The Supreme Court on Monday struck down a Maryland tax that has the effect of double-taxing income residents earned in other states.
The justices agreed with a lower court that the tax is unconstitutional because it discourages Maryland residents from earning money from outside the state.
The 5-4 ruling means the loss of hundreds of millions of dollars in revenue for Maryland's coffers and affects similar tax laws in nearly 5,000 local jurisdictions in other states, including New York, Indiana, Pennsylvania, and Ohio.
Maryland allowed its residents to deduct income taxes paid to other states from their Maryland state tax, but it did not apply that deduction to a local "piggy back" tax collected for counties and some city governments.
Maryland officials argued that the state has authority to tax all the income its residents earn to pay for local services like public schools.
Writing for the court, Justice Samuel Alito said the tax "is inherently discriminatory and operates as a tariff."
The case arose after Maryland residents Brian and Karen Wynne challenged tax bill. They had been blocked from deducting $84,550 that they had paid in income taxes to 39 other states. Brian Wynne's out-of-state income resulted from his ownership stake in a health care company that operates nationwide.
The Wynnes argued that Maryland was unfairly subjecting them to double taxation and taxing earnings that have no connection to the state.
Maryland's highest court ruled in 2013 that the tax violates the Constitution's Commerce Clause.
Maryland officials said an adverse ruling could cost local governments in the state $45 million to $50 million annually and warned that Maryland might have to refund up to $120 million in taxes.
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