I'm taxed by Virginia as a domiciliary resident and by Maryland as an actual resident -- Virginia gives me credit for Maryland's STATE income tax, but why won't it credit the Maryland COUNTY (local) tax I also had to pay?

Plain-English summary

A taxpayer was a Virginia domiciliary resident and a Maryland actual resident for the 2020 taxable year, filing resident returns in both states. On his Virginia return, he claimed an out-of-state tax credit (Va. Code § 58.1-332) for both the Maryland STATE income tax and the Maryland COUNTY (local) income tax he'd paid. The Department disallowed the whole credit and assessed tax; the taxpayer paid it and appealed, arguing that denying the credit caused impermissible double taxation in violation of the Commerce Clause. While the appeal was pending, the Department adjusted his return to allow credit for the Maryland STATE tax -- leaving only the Maryland COUNTY tax credit still in dispute.

A question the Department had already answered -- for this same taxpayer. This wasn't the taxpayer's first time raising the issue: he had previously appealed the denial of credit for Maryland local tax on his 2017 Virginia return, and the Department addressed it in P.D. 21-121, holding that denying a credit for Maryland county tax does not violate the Commerce Clause and is not inconsistent with the U.S. Supreme Court's decision in Comptroller of the Treasury v. Wynne, 575 U.S. 542 (2015) (a case about double taxation of dual residents' income, but one that the Department found didn't require crediting local, sub-state taxes).

No new argument, no new result. The taxpayer offered no new evidence and cited no court decisions issued since Wynne that would change the analysis. The Department acknowledged his continued disagreement with P.D. 21-121 but found no basis to reverse it, and upheld the denial of credit for the Maryland local tax a second time.

Outcome. The credit for Maryland state income tax remained allowed (with a refund reflecting that adjustment, if not already received), but the credit for Maryland county tax stayed denied.

What this means for you

Virginia domiciliary residents who are also actual residents of Maryland (or another state with local income taxes)

Virginia's out-of-state tax credit reaches the other state's STATE-level income tax, but this ruling confirms it does not extend to a local or county-level income tax layered on top of it -- budget for that local tax as a real, uncredited cost of dual residency.

Anyone re-raising an argument the Department has already rejected in a prior ruling

Simply disagreeing with a past determination, without new evidence or a new court decision that undercuts it, will not be enough to get the Department to reverse itself.

Common questions

Q: I pay both a state income tax and a county/local income tax to another state where I'm also a resident -- does Virginia credit both?
A: Based on this ruling (regarding Maryland), no -- Virginia's credit covers the other state's state-level tax but not a local county tax layered on top.

Q: Doesn't denying credit for the local tax amount to unconstitutional double taxation?
A: The Department has held it does not violate the Commerce Clause, and is not inconsistent with the Supreme Court's Wynne decision, to deny credit for Maryland's local county tax specifically.

Citations and references

Statutes:

• Va. Code § 58.1-332 -- credit against Virginia income tax for income tax paid to another state

Case law: Comptroller of the Treasury v. Wynne, 575 U.S. 542 (2015) -- addressed double taxation of dual residents' income; the Department found it does not require Virginia to credit a local/county-level tax.

Prior rulings the Department relied on (described here, not linked): P.D. 21-121 (9/7/2021) -- denying credit for Maryland local county tax does not violate the Commerce Clause and is not inconsistent with Wynne; this same holding is also cited in this corpus's P.D. 24-59.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-43

Original ruling text

March 29, 2024

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will respond to your letter in which you seek correction of an assessment of individual income tax issued to * (the “Taxpayer”) for the taxable year ended December 31, 2020.

FACTS

The Taxpayer was a domiciliary resident of Virginia and an actual resident of Maryland during the 2020 taxable year. He filed both Virginia and Maryland resident income tax returns for that year. On his Virginia return, the Taxpayer claimed an out-of-state tax credit for payment of both the Maryland state income tax and local county income tax. Under review, the Department disallowed the credit and issued an assessment. The Taxpayer paid the assessment and appealed, contending he was eligible to claim the credit because the denial of the credit would result in double taxation in violation of the Commerce Clause of the United States Constitution.

While this appeal was pending, the Department adjusted the Taxpayer’s return to allow a credit for state income tax paid to Maryland. The Department, however, did not grant credit for the local income tax paid. This letter, therefore, will address only the Taxpayer’s contention that he should be allowed a credit for the local tax paid.

DETERMINATION

The Taxpayer previously filed an appeal requesting credit for local county tax paid to Maryland on his 2017 Virginia resident individual income tax return. In response, the Department issued Public Document (P.D.) 21-121 (9/7/21), holding that the denial of a credit for the local county tax paid to Maryland did not violate the Commerce Clause of the United States Constitution nor was it contrary to the Supreme Court’s decision in Comptroller of the Treasury v. Wynne , 575 U.S. 542 (2015).

The Taxpayer has not provided new evidence or cited any court decisions subsequent to Comptroller of the Treasury v. Wynne that would impact the issue in this case. Although I recognize the Taxpayer’s continued disagreement with the Department’s determination in P.D. 21-121, I find no basis for reversing it. Therefore, the Department’s denial of credit for the local income tax paid is upheld. If he has not already received it, the Taxpayer will receive a refund reflecting the adjustment that allowed credit for the Maryland state income tax paid.

The public document cited is available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at (804) ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/4539.X

Related Documents

21-121