The Supreme Court held a hearing last week on one case that could have far-reaching implications -- challenging the authority of the state of Maryland to tax all of the income of a resident whose business pays taxes to other states -- while another case coming up on the Affordable Care Act promises to have even bigger ramifications.

The case heard last week, Comptroller of the Treasury of Maryland v. Wynne, involved a Maryland resident, Brian Wynne, who is part owner of Maxim Healthcare Services -- a nationwide health care company that is based in Columbia, Md., but is also taxed in many other states where it operates. Wynne and his wife Karen's attorneys argued that Maryland's income tax laws violate the Commerce Clause of the Constitution (see Supreme Court Hears Argument on Maryland Income Tax).

During the oral arguments last week, the justices challenged attorneys for both sides, so it is difficult to predict what the outcome will be. Chief Justice John Roberts cited the Wynne attorneys' argument that if one does an "internal consistency test," the tax ends up being unequal.


"What it ends up is imposing a special tax," said Roberts. "They even call it special, right -- the special nonresident's tax -- on those who live in one state and work in the other, that people who live in the state and work in the state do not have to pay. That sounds unequal, whether fair or not."

Most states provide a credit for taxes paid to other states, and the justices wondered if Maryland's tax system amounts to a state tariff, which would be unconstitutional under the Commerce Clause.

"What you've done operates exactly like a tariff, because it provides an incentive to earn income in Maryland and not outside of Maryland," said Justice Samuel Alito.

However, some of the other justices wondered whether it would be fair for a taxpayer who is a resident of Maryland and uses public services such as schools to be able to avoid paying state income taxes.

"Suppose we had a Maryland resident and all that resident's income is earned out of state," said Justice Ruth Bader Ginsburg. "And each of the states where the income is earned tax at or above the Maryland rate. That would mean, I suppose, that the Maryland resident owes nothing to Maryland because he could take a credit for all what he's -- leaving the resident without anything, without a penny from this resident who may have five children that he sends to school in Maryland."

Justice Anthony Kennedy echoed her, saying, "This man is getting a free ride." However, Wynne's attorney pointed out that his client is paying substantial income taxes in other states.

How much should Maryland's share of those taxes be in that case? Is it entitled to tax all of a business owner's income or only as much as high-tax states such as California aren't already getting? Those will be questions for the justices to decide in a case that could have ramifications not only in Maryland, but in jurisdictions across the country.

While the case is not as high-profile as the upcoming battle over the constitutionality of the premium tax credits provided under the Affordable Care Act, it indicates the Supreme Court is going to remain a big factor in deciding on tax policy this term.


The justices also recently agreed to take on a case revolving around whether four words in the massive bill effectively mean that taxpayers who buy health insurance on federal health insurance exchanges are entitled to receive subsidies in the form of tax credits to offset the cost of the health coverage (see Supreme Court to Review ACA Tax Credits).

The law as written specifies that taxpayers who purchase coverage through online marketplaces "established by the state" are entitled to the subsidies, but since the majority of states around the country chose not to set up their own exchanges, their residents were forced to use the federal site (once it was finally up and running) to search for and apply for health insurance coverage. Only 14 states have set up their own marketplaces.

The IRS promulgated regulations allowing taxpayers in states without exchanges to receive the premium tax credits, but the federal appeals courts in various districts have been divided on the question of whether the IRS regulations go beyond the letter of the law, prompting the Supreme Court to agree to take up the case.

If the justices decide that taxpayers are not entitled to the tax credits for health insurance purchased on the federal marketplace, it could mean the "affordable care" that people thought they had will be suddenly unaffordable. And insurance companies and health care providers who have agreed to provide them with coverage and medical services will be left wondering who will ultimately pay the bill.

How do you think the justices should rule in these cases?


Michael Cohn is editor-in-chief of

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