Maryland State Comptroller of the Treasury v. Wynne

GREENE, J.,

dissenting, in which BATTAGLIA, J., joins.

I disagree with the Majority’s conclusion that the federal Constitution’s dormant Commerce Clause requires Maryland to reduce the Wynnes’ county taxes. Since the early Nineteenth Century, the law has been:

[T]he power of taxation is one of vital importance ... retained by the states----[T]he power of taxing the people and their property[] is essential to the very existence of government, and may be legitimately exercised on the objects to which it is applicable, to the utmost extent to which the government may choose to carry it. The only security against the abuse of this power, is found in the structure of the government itself. In imposing a tax, the legislature *179acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation.

McCulloch v. Maryland, 17 U.S. 316, 4 Wheat. 316, 425, 428, 4 L.Ed. 579, 606, 607 (1819). The Wynnes may not agree that they should pay the Howard County tax without a credit pursuant to TG § 10-703. This, however, is an issue for the elected officials of Howard County and the State, not this Court. “It is not a purpose of the Commerce Clause to protect state residents from their own state taxes.” Goldberg v. Sweet, 488 U.S. 252, 266, 109 S.Ct. 582, 591, 102 L.Ed.2d 607, 620 (1989) (noting additionally that the dormant Commerce Clause is not designed to protect the “insider who presumably is able to complain about and change the tax through the [state] political process”). The Maryland General Assembly’s decision to apply a credit for taxes paid in other states to the Wynnes’ state tax, and not their county tax, does not run afoul of the federal Constitution’s dormant Commerce Clause.

The Wynnes live in Howard County where they benefit from the services provided by that county. See Frey v. Comptroller, 422 Md. 111, 150, 29 A.3d 475, 497-98 (2011). To pay for these services, Howard County, like every county in Maryland, including Baltimore City, assesses a tax. As the Majority notes, TG § 10-703 does not permit the Wynnes to apply a credit for taxes paid in other states to reduce the Howard County tax. Comptroller v. Wynne, 431 Md. 147, 157, 64 A.3d 453, 458 (2013). Rather, as we said in Comptroller v. Blanton, 390 Md. 528, 535, 543, 890 A.2d 279, 283, 288 (2006), residents of a Maryland county are required to pay for that county’s services by paying the county tax without the credit. Otherwise, “if the taxpayers were allowed to pay a lesser amount of county income tax, it ‘would have the possible absurd result of the [taxpayers] paying little or no local tax for services provided by the county while a neighbor with similar income, exemptions, and deductions might be paying a substantial local tax to support those services.’ ” Blanton, 390 Md. *180at 536 n. 9, 890 A.2d at 284 n. 9 (quoting Coerper v. Comptroller, 265 Md. 3, 8, 288 A.2d 187, 189 (1972)).

The Majority acknowledges that Maryland law prohibits the Wynnes from applying a credit for taxes paid to other states to reduce their county taxes. Wynne, 431 Md. at 157, 64 A.3d at 458. The Majority, however, concludes that imposing a county tax without allowing for a credit pursuant to TG § 10-703 violates the dormant Commerce Clause because Maryland’s taxing scheme fails two prongs of the Complete Auto four-part test, namely that it is not fairly apportioned, and it discriminates against interstate commerce. Wynne, 431 Md. at 166-67, 169-70, 171-73, 176-77, 64 A.3d at 464, 465-66, 467-68, 470-71. As we have said before, however:

Declaring a statute enacted by the General Assembly to be unconstitutional and therefore unenforceable is an extraordinary act. Statutes are generally presumed to be Constitutional and are not to be held otherwise unless the Constitutional impediment is clear. We have said many times that since every presumption favors the validity of a statute, it cannot be stricken down as void, unless it plainly contravenes a provision of the Constitution.

Maryland State Bd. of Ed. v. Bradford, 387 Md. 353, 387, 875 A.2d 703, 723 (2005) (quotation and citations omitted). See also San Antonio Independent Sch. Dist. v. Rodriguez, 411 U.S. 1, 44, 93 S.Ct. 1278, 1302, 36 L.Ed.2d 16, 49 (1973) (noting that state laws are traditionally accorded a “presumption of constitutionality”). Because of this presumption, a heavy burden is on the Wynnes to prove that this Court should not enforce Maryland law as it is written.

The Majority states that before this Court can decide whether the dormant Commerce Clause has been violated, we must “assess first whether the dormant Commerce Clause is implicated by the county tax....” Wynne, 431 Md. at 161, 64 A.3d at 461. Contrary to the Majority’s conclusion, however, it appears that the Wynnes have failed to meet their burden of showing that the dormant Commerce Clause is implicated.1

*181States have the power to impose taxes that may result in some overlap in taxation of income. See Moorman Mfg. Co. v. Bair, 437 U.S. 267, 278-79, 98 S.Ct. 2340, 2346-47, 57 L.Ed.2d 197, 207-08 (1978) (concluding that it does not necessarily constitute a violation of the dormant Commerce Clause when two states’ taxing schemes tax income differently, and this results in some overlap in taxation). As the Majority notes, “[T]he dormant Commerce Clause will not affect the application of a tax unless there is actual or perspective competition between entities in an identifiable market and state action that either expressly discriminates against or places an undue burden on interstate commerce. [General Motors Corp. v. Tracy, 519 U.S. 278, 300, 117 S.Ct. 811, 825, 136 L.Ed.2d 761, 781 (1997) ]. This impact must be more than incidental. United States v. Lopez, 514 U.S. 549, 559 [115 S.Ct. 1624, 1630, 131 L.Ed.2d 626, 637] (1995).” Wynne, 431 Md. at 162, 64 A.3d at 461-62. In the present case, the Wynnes have failed to prove that requiring them to pay a county tax without a credit either expressly discriminates against interstate commerce or places more than an incidental burden upon interstate commerce. *182Therefore, the Wynnes have failed to prove that the dormant Commerce Clause is implicated.

The Howard County tax, assessed without a credit, does not expressly discriminate against interstate commerce. As the Comptroller argues, the Howard County tax is directed at income earned by residents of Howard County, not interstate commerce.2 And while, as the Majority notes, the dormant Commerce Clause “is not limited to circumstances where physical goods enter the stream of commerce[,]” Wynne, 431 Md. at 162-63, 64 A.3d at 462, the other cases the Majority relies on all involve situations where, unlike the present case, the law was facially discriminatory. The Majority looks to Camps Newfound/Owatonna v. Town of Harrison, 520 U.S. 564, 117 S.Ct. 1590, 137 L.Ed.2d 852 (1997), Edwards v. California, 314 U.S. 160, 62 S.Ct. 164, 86 L.Ed. 119 (1941), Boston Stock Exchange v. State Tax Comm’n, 429 U.S. 318, 97 S.Ct. 599, 50 L.Ed.2d 514 (1977), and Fulton Corp. v. Faulkner, 516 U.S. 325, 116 S.Ct. 848, 133 L.Ed.2d 796 (1996) to conclude that the dormant Commerce Clause is implicated. In all four of those cases, the challenged tax law facially discriminated against interstate commerce by either first distinguishing between organizations and businesses that were involved in interstate business and those organizations and *183businesses that were only involved with intrastate business, and then imposing a disadvantage upon those involved in interstate transactions, or, in the case of Edwards, placing a restriction upon people moving in interstate commerce itself.

In Camps Newfound/Owatonna, the challenged Maine tax law granted a general exemption from real estate and personal property taxes for charities incorporated in Maine, but limited that exemption for organizations that mostly served non-Maine residents. 520 U.S. at 568, 117 S.Ct. at 1594, 137 L.Ed.2d at 859. The law, thereby, distinguished between groups that served people traveling in interstate commerce and those that only served Maine residents and explicitly benefited the latter. 520 U.S. at 575-76, 117 S.Ct. at 1598, 137 L.Ed.2d at 864. In Edwards, the challenged law directly implicated interstate commerce and travel by prohibiting the transportation of indigent persons across state lines. 314 U.S. at 174, 62 S.Ct. at 167, 86 L.Ed. at 125-26. In Boston Stock Exchange, the challenged New York tax law distinguished between sales of securities made within New York and those made outside New York, and then imposed a lower tax rate and a cap on taxes for in-state sales and a higher tax rate and no cap on taxes for out-of-state sales. 429 U.S. at 319, 324-25, 97 S.Ct. at 602, 604, 50 L.Ed.2d at 518, 521. Finally, in Fulton Corp., North Carolina imposed a tax on investments in corporations but allowed stockholders to reduce their tax liability based on the business the corporation did in North Carolina. 516 U.S. at 327-328, 116 S.Ct. at 852, 133 L.Ed.2d at 802-03. In Fulton Corp., the United States Supreme Court noted that the tax facially discriminated against interstate commerce, and North Carolina “practically concede[d] as much.” 516 U.S. at 333, 116 S.Ct. at 855, 133 L.Ed.2d at 806.

In the present case, nothing on the face of the Maryland tax laws imposing a county tax, TG § 10-103, or the Maryland tax law limiting credits for taxes paid in other states to state taxes, TG § 10-703, discriminates against interstate commerce. TG § 10-103 imposes a county tax on all residents with no distinction drawn based upon the source of the income. And, TG § 10-703, on its face, provides a benefit to *184interstate commerce by applying a credit to reduce the amount of Maryland state taxes paid by residents who earned income in interstate commerce. The only distinction drawn between income earned in intrastate commerce and income earned in interstate commerce pursuant to these two laws is that a benefit is bestowed upon interstate commerce through the credit that is applied to state taxes. This can hardly be interpreted as discriminating against interstate commerce on the face of the law.

The fact that Maryland’s tax scheme is not facially discriminatory is critical to the dormant Commerce Clause analysis. As the Majority notes, “[fjacially discriminatory state taxes are subject to the strictest scrutiny, and the ‘burden of justification is so heavy that “facial discrimination by itself may be a fatal defect.” ’ ” Wynne, 431 Md. at 173, 64 A.3d at 468 (quoting Oregon Waste Systems, Inc. v. Dept. of Envtl. Quality, 511 U.S. 93, 101, 114 S.Ct. 1345, 1351, 128 L.Ed.2d 13, 22 (1994) (in turn quoting Hughes v. Oklahoma, 441 U.S. 322, 337, 99 S.Ct. 1727, 1737, 60 L.Ed.2d 250, 262 (1979))); see also Frey, 422 Md. at 144, 29 A.3d at 494 (“[Fjacially discriminatory state taxes raise a presumption of per se invalidity.”). In other words, when a court is examining a law that, on its face, draws a distinction between interstate and intrastate commerce and imposes a disadvantage to the former, the burden of proving that the law expressly discriminates against interstate commerce and that the dormant Commerce Clause is implicated is met. See United Haulers Ass’n v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 338-39, 127 S.Ct. 1786, 1793, 167 L.Ed.2d 655, 664-65 (2007). In this case, there is no facial discrimination against interstate commerce, and thus, the burden of proving that the dormant Commerce Clause is implicated requires a higher level of proof.

As noted above, the Wynnes have the burden of proving that interstate commerce is implicated. The Wynnes, however, fail to meet this burden with the arguments they present. In arguing that the dormant Commerce Clause is implicated, the Wynnes primarily rely on two lines of arguments, both of which are inapplicable to the present case.

*185First, the Wynnes rely on our decision in Frey where we concluded that the “Special Nonresident Tax,” or SNRT, implicated the dormant Commerce Clause.3 The SNRT is applied to nonresidents doing business in Maryland. On its face, the SNRT singles out income from interstate commerce and applies a tax on that income. It is thus a “facially discriminatory state tax[ ],” and subject to “the strictest scrutiny!.]” Frey, 422 Md. at 144, 29 A.3d at 494. The county tax, on the other hand, draws no distinction between income earned in interstate and intrastate commerce and is not facially discriminatory. Therefore, unlike the SNRT, the county tax does not expressly discriminate against interstate commerce and our conclusion in Frey that the SNRT implicated the dormant Commerce Clause is inapplicable to the present case.

Second, the Wynnes rely on Camps Newfound/Owatonna, Fulton Corp., and a case from the Minnesota Supreme Court, Chapman v. Comm’r of Revenue, 651 N.W.2d 825 (Minn.2002). As noted above, Camps Newfound/Owatonna and Fulton Corp. address facially discriminatory laws. Likewise, Chapman addresses a facially discriminatory law. The law in question allowed Minnesota taxpayers to take a tax deduction for contributions to charities “located in and carrying on substantially all of its activities within [Minnesota],” but did not allow a tax deduction for contributions to non-Minnesota charities. 651 N.W.2d at 834. The Minnesota Supreme Court stated that “[o]n its face, the statute treats contributions to instate charitable organizations differently from contributions to out-of-state charitable organizations,” and concluded that it was “facially discriminatory.” 651 N.W.2d at 834. As noted above, a law that facially discriminates against interstate *186commerce necessarily implicates the dormant Commerce Clause. Maryland’s tax scheme, which is not facially discriminatory, however, does not necessarily implicate the dormant Commerce Clause. Therefore, like Camps Newfound/Owatonna and Fulton Corp., the conclusion that the law in Chapman implicated the dormant Commerce Clause is inapplicable to the present ease.

In the absence of facial or express discrimination, an undue burden on interstate commerce must be shown.4 See Tracy, 519 U.S. at 287, 117 S.Ct. at 818, 136 L.Ed.2d at 773 (internal quotation and citations omitted) (“The negative or dormant implication of the Commerce Clause prohibits state taxation ... or regulation ... that discriminates against or unduly burdens interstate commerce and thereby impedes free private trade in the national marketplace[.]”). In Amerada Hess Corp. v. Dir., Div. of Taxation, New Jersey, 490 U.S. 66, 78-79 n. 10, 109 S.Ct. 1617, 1624-25 n. 10, 104 L.Ed.2d 58, 70 n. 10 (1989), the Supreme Court, in considering New Jersey’s denial *187of a state tax deduction for federal windfall profit tax payments, observed that “in the absence of discriminatory intent or a statute directed specifically at economic activity that occurs only in a particular location ... a deduction denial does not unduly burden interstate commerce just because the deduction denied relates to an economic activity performed outside the taxing State.” The Wynnes, in failing to prove discriminatory intent or unacceptable statutory geographical specificity, have demonstrated neither an undue burden on interstate commerce nor an implication of the dormant Commerce Clause.5

*188The Blanton decision conclusively established that Maryland law applies TG § 10-703’s tax credit only to state taxes, not county taxes. 390 Md. at 543, 890 A.2d at 288. The Wynnes asked this Court to conclude that settled Maryland law is unconstitutional under the dormant Commerce Clause. The presumption has always been that Maryland law is constitutional, and the Wynnes, as challengers of the Maryland tax law, have failed to overcome that presumption by proving that Maryland’s tax scheme expressly discriminates against or unduly burdens interstate commerce such that the dormant Commerce Clause is implicated. The Wynnes may believe that it is bad policy to require them to pay the Howard County tax without a tax credit; however, they have failed to prove that it is in violation of the dormant Commerce Clause. Accordingly, I respectfully dissent.

Judge BATTAGLIA joins in the views expressed herein.

Opinion on Motion for Reconsideration by

McDONALD, J.

The Comptroller has filed a Motion for Reconsideration and, Alternatively, a Motion for Stay of Enforcement of the Judgment. The Wynnes opposed that motion. The parties filed memoranda of law and other materials in support of their respective positions.

It appears appropriate to clarify two points raised in the papers submitted by the parties:

(1) The Comptroller raised the question of whether he could deny application of a credit to the Wynnes for income taxes paid by an S corporation, such as Maxim, in another state that does not accord pass-through treatment to S corporation income, but rather taxes the income of such a corporation in the same way that it taxes the income of a C corporation. The parties did not brief, and we did not consider, the ways in which other states may treat S corporation income other than as pass-through personal income of the corporation’s share*189holders. Our opinion does not foreclose different treatment in Maryland of income taxes paid in other states that are not based on passthrough personal income.

(2) A state may avoid discrimination against interstate commerce by providing a tax credit, or some other method of apportionment, to avoid discriminating against interstate commerce in violation of the dormant Commerce Clause. The Comptroller interprets a footnote in our earlier opinion to hold that a state must provide a tax credit. 431 Md. at 177 n.26, 64 A.3d at 470-71 n.26. While the footnote might have been worded more elegantly, it referred primarily to the method used by the Legislature in the Maryland income tax; we did not mean to preclude other methods that might be utilized in other contexts.

The Motion for Reconsideration is DENIED; however, we shall STAY the effective date of the mandate pending the disposition of a timely petition for certiorari filed by the Comptroller with the United States Supreme Court.

. In General Motors v. Tracy, 519 U.S. 278, 300, 117 S.Ct. 811, 825, 136 L.Ed.2d 761, 781 (1997), the Supreme Court noted that “in the absence of actual or prospective competition” within "a single market” between those engaged in interstate commerce and those engaged in intrastate commerce, there can be no dormant Commerce Clause violation. Because of this, the New York Court of Appeals has determined that before a tax can be subjected to the Complete Auto test, the party challenging the tax must “identify the interstate market that is being subjected to discriminatory or unduly burdensome taxation.” In re Tamagni, 91 N.Y.2d 530, 673 N.Y.2d 44, 695 N.E.2d 1125, 1131 (1998). “This requires, at the outset, identification of the similarly situated in-State and out-of-State interests which the tax treats differently.” Id. The Wynnes argue that “Maryland taxpayers and companies that do business out of state, on the one hand, and those that restrict their trade to Maryland, on the other” constitute similarly situated parties in one market. These two groups are not similarly situated, however. Those who engage in out-of-state business enjoy the protections and markets provided by the states where they do business. Taxpayers and companies that restrict their business to Maryland only receive the protections and services provided by Maryland.

. In most of the cases where the Supreme Court has subjected a tax to the Complete Auto test, the tax was directly on interstate commerce itself or items in interstate commerce. See Okla. Tax Comm’n v. Jefferson Lines, 514 U.S. 175, 177, 183, 115 S.Ct. 1331, 1334, 1337, 131 L.Ed.2d 261, 267, 271 (1995) (analyzing an Oklahoma tax on a bus ticket for interstate travel); Goldberg, 488 U.S. at 255-56, 259-60, 109 S.Ct. at 585-86, 587-88, 102 L.Ed.2d at 613, 615-16 (analyzing an Illinois state tax on interstate calls); D.H. Holmes Co. v. McNamara, 486 U.S. 24, 26, 31-33, 108 S.Ct. 1619, 1620-21, 1623-24, 100 L.Ed.2d 21, 24, 28-29 (1988) (analyzing a Louisiana use tax on catalogs printed outside the state and shipped to persons in the state); Wardair Canada v. Fla. Dept. of Revenue, 477 U.S. 1, 3-4, 8, 106 S.Ct. 2369, 2370-71, 2373, 91 L.Ed.2d 1, 7, 10 (1986) (analyzing a tax on fuel sold in Florida and used in interstate commerce). The challenged Howard County tax without a credit is assessed upon the income of residents of the County. While a portion of that income may derive from interstate commerce, the challenged tax is not directed to interstate commerce or items in interstate commerce. Rather, the connection to interstate commerce is more attenuated.

. Similarly, at oral argument before this Court, counsel for the Wynnes argued that, in footnote 14 of the Frey decision, this Court indicated that the county tax implicates the dormant Commerce Clause. A close reading of footnote 14 indicates that what we concluded was that ”[t]he SNRT may thereby substantially affect interstate commerce and is consequently susceptible to Commerce Clause scrutiny.” 422 Md. at 143 n. 14, 29 A.3d at 493 n. 14. We said nothing in the footnote about county taxes.

. The Supreme Court in Dept. of Revenue v. Davis, 553 U.S. 328, 128 S.Ct. 1801, 170 L.Ed.2d 685 (2008), articulated the standard for when a nondiscriminatory law can violate the dormant Commerce Clause. It stated that "[a]bsent discrimination for the forbidden purpose [of economic protectionism], however, the law 'will be upheld unless the burden imposed on [interstate] commerce is clearly excessive in relation to the putative local benefits.’ " 553 U.S. at 338-339, 128 S.Ct. at 1808, 170 L.Ed.2d at 695 (quoting Pike v. Bruce Church, 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174, 178 (1970)); see also Oregon Waste Sys., Inc. v. Dept. of Envtl. Quality, 511 U.S. 93, 99, 114 S.Ct. 1345, 1350, 128 L.Ed.2d 13, 21 (1994) (quotations omitted) ("If a restriction on commerce is discriminatory, it is virtually per se invalid.... By contrast, nondiscriminatory regulations that have only incidental effects on interstate commerce are valid unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.”); Bd. of Trustees v. Mayor and City Council of Baltimore City, 317 Md. 72, 134-35, 562 A.2d 720, 750 (1989) (citations omitted) ("With regard to state regulatory legislation, the Supreme Court has long recognized that, while discrimination in favor of local economic interests is usually invalid under the Commerce Clause, nondiscriminatory legislation will be upheld unless the burden on interstate commerce outweighs the local interests effectuated by the legislation.”). In the present case, the Wynnes have failed to prove that any alleged burden upon interstate commerce is "clearly excessive” in relation to the local services paid for by the Howard County tax.

. In another section of their brief to this Court, the Wynnes argue that the dormant Commerce Clause requires taxes to be apportioned, which can be read as an assertion that an un-apportioned tax might implicate and violate the dormant Commerce Clause. Some unapportioned taxes could have a significant effect on interstate commerce such that they "unduly” burden interstate commerce, thereby implicating and violating the dormant Commerce Clause. Amerada Hess, 490 U.S. at 75, 109 S.Ct. at 1623, 104 L.Ed.2d at 68. The dormant Commerce Clause, however, does not protect against taxes and laws that have only an incidental effect on interstate commerce. Fulton Corp., 516 U.S. at 331, 116 S.Ct. at 854, 133 L.Ed.2d at 805. TG § 10-703 provides a credit for state taxes, significantly diminishing any effect Maryland income taxes have on interstate commerce. As noted above there is a strong presumption that an act of the Maryland General Assembly is constitutional. Additionally, the Supreme Court has concluded that "[t]he dormant Commerce Clause protects markets and participants in markets, not taxpayers as such.” Tracy, 519 U.S. at 300, 117 S.Ct. at 825, 136 L.Ed.2d at 781. The Wynnes have not provided evidence that any markets or market participants, as opposed to taxpayers, have been disadvantaged by some taxpayers being required to pay slightly more in taxes. Additionally, there is no evidence that, as the Majority fears, interstate commerce will be harmed because taxpayers will have a "disincentive ... to conduct income-generating activities in other states with income taxes.” Wynne, 431 Md. at 164, 64 A.3d at 463. In fact, as the Majority notes, Maryland residents have paid a county tax without a credit pursuant to TG § 10-703 since the tax code was amended in 1975. Wynne, 431 Md. at 157-58, 64 A.3d at 458-59. There has been no evidence presented to this Court that Maryland companies or taxpayers have been deterred from engaging in interstate commerce over nearly four decades since 1975. In fact, at issue in the present case is the income generated by the Maxim Corporation, a company founded in 1988, from business in 39 other states where the income was taxed. Thus, even if we were to accept the argument that the federal Constitution requires the apportionment of taxes as a *188contention by the Wynnes that the dormant Commerce Clause is implemented, the Wynnes have failed to prove this.