Ohio currently allows a state credit but no local credit for taxes paid to another jurisdiction, similar to the tax systems in Iowa and Maryland. If Ohio follows suit with the Wynne case, there could be potential for a possible refund of unapplied credits for local taxes paid to other jurisdictions for Ohio taxpayers.

The State of Maryland imposes both a state income tax and a county income tax on its residents. Historically, Maryland has allowed a credit for taxes paid to other states that can be applied to Maryland state income taxes.  However, the same tax credit cannot be applied to any county tax liability. In May the United States Supreme court ruled in Comptroller of the Treasury of Maryland v. Wynne that this practice can lead to double taxation.  As a result, Maryland is changing its practice and refunding money to taxpayers whose out-of-state tax credits were not properly applied.

Residents of Iowa who have earned income from other states and have paid tax on that income might also find the recent Supreme Court ruling applicable. Iowa does not allow counties to have separate income tax but it does allow school districts to impose a local “instructional support income surtax” upon residents. Iowa counties also allow “emergency medical services income surtax.” The surtax is based upon the amount of Iowa state income tax a taxpayer owes. Iowa does allow a credit for tax paid to another state, however, the surtax is calculated prior to applying the out-of-state tax credit which results in the out-of-state tax credit only being applied to state income tax and not local income tax. Due to the inconsistency of the practice with the Supreme Court ruling, Iowa must also change its practice.

Any Iowa resident who has paid taxes on income earned in any other state, a local jurisdiction of any other state, or the District of Columbia may be eligible for a refund. The decision does not have an impact on Iowa residents who earned only wages or salaries in Illinois because of the reciprocal arrangement between Iowa and Illinois.

For more background on the Ohio scenario visit these prior Barnes Dennig blogs covering Ohio Municipal Double Taxation in the US, and the Ohio Class Action Suit found in Violation of the US Commerce Clause.

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