Maryland stated that they were only allowed to take a credit against Maryland’s income taxes, not the county tax. The Wynnes appealed this decision all the way up to the U.S. Supreme Court.

The Supreme Court ruled 5-4 in favor of Wynnes, citing Maryland violated the dormant Commerce Clause by not allowing any credit against the county tax. More specifically, Maryland is violating the 2nd and 3rd prong test established in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977). These prongs allow a state to withstand scrutiny if it fairly apportions and does not discriminate against interstate or foreign commerce. Basically, the Supreme Court argued the state of Maryland was double taxing the Wynn’s income.

William Vaughan Company is located in Ohio and this directly relates to our state, as some of our cities do not allow any credit while others may only allow a partial credit for taxes paid to other cities. Yes, Ohio really is a highly taxed state. We pay state tax, sales tax, city taxes, school district taxes, property taxes, and then some. As a result of the Wynnes and the Supreme Court, an opportunity to receive a credit for taxes paid to these other cities may become a reality.

Currently, if you live in one taxing city, but work in another, the city you live in may accept some, none, or all of the withholding from the city from which you work. This may require your resident city to accept all of the tax paid to your working city as a credit. As for taxes paid to other states, we probably won’t be receiving credit, at least for now.

The reason the Wynnes were allowed to receive a credit for their county tax is because the Supreme Court viewed the county tax as a state-level tax. Most of Ohio’s cities administer and collect their own taxes. Another interesting wrinkle is Ohio’s school district taxes. For those of you who file this return, which is administrated at the state level, no credit is given for taxes paid elsewhere. The next few months may be very interesting  with regard to how cities react to this particular case. Nevertheless, for those of you with pass-through income which is taxed elsewhere, we may be seeing our city taxes going down in the near future!

By: Robert Bradshaw, CPA

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