Brian Wynne and Karen
No. 12, September Term
In the Court of Appeals of Maryland
June 5, 2020
Barbera, C.J., McDonald, Watts, Hotten, Getty, Booth, Greene, Jr., Clayton (Senior Judge, Specially Assigned) JJ.
Circuit Court for Anne Arundel County, Case No. C-02-CV-18-001788; Argument: October 2, 2019
Taxation – Tax Refunds – State Budget Legislation – Dormant Commerce Clause. A previous Court of Appeals decision held that the Maryland statute providing a credit against the Maryland income tax liability of a Maryland resident based on income taxes paid to other states on income earned in those states violated the dormant Commerce Clause of the federal Constitution. That decision held that the statute could be rendered constitutional by amending the credit provision to apply it more broadly, among other ways. That decision was appealed to the Supreme Court. While the appeal was pending, the General Assembly, in anticipation that the Supreme Court would affirm the decision, enacted State budget reconciliation and finance acts that broadened the tax credit, authorized refunds computed on a retroactive application of the credit, and specified that the interest rate paid on those refunds would be pegged to the prime rate of interest charged by banks (instead of the minimum 13% interest rate that the tax code already provided for certain refunds). After the Supreme Court affirmed the Court of Appeals decision, payment of refunds and interest in accordance with the remedial legislation enacted by the General Assembly did not violate the dormant Commerce Clause.
Opinion by McDonald, J.
This appeal is the latest chapter in litigation between Appellants Brian and Karen Wynne and Appellee State Comptroller. The litigation began when the Wynnes challenged an aspect of the Maryland income tax law – in particular, the credit allowed by State law against a Maryland resident‘s income tax liability based on taxes the resident paid to other states on income derived from those states. The Wynnes argued that the Maryland tax scheme discriminated against interstate commerce and thus violated what is known as the dormant Commerce Clause of the federal Constitution. Both this Court and the Supreme Court, in closely divided decisions, agreed with that argument.
In response, the General Assembly amended the Maryland tax code to comply with the court decisions, authorized the Comptroller to pay refunds to those taxpayers affected by the provision held to be invalid, and provided for the State to pay interest on those refunds at a rate pegged to the prime rate used by banks, but less than the 13% interest rate paid on certain other refunds.
After the Comptroller issued a refund to the Wynnes in compliance with the legislation passed by the General Assembly, the Wynnes appealed, seeking the higher rate of interest and arguing, among other things, that the interest rate set by the General Assembly violated the dormant Commerce Clause. After an administrative ruling in the Wynnes’ favor, the Circuit Court for Anne Arundel County held that the General Assembly‘s action did not violate the dormant Commerce Clause. We agree.
I
Legal Landscape
This case concerns the rate of interest paid on certain income tax refunds. The refunds were authorized, and the interest rate was set, in budget-related bills passed by the General Assembly. The dispute in this case concerns how the dormant Commerce Clause of the federal Constitution may constrain the choices made by the General Assembly when it authorized those refunds and established an interest rate for the refunds. To set the table, we begin with some basic principles.
A. Tax Refunds and Interest
Under the common law, a payment voluntarily made to the State, even if made in error, could not be recovered unless a statute specifically authorized a refund – a principle known as the “voluntary payment doctrine.” See Brutus 630, LLC v. Town of Bel Air, 448 Md. 355, 359-63 (2016); see also White v. Prince George‘s Co., 282 Md. 641, 651-52 (1978). To mitigate the perceived harshness of this doctrine, the General Assembly has enacted various statutes authorizing the payment of refunds for mistaken, erroneous, or illegal payments made to the State. Id.
Among the statutes allowing for refunds are the laws relating to tax refunds.1 A taxpayer who erroneously pays, or is wrongfully assessed, more income tax than
The State pays interest with respect to a claim for refund of an overpayment of income tax only in limited circumstances. Indeed, it seems safe to say that the vast majority of income tax refunds in Maryland are paid without interest.2 For example, no interest is paid when money is withheld from a worker‘s pay for income tax, the withholdings exceed the worker‘s tax liability, and a refund is paid after a return is filed. See
For those circumstances in which the General Assembly has authorized the payment of interest on tax refunds, it has periodically adjusted the rate of interest. When the State income tax law was first enacted in 1937, that law provided for payment of 6% interest when the refund related to an overpayment that “resulted from an error not due to the fault of the taxpayer.” Maryland Code, Article 81, §242 (1937).3 Over the years as inflation has waxed and waned, the General Assembly has, at various times, increased the rate of interest, reduced it, or pegged it to a particular benchmark. See, e.g., Chapter 139, Laws of Maryland 1975 (increasing rate of interest to 9%); Chapter 615, Laws of Maryland 1982 (rate of interest to be set in relation to “average investment yield on State money“); Chapter 322, Laws of Maryland 2016 (gradually reducing minimum rate of interest).
Pertinent to this case, in 2006, the General Assembly amended the statute to increase the interest rate on income tax refunds to a minimum of 13%. Chapter 587, Laws of Maryland 2006, codified at
As we shall see, the General Assembly provided specific direction as to the payment of refunds in situations such as that
B. Balancing the State Budget with the “BRFA”
Income tax proceeds and income tax refunds are part of the revenues and expenditures, respectively, that comprise the State budget. Like many state constitutions5 – and in contrast to the federal Constitution – the Maryland Constitution requires that the State budget be balanced. This requirement applies both when the budget is proposed by the Governor, and when it is enacted by the General Assembly.
Under the executive budget system set forth in the State Constitution, the Governor submits to the General Assembly a proposed State budget in a Budget Bill that is to contain “a complete plan of proposed expenditures and estimated revenues” for the next fiscal year.
To help carry out the constitutional directive to balance the budget, in recent decades, the Governor has frequently proposed, and the General Assembly has enacted, additional legislation specifically designed to complement the estimates of revenues and expenditures in the Budget Bill to ensure that the budget is balanced. Such a bill often carries a title such as the “Budget Reconciliation and Financing Act” – or “BRFA” for short.7 Such a bill combines a variety of measures for limiting expenditures that State law would otherwise require – e.g., altering statutory spending formulas or spending mandates – or increasing revenues beyond what would otherwise be generated by existing law – e.g., increasing taxes or fees or transferring funds from special funds to the general fund on a one-time basis – thereby eliminating a gap that might otherwise exist between expenditures and revenues under the Budget Bill alone.8 A BRFA is enacted after the enactment of the Budget Bill to which it pertains.9
The Maryland Constitution requires that any bill “embrace but one subject.”
C. The Dormant Commerce Clause
State fiscal laws are constrained in certain respects by the federal Constitution. The Constitution expressly authorizes Congress “[t]o regulate Commerce . . . among the several States” – a provision referred to as “the Commerce Clause.”
Justice Robert Jackson once noted that the Commerce Clause “is one of the most prolific sources of national power and an equally prolific source of conflict with legislation of the state [as] it does not say what the states may or may not do in the absence of congressional action, nor how to draw the line between what is and what is not commerce among the states.” H.P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 534-35 (1949). It has thus fallen to the Supreme Court to give meaning to the dormant Commerce Clause as one of the “great silences of the Constitution.” Id. However, not all justices have warmed to the task. See Comptroller v. Wynne, 135 S.Ct. at 1808 (Scalia, J., dissenting) (characterizing dormant Commerce Clause as a “judicial fraud“).
II
The Prequel
A. The Wynne‘s 2006 Pass-Through Income
During the period relevant to this case, Brian and Karen Wynne were a married couple who resided in Howard County, Maryland.11 During 2006, they received significant income as a result of Mr. Wynne‘s position as president of Maxim Healthcare Services, Inc. (“Maxim“), a nationwide medical staffing company, and his partial ownership of Maxim. Maxim was organized as a Maryland corporation that elected to be treated as a Subchapter S corporation under the Internal Revenue Code. As such, Maxim passed its income through to its owners, such as Mr. Wynne, without that income being taxed at the corporate level.12
B. Tax Credit for Out-of-State Income Taxes as of 2006
With respect to tax year 2006, the Maryland income tax law included two features that led the Wynnes to challenge the constitutionality of the tax code. First, as remains true today, the income tax was comprised of two components – a “state income tax” and a “county income tax,” sometimes called the “piggyback tax,” that varies according to the county of the taxpayer‘s residence.13
Second, as in many other jurisdictions, Maryland law provides a tax credit for income taxes paid on the same income in other jurisdictions. As of 2006, that tax credit was applied against the state portion of the Maryland income tax, but it was not applied against the county portion of the Maryland income tax.
C. The Wynnes Challenge the Maryland Tax Credit Scheme
On their 2006 Maryland income tax return, the Wynnes reported their “pass-through” income from Maxim and claimed a tax credit for income taxes paid in other states on both the state and county portions of their Maryland income tax return. Consistent with the State income tax law at that time, the Comptroller disallowed the credit claimed as to the county income tax and issued a tax assessment against the Wynnes. The Wynnes sought review in the Maryland Tax Court. With a minor exception, the Tax Court upheld the Comptroller‘s decision. While the matter was on appeal, the Wynnes paid the assessment.
The Wynnes then pursued judicial review in the Circuit Court for Howard County. The Circuit Court held that the absence of a credit with respect to the county portion of the Maryland income tax meant that the Maryland tax credit scheme violated the dormant Commerce Clause. In a divided decision, this Court agreed with the Circuit Court, as did the United States Supreme Court in a decision involving an unusual 5-4 split.14 Comptroller v. Wynne, 431 Md. 147 (2013), aff‘d, 575 U.S. 542 (2015).
Both this Court and the Supreme Court held that extension of the tax credit to the county portion of the income tax would cure the constitutional defect, but both decisions also acknowledged that there might be other ways of adjusting the State
D. Legislative Response
While the case was pending in the Supreme Court, the General Assembly anticipated that the Supreme Court might affirm this Court‘s decision and responded in three significant ways: (1) amending the Maryland tax code to allow a tax credit against the county portion, as well as the state portion, of the Maryland income tax for income taxes paid in other states; (2) providing for the payment of refunds with respect to prior tax years as a result of the Wynne decision; and (3) setting the annual rate of interest paid on those tax refunds. The General Assembly took those actions as part of the BRFAs in 2014 and 2015. See Chapter 489, §§4, 26, 27, Laws of Maryland 2015; Chapter 464, §§16, 20, Laws of Maryland 2014.15
1. 2014 BRFA
During the 2014 session of the General Assembly, the Governor proposed, and the General Assembly ultimately enacted, a BRFA to help balance the budget bill for fiscal year 2015. Chapter 464, Laws of Maryland 2014 (“2014 BRFA“). As originally proposed by the Governor, the bill relaxed some limitations on the use of special funds, increased the portion of certain revenues directed into the State‘s general fund, transferred a portion of the accumulated funds in certain special funds to the State‘s general fund, and reduced certain mandated expenditures under existing law. Senate Bill 172 (2014), first reader.16
The bill was amended in various respects by the General Assembly as it made its way through the Legislature. An amendment initially proposed by the House, and ultimately adopted by the Conference Committee and approved by both houses of the Legislature, dealt with the potential fiscal consequences of two then-recent decisions of this Court. One of those decisions was this Court‘s decision in the Wynne case.17 At that time, it was estimated that the State owe approximately $190 million in refunds and $51 million in interest calculated under the then-current law,
That, notwithstanding any other provision of law, the Comptroller shall set the annual interest rate for an income tax refund that is the result of the final decision under Maryland State Comptroller of the Treasury v. Brian Wynne, et ux. 431 Md. 147 (2013) at a percentage, rounded to the nearest whole number, that is the percent that equals the average prime rate of interest quoted by commercial banks to large businesses during fiscal year 2015, based on a determination by the Board of Governors of the Federal Reserve Bank.
2014 BRFA §16.19 It was estimated that this provision would save an estimated $38.4 million in interest expenditures with respect to potential refunds that would otherwise reduce revenue passed on to local governments.20
This section of the 2014 BRFA thus reduced State and local expenditures by limiting the interest to be paid on a refund occasioned by the Wynne case to the prime rate a rate of interest banks charge for creditworthy borrowers21 – instead of the minimum 13% rate that the law otherwise provided in the tax code at that time.
2. 2015 BRFA
During its next session, while the Wynne case remained pending in the Supreme Court, the General Assembly again addressed the prospective Supreme Court decision in the 2015 BRFA. Chapter 489, Laws of Maryland 2015 (“2015 BRFA“).22 In anticipation that the Supreme Court might affirm this Court‘s decision, the Legislature amended the income tax law to provide a credit against the county income tax for income taxes paid in other states on the same income. 2015 BRFA §4. The effectiveness of the new credit was made contingent on advice from the Attorney General that the decision ultimately issued by the Supreme Court would invalidate the then-current practice of allowing a credit only against the state portion of the Maryland income tax. 2015 BRFA §§4, 26. The legislation also set forth a mechanism for the Comptroller to pay refunds and ultimately pass the cost on to the counties that were the beneficiaries of the county income tax. Id., §27.
A little more than a month after the General Assembly adjourned in 2015, the Supreme Court issued its decision affirming the judgment of this Court.
The Sequel
A. The Comptroller Issues Refunds
Following the Supreme Court decision, the Comptroller issued tax refunds to affected taxpayers and, in accordance with the direction of the General Assembly in the 2014 BRFA, included interest computed at an annual rate of 3%. The parties agree that, assuming the retroactive application of the credit for the county portion of the state income tax enacted in the 2015 BRFA, the Wynnes overpaid their 2006 Maryland income tax by $28,789 (including interest and penalties). The Wynnes received $33,084, including a refund of the overpayment and $4,295.52 in interest at an annual rate of 3%. If the interest portion of the payment had been calculated at an annual rate of 13%, the Wynnes would have received more than $14,000 in additional interest.
B. The Wynnes Dispute the Rate of Interest
The Wynnes objected to the payment of interest on their refund at the 3% rate, as specified by 2014 BRFA §16, and pursued an administrative appeal. The Comptroller issued a final determination in March 2016 rejecting their appeal. The Wynnes then sought relief in the Maryland Tax Court. In a three-paragraph order issued in May 2018, the Tax Court stated that it was following “the exact same logic” as the Supreme Court in the Wynnes’ earlier appeal and, without further elaborating its reasoning, concluded that 2014 BRFA §16 was unconstitutional and reversed the Comptroller‘s decision. The Tax Court did not address other constitutional arguments made by the Wynnes in their appeal – i.e., that 2014 BRFA §16 was a retroactive law that violated the Due Process Clause, that §16 effected an unlawful taking in violation of the Fifth and Fourteenth Amendments, or that it deprived them of an accrued right in violation of Article 24 of the Maryland Declaration of Rights.
The Comptroller sought judicial review of the Tax Court order in the Circuit Court for Anne Arundel County. On December 21, 2018, the Circuit Court issued an 11-page opinion in which it analyzed the application of the dormant Commerce Clause and concluded that 2014 BRFA §16 did not violate that provision. Accordingly, the Circuit Court reversed the decision of the Tax Court and remanded the matter for further proceedings. The Circuit Court specifically noted that it was not reaching the other constitutional arguments made by the Wynnes.
The Wynnes filed a timely notice of appeal. Prior to briefing and argument in the Court of Special Appeals, the Wynnes filed a petition for a writ of certiorari with this Court, which we granted.
IV
Discussion
A. Standard of Review
Like the previous iteration of the controversy between the Wynnes and the Comptroller concerning their 2006 income tax return, this case involves judicial review of an administrative agency decision – i.e., a decision of the Maryland Tax Court – in light of the dormant Commerce Clause of the federal Constitution. For the reasons set forth in our prior decision, we “look through” the decision of the Circuit Court to directly review the agency decision and do not defer to the agency‘s views on a question of constitutional law. See Wynne, 431 Md. at 160-61. In any event, there was no explication of the constitutional issue in the Tax Court order to which we could defer.
We begin where we ended the last episode of this saga. In analyzing the application of the dormant Commerce Clause to the county portion of the Maryland income tax, both this Court and the Supreme Court applied what is known as the “internal consistency test” to assess state tax schemes under the dormant Commerce Clause. Both decisions used hypothetical examples to illustrate the operation of the existing Maryland tax credit and how it disfavored Maryland residents who had income that was earned and taxed out-of-state. Each majority opinion compared a hypothetical Maryland taxpayer who earned all or part of his income from interstate activities (Bob in the Supreme Court‘s opinion, John in this Court‘s opinion) with a hypothetical Maryland taxpayer who earned all of her income from intrastate activities (April in the Supreme Court‘s opinion, Mary in this Court‘s opinion).23 In those examples, the taxpayers who had income from interstate commerce (Bob and John) paid significantly more total tax than their counterparts whose income derived solely from activities in Maryland (April and Mary). This comparison supported the conclusion that the existing Maryland tax scheme violated the dormant Commerce Clause.
The State has now compensated taxpayers like Bob and John by providing refunds with interest at the prime rate. Given that interest calculated at the prime rate exceeded the rate of inflation,24 hypothetical taxpayers Bob and John have received a sum that exceeds the present value of the extra taxes they paid in 2006 and have been made whole compared to April and Mary, who earned income solely from intrastate activities and paid less tax in 2006.
Placed in the context of the hypotheticals on which they relied in the prior litigation, the Wynnes essentially argue that the dormant Commerce Clause also requires that Bob and John should have received even more favorable treatment than April and Mary in the form of a 13% annual interest rate on their refunds.25 In our view, the dormant Commerce Clause does not require such a windfall for the Wynnes or their hypothetical counterparts.
1. The State action at issue
The provision at issue in this case – 2014 BRFA §16 – is part of the remedy provided by the General Assembly for the constitutional violation found by this Court and confirmed by the Supreme Court in the prior litigation. The Due Process Clause requires the State to provide a “clear and certain remedy” for a violation of the dormant Commerce Clause,
although not necessarily in the form of a refund. McKesson Corp. v. Division of Alcoholic Beverages, 496 U.S. 18, 32-39 (1990). That remedy may take different forms, which may involve a full refund or partial refund, “so long as the resultant tax actually assessed during the contested tax period reflects
The remedy adopted by the General Assembly involved a retroactive extension of the tax credit for the benefit of the Wynnes and similarly-situated taxpayers, resulting in the payment of refunds that would carry interest at approximately the prime rate. The basis of the Wynnes’ claim in this appeal is that, had the General Assembly simply authorized the refunds as the remedy for the constitutional violation without specifying a rate of interest on those refunds, the minimum 13% interest rate in
2. Application of the dormant Commerce Clause
As explained above, the courts developed the doctrine of the dormant Commerce Clause as, in a sense, the flip side of the federal Constitution‘s affirmative grant of power to Congress to regulate interstate commerce. Hughes v. Oklahoma, 441 U.S. 322, 326 n.2 (1979) (“The definition of ‘commerce’ is the same when relied on to strike down or restrict state legislation as when relied on to support some exertion of federal control or regulation.“). It follows then that, when a state law is challenged as violative of the dormant Commerce Clause, one must first assess whether it regulates interstate commerce in some way, or purports to do so. If the answer is “no,” then the dormant Commerce Clause presumably does not reach that law. Thus, a threshold question is whether the law implicates interstate commerce. See Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S. 564, 572-75 (1997) (analyzing first whether state tax treatment of a non-profit summer camp implicates interstate commerce); C & A Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383, 389-90 (1994) (analyzing first whether a municipal solid waste flow control ordinance regulates interstate commerce).
If it appears that the law affects interstate commerce, the next question is whether the law discriminates against interstate commerce27 -- an issue on which the party challenging the constitutionality of the law bears the burden. Hughes, 441 U.S. at 336. A law may discriminate
Wyoming v. Oklahoma, 502 U.S. 437, 454-55 (1992); C & A Carbone, 511 U.S. at 402 (O‘Connor, J., concurring in the judgment). In language resonant of Equal Protection analysis, it is sometimes said that state laws that discriminate against interstate commerce are subject to “the strictest scrutiny.” Hughes, 441 U.S. at 337. In other words, the law survives such scrutiny only if it “advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.” New Energy Co. v. Limbach, 486 U.S. 269, 278 (1988).29
In any event, the Wynnes agree that the General Assembly‘s motives in this case do not matter, and have only addressed the categories of facial discrimination and discrimination in effect.
3. Whether 2014 BRFA §16 regulates interstate commerce
The Supreme Court has identified three broad categories of activity that may be regulated by Congress under the Commerce Clause: (1) use of the channels of interstate commerce, (2) instrumentalities of interstate commerce, or persons or things in interstate commerce, or (3) intrastate activities having a substantial effect on interstate commerce. United States v. Lopez, 514 U.S. 549, 558-59 (1995). Accordingly, state regulation of those activities may implicate the constraints imposed by the dormant Commerce Clause.
Courts have concluded that a variety of state laws affect the channels of interstate commerce or those involved in such commerce -- e.g., retail alcohol license guidelines,30 milk pricing regulations,31 solid waste disposal ordinances,32 apple labeling laws.33
Favorable tax treatment for in-state entities has been found to affect interstate commerce in a number of contexts -- e.g., a charitable property tax exemption statute,34 a tax credit for in-state produced ethanol fuel,35 a state excise tax exemption for certain locally produced liquors,36 a tax exemption for wholesaling of products produced in-state.37 In these cases, where a state regulation increased costs on the interstate flow of waste disposal, wines, and apples, or where a tax provision gave an advantage to intrastate production or products, the relevant interstate market was readily obvious and interstate commerce clearly implicated.
This appeal concerns not an industry regulation or a tax, but the rate of interest paid on a tax refund provided as a remedy for a past constitutional violation. The Wynnes contend that there is no distinction to be made between the rate of interest on a tax refund and the underlying tax itself because, as they see it, “[t]he dormant Commerce Clause applies to all government action,” although they later qualify that assertion by conceding that it applies only to “laws that harm interstate commerce to the benefit of intrastate commerce.”
In our view, there is a fundamental difference between a tax and the rate of interest that may be paid on a tax refund.38 As the Supreme Court pointed out in the prior litigation between the Wynnes and the Comptroller, a tax can operate similarly to a tariff -- “[t]he paradigmatic example of a law discriminating against interstate commerce.” 135 S.Ct. at 1804. A provision that prospectively affects one‘s anticipated tax liability can have a direct impact on interstate commerce by its “distorting effect on the geography” of production or capital investment. West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 193 (1994). In contrast, it is considerably less likely that those involved in commercial activity consider tax refund procedures in their decision-making.
Accordingly, in our view, the interest rate established for tax refunds is not the sort of state action that implicates interstate commerce sufficiently to awaken the dormant Commerce Clause. Nonetheless, we will also evaluate the Wynnes’ contention that 2014 BRFA §16 discriminates against interstate commerce.
4. Whether 2014 BRFA §16 discriminates against interstate commerce
As noted above, the Wynnes bear the burden of showing that 2014 BRFA §16 impermissibly discriminates against interstate commerce, either facially or in practical effect.
At first glance, the Wynnes appear to have taken disparate positions in their briefing to this Court on whether 2014 BRFA §16 is facially discriminatory.40 In the end, they focus their argument on whether the provision is discriminatory in its practical effect. This appears to be an appropriate decision in light of the case law concerning facial discrimination.41 Accordingly, we will likewise focus our discussion on whether the provision discriminates
A fundamental principle under the dormant Commerce Clause is that “any notion of discrimination assumes a comparison of substantially similar entities.” Dep‘t of Revenue v. Davis, 553 U.S. 328, 342 (2008). In this regard, it is important to remember that the focus of the dormant Commerce Clause is on “markets and participants in markets.” General Motors Corp. v. Tracy, 519 U.S. 278, 300 (1997). There must be actual or prospective competition between entities in an identifiable market and state action that places an undue burden on interstate commerce. Id.
For example, in a case involving a state apple labeling law, the Supreme Court found that the law discriminated in effect in violation of the dormant Commerce Clause only after it conducted an exhaustive review of the record documenting the law‘s deleterious effect on the interstate market for apples. Hunt v. Wash. State Apple Advert. Comm‘n, 432 U.S. 333 (1977). Even when a party challenging a state law is able to identify a pertinent market, courts have declined to find a violation of the dormant Commerce Clause unless the challenger is able to demonstrate how the law discriminates in practical effect against interstate commerce or out-of-state economic actors. See, e.g., Rocky Mountain Farmers Union v. Corey, 730 F.3d 1070, 1100 (9th Cir. 2013) (parties challenging state fuel standard law failed to satisfy the “particularly high” burden of showing that law had a discriminatory effect against out-of-state crude oil); Black Star Farms LLC v. Oliver, 600 F.3d 1225, 1232-34 (9th Cir. 2010) (summary judgment appropriate when challenger of state wine distribution law offered only speculation that law “might” discriminate against interstate commerce); Kleinsmith v. Shurtleff, 571 F.3d 1033, 1040-41 (10th Cir. 2009) (out-of-state attorney challenging Utah law concerning nonjudicial foreclosures failed to show how the law altered the competitive balance between resident and non-resident attorneys); Cherry Hill Vineyard, LLC v. Baldacci, 505 F.3d 28, 36 (1st Cir. 2007) (stipulated record did not establish that state law relating to wine sales “alters the competitive balance between in-state and out-of-state firms“); R & M Oil & Supply, Inc. v. Saunders, 307 F.3d 731, 734-35 (8th Cir. 2002) (state law regulating storage of propane did not discriminate against interstate commerce in effect as stipulated record did not establish that, “as a practical matter,” the law placed out-of-state propane distributors at a competitive disadvantage); Eastern Ky. Res. v. Fiscal Court of Magoffin Co., 127 F.3d 532, 544 (6th Cir. 1997) (state law regulating waste disposal did not discriminate in effect as challengers failed to show “how local economic actors are favored at the expense of out-of-state economic actors“); Nat‘l Paint & Coating Ass‘n v. City of Chicago, 45 F.3d 1124, 1132 (7th Cir. 1995) (challenger of municipal ordinance generally prohibiting sale of spray paint failed to demonstrate how ordinance would favor paint sales by in-state firms over those by out-of-state firms).
In the prior litigation between the Wynnes and the Comptroller concerning the Maryland tax credit scheme, we concluded that it affected the “market for capital and business investment.” Wynne, 431 Md. at 164-65. Here, 2014 BRFA §16 affected the interest to be paid on any tax refunds authorized if the Supreme Court were to affirm this Court‘s decision in the prior litigation between the Wynnes and the Comptroller. A year later, the Supreme Court did so and the Comptroller applied §16 to the refunds that were authorized by the General Assembly.
The Wynnes have not pointed to any evidence, or other indication, that the interest rate set by 2014 BRFA §16 would alter the competitive balance for interstate investment -- or any other interstate industry, for that matter. Rather, they argue §16 discriminates in effect against interstate commerce because (1) it provided “Wynne claimants” with a “special, lower interest rate that no taxpayer engaged in intrastate commerce receives” and (2) the “defining feature” of Wynne claimants is that they engaged in interstate commerce. As a result, they conclude, §16 “sends a message” that Maryland will disadvantage taxpayers involved in interstate commerce and thereby discourages out-of-state investment by Maryland taxpayers -- although they concede that the disincentive they perceive is “relatively small.”
With respect to the first premise, the Wynnes mistakenly contend that they “receive far less interest on their refunds than other taxpayers.” This argument ignores the fact that most taxpayers, including those whose livelihoods involve activities affecting interstate commerce, receive no interest at all on a tax refund. Refunds owed to taxpayers other than those occasioned by our decision in Wynne may or may not be accompanied by interest at a different rate -- or no interest at all. The Wynnes have not demonstrated, and §16 does not entail, that taxpayers “engaged in intrastate commerce” necessarily receive interest on a tax refund at a rate greater than that applied to the Wynnes’ refund. What apparently is the case is that the total amount of the refunds occasioned by the Wynne decision were likely to be substantial and that the Legislature needed to take account of that unanticipated expense in the BRFA as it endeavored to satisfy the constitutional mandate for a balanced budget.42 (As noted earlier, Wynne was not the only court decision that threatened the balanced budget and required special attention in the BRFA).
The Wynnes argue generally that whether the State pays interest on tax refunds and how it sets the rate of interest paid to a particular category of refunds may lead to “skewed incentives for market participants” and will disincentivize them from conducting “income-generating activities in other states with income taxes.” They do not indicate what market participants
With respect to the second premise, it is certainly true that the tax refund received by the Wynnes, and presumably those received by many other “Wynne claimants,” related to taxes paid as a result of income derived from business activities in other states. Nevertheless, as the Circuit Court noted, in some instances Maryland taxpayers who pay income tax to another state based on income generated in that state are not engaged in business activities in other states -- for example, a holder of a winning out-of-state lottery ticket or a Maryland resident who happens to own real property in another state and sells it. Such a taxpayer would also receive a refund under the 2015 BRFA, based on a retroactive allowance of a credit against the county portion of the Maryland income tax, with interest at the rate set by 2014 BRFA §16.
The Wynnes contend that both of the examples cited by the Circuit Court fall within the “market for capital and business investment” and therefore “substantially affect”45 interstate commerce. This would seem to stretch the concept of something that substantially affects interstate commerce to encompass any transaction that involves a Maryland resident receiving or
Even if we were to accept this premise, and even if all or most of the taxpayers entitled to refunds as a result of the Wynne decision and the General Assembly‘s actions in the two BRFAs derived the pertinent income from interstate commerce, that alone does not mean that the law discriminates against interstate commerce. See Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 125-29 (1978) (the fact that a state law affected only out-of-state entities does not by itself establish that the law discriminated against interstate commerce as that law did not disadvantage those entities in comparison to in-state competitors). Rather, it reflects the remedial nature of the 2014 and 2015 BRFA provisions.
C. Summary
As noted earlier, the Wynnes no longer rely on the comparison of Bob and April and John and Mary. They evidently found it difficult, as do we, to hypothesize a counterpart taxpayer engaged in solely intrastate activities who prevails in a constitutional challenge to the State tax code that results in a refund to the taxpayer and others, as well as a sizeable hit to the State budget, who would receive a better remedy from the General Assembly. Certainly, nothing in §16 would require that result. They are unable to point to a way in which the remedy that they received for the earlier constitutional violation and that satisfied the standard set by McKesson somehow itself disadvantages interstate commerce or advances the economic protectionism that the dormant Commerce Clause is thought to thwart. They have not borne the burden of showing discrimination in effect.
V
Conclusion
For the reasons set forth above, we hold that 2014 BRFA §16 does not violate the dormant Commerce Clause of the federal Constitution.
JUDGMENT OF THE CIRCUIT COURT FOR ANNE ARUNDEL COUNTY AFFIRMED. COSTS TO BE PAID BY PETITIONERS.