Comptroller previously gave funds back to residents who profited outside of Maryland

(Feb. 7, 2020) Worcester County government has a tax bill of its own, now that it must reimburse the state for $699,928 over the next six fiscal years for income tax refunds the state issued on the county’s behalf.

The refunds were made necessary when the courts found that counties should not have been taxing income earned and already taxed in another state.

The United States Supreme Court found in 2015 that Maryland’s income tax procedure violated the Commerce Clause by restricting interstate trade. As a result, the Maryland Comptroller’s Office gave credit for those paying state income tax in more than one state. The counties, however, offered no reciprocity with regard to the county income tax. 

In 2015, Gov. Larry Hogan unveiled a plan that allowed Maryland residents who paid income taxes to another state between 2011 and 2014  to apply for a refund. An estimated 55,000 Marylanders were eligible for a total of $200 million in tax relief. 

“Worcester County residents were then allowed to deduct a credit against their Worcester County portion of their state tax for taxes paid to other states,” Jennifer Swanton, assistant finance officer, said Tuesday. “As you know, we’re very close to Delaware and Virginia, so we do have quite a bit of that here.” 

County Treasurer Phil Thompson had previously estimated that Worcester County would have to pay between $200,000-$250,000 in potential tax refunds.

The comptroller paid the refunds and the interest from the Local Income Tax Reserve Account, which local governments are now required to reimburse.

The General Assembly gave the county two options – to pay the full amount at one time or to have the amount deducted from the local income tax distributions in 20 installments over the next six fiscal years. 

“We are reimbursing back the state,” Swanton said. “They’ve already given the money back to the Worcester County residents who have filed those returns.”

She recommended that commissioners take the multiple payment option, which comes to 20 installments of $34,966.40.

Fiscal years 2022-2025 will be the most affected, with reductions in income tax distributions totaling $139,866 for each of those four years. Swanton said that $14,270 of the total amount due is from interest. 

The commissioners voted unanimously for the installment plan.

Elizabeth covers Worcester County issues for Ocean City Today. In 2018, she graduated from Luther College in Decorah, Iowa with a bachelor of arts. After graduation, Elizabeth spent a year with Lutheran Volunteer Corps in Wilmington, Delaware.

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