Inconsistency with the Internal Consistency Test

• Author: Mackenzie Catherine Schott
• Position: J.D., 2017, Paul M. Hebert Law Center, Louisiana State University.
• Pages: 947-974

Inconsistency with the Internal Consistency Test

INTRODUCTION

Taxpayers, rejoice. Maryland, pay up. The Supreme Court’s recent

holding in Comptroller of the Trea sury of Maryland v. Wynne triggered

some harsh consequences, which included Maryland paying taxpayers

nearly $200 million in tax refunds.1 The implications of the Court’s

decision, however, were hidden underneath a murky analysis of the

constitutionality of a Maryland tax law.2 The Supreme Court ultimately

struck down the law for violating the dormant Commerce Clause,3 which

in turn caused the state to make large payouts of refunds to taxpaying

residents, who, the Court held, had collectively paid millions in

unconstitutional state taxes.4

Wynne has immediate practical consequences for states and taxpayers,

and a glimpse into the Maryland aftermath gives an indication of what

other states might encounter. After the Supreme Court struck down

Maryland’s partial tax credit law, determining that it violated the internal

consistency test, the state cured the unconstitutionality by amending the

law to now offer a full tax credit.5 Additionally, Maryland chose to apply

this change retroactively, thus offering a refund to any taxpayer who

Copyright 2017, by MACKENZIE CATHERINE SCHOTT.

1. Bill Turque, Court: Maryland has Been Wrongly Double-Taxing Residents

Who P ay I ncome Ta x to Other Sta tes, WASH. POST (May 18, 2015), https:

//www.washingtonpost.com/local/md-politics/supreme-court-rules-maryland-in

come-tax-law-is-unconstitutional/2015/05/18/1e92ee7a-d16f-11e4-ab77-9646eea6

a4c7_story.html [https://perma.cc/93DX-7SZH].

2. See infra Part II.C.

3. Comptroller of the Treasury of Md. v. Wynne, 135 S. Ct. 1787, 1795 (2015).

4. Although the Wynne decision pr ovided no discussion on whether the

decision would apply retroactively, the Court articulated its rule on retroactivity

when discussing the application of the Armco decision. See Armco, Inc. v.

Hardesty, 467 U.S. 638 (1984). See also Ashland Oil, Inc. v. Caryl, 497 U.S. 916

(1990). In Ashland, the Court stated the general rule that “constitutional decisions

apply retroactively to all cases on dir ect review.” Id . at 918. Exceptions to the

general rule exist, as articulated in Chevron Oil Co. v. Huson. 4 04 U.S. 97, 106

(1971). Because Wynne likely falls under the general rule and not an exception,

Maryland chose to apply Wynne retroactively, thus offering refunds.

5. H.B. 72, 2015 Leg., Reg. Sess. (Md. 2015), http://mgaleg.maryland

.gov/2015RS/bills/hb/hb0072f.pdf [https://perma.cc/24P7-KEDZ] (codified as

amended at MD. CODE ANN., TAX–GEN. § 10-703(a) (West 2016)). See Wynne, 135

S. Ct. at 1806.

948 LOUISIANA LAW REVIEW [Vol. 77

overpaid taxes under the unconstitutional law.6 This decision will cost

Maryland an estimated $200 million in refunds,7 and it also means that

Maryland will collect nearly $40 million less in tax revenue going

forward.8 This tax revenue decrease means budget cuts for Maryland

counties, which might result in cutting some services offered to residents.9

These changes in Maryland are just the beginning. Some commentators

have speculated that New York tax law might encounter a challenge

similar to the one in Wynne,10 while Kansas has already issued guidance

on its tax law changes under Wynne.11 The consequences in Maryland,

New York, and Kansas foreshadow what other states will likely suffer if

and when their similar tax laws are challenged.

Unfortunately, the broader legal implications of Wynne are far less

clear than its practical ones for the resident taxpayers of Maryland and

other states. Wynne presented the Court with the opportunity to clarify a

historically confusing and ambiguous area of dormant Commerce Clause

doctrine, but the Court’s opinion in Wynne failed to meet this challenge.12

6. Bill Turque, Maryland, Opponent of Wynne Tax Case, Now Encouraging

Residents to Seek Refunds, WASH. POST (Sept. 28, 2015), https://www.washington

post.com/local/md-politics/2015/09/28/657e4c4c-6613-11e5-8325-a42b5a459b1e

_story.html [https://perma.cc/44PK-45KW]. See supra note 4 and accompanying text.

7. Turque, supra note 6. See su pra note 4 and accompanying text. After

Maryland’s decision to apply its tax amendment retroactively, Maryland instructed

taxpayers to collect any authorized refunds for any taxes overpaid to Maryland. The

Maryland comptroller office issued a bulletin informing Maryland taxpayers of the

required action for collecting refunds. Comptroller of the Treasury of Maryland v.

Wynne: F requently Asked Questions, COMPTROLLER OF MD., http://taxes.maryland

taxes.com/Individual_Taxes/Individual_Tax_Types/Income_Tax/Tax_Information/

Wynne_Case/Initial_Wynne_FAQs.pdf [https://perma.cc/K7WF-PBCW] (last

updated Dec. 7, 2015).

8. Turque, supra note 1.

9. Bill Turque & Donna St. George, Leggett Proposes $50 Million in Cuts to

New Montgomery Budget, WASH. POST (July 9, 2015), https://www.washingtonpost

.com/local/md-politics/leggett-proposes-50-million-in-cuts-to-new-montgomery-

budget/2015/07/08/652fb730-25b8-11e5-b77f-eb13a215f593_story.html [https://per

ma.cc/8P2L-Z9AA].

10. Ashlea Ebeling, Wynne Decision Boon To NYC Pied -A-Terre Owners,

FORBES (May 21, 2015, 7:59 AM), http://www.forbes.com/sites/ashleaebeling/2015

/05/21/wynne-decision-boon-to-nyc-pied-a-terre-owners/#2715e4857a0b50a0d40f5

502 [https://perma.cc/ZKV6-QQUM].

11. Brian Kirkell, Kansas DOR P rovides Guida nce in Response to Wynne,

RSM (Aug. 11, 2015), http://rsmus.com/what-we-do/services/tax/tax-alerts/kansas-

dor-provides-guidance-in-response-to-wynne.html [https://perma.cc/7TRC-RZF4].

12. See, e.g., Bradley W. Joondeph, The Meaning of Fair Apportionment and

the Prohibition on Extra territoria l State Taxation, 71 FORDHAM L. REV. 149, 149