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Does Ohio Municipal Double Taxation Violate the US Commerce Clause?

Published on by Barnes Dennig in Tax Services

Does Ohio Municipal Double Taxation Violate the US Commerce Clause?

On May 18, 2015, by a vote of five to four, the U.S. Supreme Court ruled Maryland’s personal income tax scheme as unconstitutional[1] because Maryland violated the Commerce Clause[2] by failing to offer residents of the state full credit for income taxes paid to other states on income earned outside of Maryland.

Maryland imposes personal income tax on its residents in two ways: a state income tax, and a county income tax; regardless of where the income is earned. Maryland then grants residents a full credit for taxes paid to other states; however, the county provides no credit for taxes paid to other counties. Maryland residents pay county income tax twice on the same income earned outside Maryland. As indicated in the Commerce Clause, states may not “impose a tax which discriminates against interstate commerce either by providing a direct commercial advantage to local business, or by subjecting interstate commerce to the burden of multiple taxation.”  Maryland’s double taxation violates the Commerce Clause because interstate transactions are taxed more heavily than the same transaction would be if it had occurred entirely within Maryland.

The taxpayer’s Supreme Court victory in Maryland raises the question whether Ohio’s municipal tax regime violates the Commerce Clause. Ohio local taxes are authorized by state statute and administered by the state, and would similarly be prohibited from punishing interstate commerce by taxing interstate income multiple times. The passage of the Ohio House Bill 5 removed some of the complexity built into Ohio’s municipal tax system and now provides key provisions on how Ohio municipalities should and should not tax. For example, House Bill 5 states that every municipality should establish, “a uniform tax base applicable to all municipal corporations levying an income tax by further defining the income that municipal corporations can tax and the income that they may not tax.” The bill permits Ohio localities to have the power to tax on their own, and ultimately displays Ohio localities as being local level taxes, not administered at the state level. Chapter 718 of the Ohio Revised Code states specific language for Ohio localities on what can and cannot be taxed[3].

Most (but not all) of Ohio localities provide credits for taxes paid to other localities. For example, North College Hill’s credit for tax paid to another municipality was repealed January 1, 2006[4]; and Indian Hill does not allow credit for taxes paid[5].  Whether or not an Ohio municipality has the power to tax residents’ income earned in other jurisdictions is deemed to be constitutional is now open for debate.



[1]Comptroller of the Treasury of Maryland v. Wynne.

[2]Article 1, Section 8, Clause 3 of the U.S. Constitution.

[3] 718 Ohio Rev. Code Ann. Sec. 718.01.

[4]Codified Ordinances of the City of North College Hill, Ohio.

[5] Indian Hill, OH Code of Ordinances; § 93.05.


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