Maryland ~ Corporate Income Tax: Previously Unsubtracted Federal Obligation Interest May be Carried Forward

CCH Tax Day Report

A taxpayer’s refund claim for Maryland corporate income tax was granted because the Comptroller’s policy of disallowing the carry forward of previously unsubtracted tax exempt federal obligation interest violated the Supremacy Clause of the U.S Constitution. The Comptroller’s policy discriminates against holders of federal obligations in favor of holders of Maryland obligations, as federal obligation interest cannot be subtracted in its entirety in the year it is earned and any further loss amount cannot be carried forward. Maryland obligation interest, however, may be subtracted in its entirety and any loss may be carried forward. The disparate treatment results in a higher Maryland corporate income tax per non-exempt taxable dollar on those with federal obligation interest.

In addition, the Comptroller’s policy violates both the state statute that requires full subtraction of exempt federal obligation interests and the federal statute that prohibits state taxation of stocks and obligations of the U.S. government.

Branch Banking and Trust Company v. Comptroller of the Treasury, Maryland Tax Court, No. 13-IN-OO-0076, August 12, 2016, ¶202-024



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