Friday, June 05, 2020
Hawai'i Free Press

Current Articles | Archives

Sunday, November 30, 2014
The Tax Credit That Should Not Die
By Tom Yamachika @ 4:01 AM :: 3055 Views :: Tax Credits

The Tax Credit That Should Not Die

by Tom Yamachika, President, Tax Foundation Hawaii

A Maryland income tax case recently attracted national attention when it was argued before the U.S. Supreme Court in mid-November. It’s interesting because it involves the one credit in our income tax system that is considered to be an integral feature of the system itself, namely the credit that residents get for taxes paid to other states.

Every state with an individual state income tax imposes it on (a) residents, or (b) people doing business in the state. Residents are taxed on all of their income wherever they earn it, but if the resident earns income in another state and that other state taxes it, then the resident state typically allows a credit for the lesser of (i) the tax paid to the other state, or (ii) the tax that would be payable to the resident state on the same income that the other state is taxing. Maryland, however, is a little different. Maryland’s income tax consists of a state component and a county component. Nonresidents pay the county component, at the lowest rate imposed by any of the counties. Mr. and Mrs. Wynne, part owners of Maxim, an S Corporation that did business in 39 states, as residents of Maryland paid Maryland tax on their entire share of Maxim’s income, of which a significant portion was earned outside Maryland. The trouble is that Maryland’s tax credit works against the state component but not the county component. Thus, the Wynnes had to pay more Maryland tax just because they earned some of their income outside Maryland.

The highest court of Maryland held that the U.S. Constitution imposes limitations on state taxing power, and one of those limitations is that a tax must be “internally consistent” and can’t discriminate against interstate business. Because the Wynnes had to pay more state tax than they would have had to pay if all of their income had been earned within Maryland, they argued that the Maryland income tax flunked those requirements. The Maryland high court agreed.

Now the Maryland tax authorities are asking the U.S. Supreme Court to step in. They would like the High Court to hold that a state has the right to tax its residents on worldwide income, period, and although it may be politically correct to yield some credits for out-of-state activity, they simply aren’t required under the U.S. Constitution.

The Maryland authorities have it half right. It’s certainly possible to set up an income tax system where a state taxes its residents on worldwide income, period. If it stopped there, its system would be fine. The issue is that the state also wants to tax nonresidents on business done in the state. If it did so, and its system were replicated among the other 49 states, then its residents who did business outside the state would bear a heavier tax burden than those who only did business within the state. That is a problem, and the Supreme Court has been striking down similar taxes with for decades.

In Hawaii, our tax system allows residents a credit for income tax paid to other states. Our credit works exactly like those in all of the other states (except for Maryland) that have an income tax. Furthermore, it is one of the rare credits in Hawaii’s income tax system that is not lost if not claimed within the twelve-month period following the end of the taxable year. It’s been part of our income tax law since 1957. The U.S. Supreme Court will ultimately decide if this type of credit has constitutional significance, but even if it doesn’t, this credit should be considered a critical component of the tax system, not just a temporary incentive. So, even though we at the Tax Foundation sometimes rail against incentive credits, we know that this credit needs to be in the law.

Note to lawmakers: No touch!

-30 -


TEXT "follow HawaiiFreePress" to 40404

Register to Vote


808 Silent Majority

808 State Update AM940


ACA Signups Hawaii



Alliance Defending Freedom

Aloha Life Advocates

Aloha Pregnancy Care Center

American Council of Trustees and Alumni

American Mothers of Hawaii



Antonio Gramsci Reading List

A Place for Women in Waipio

Astronomy Hawaii

Audit The Rail

Ballotpedia Hawaii

Better Hawaii 

Blaisdell Memorial Project

Broken Trust 

Build More Hawaiian Homes Working Group

CAFR Hawaii

Castaway Conservative

Children's Alliance Hawaii

Children's Rights Institute

Christian Homeschoolers of Hawaii

Citizens for Recall

Cliff Slater's Second Opinion

Coffee Break

CSIS Pacific Forum

DAR Hawaii

DVids Hawaii

E Hana Kakou Kelii Akina

E Māua Ola i Moku o Keawe

Farmers For Choice Hawaii


Fix Oahu!

Follow the Money Hawaii

Frank in Hawaii

Front Page Magazine

Frontline: The Fixers

Genetic Literacy Project

Get Off Your Butts!

God, Freedom, America

Grassroot Institute

Hawaii Aganst Assisted Suicide

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii Coalition Against Legalized Gambling

Hawaii ConCon Info

Hawaii Credit Union Watch

Hawaii Crime Victims' Rights

Hawaii Crop Improvement Association

Hawaii Debt Clock

Hawaii Defending Marriage

Hawaii Defense Foundation

Hawaii Families for Educational Choice

Hawaii Family Advocates

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federalist Society

Hawaii Federation of Republican Women

Hawaii Firearm Community

Hawaii Fishermen's Alliance

Hawaii Future Project

Hawaii Gathering of Eagles

Hawaii History Blog

Hawaii Homeschool Association

Hawaii Jihadi Trial

Hawaii March for Life

Hawaii Meth Project

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Right to Life -- Big Island

Hawaii Right to Life -- Oahu

Hawaii Shield Law Coalition

Hawaii Shippers Council

Hawaii Smokers Alliance

Hawaii State Data Lab

Hawaii Together

Heritage Foundation

HI Coalition Against Legalized Gambling



Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Homeless Crisis

Honolulu Navy League

Honolulu Traffic

Horns of Jericho Blog

House Minority Blog

House Republican Caucus YouTube


Hump Day Report

I Vote Hawaii

If Hawaii News

Imua TMT

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

Investigative Project on Terrorism

Iowa Meets Maui

Jackson v Abercrombie

Jihad Watch

July 4 in Hawaii

Kahle v New Hope

Kakaako Cares

Kau TEA Party

Kauai Co GOP

Keep Hawaii's Heroes


Land and Power in Hawaii

Legislative Committee Analysis Tool

Lessons in Firearm Education

Lingle Years

Malulani Foundation

Managed Care Matters -- Hawaii

Malama Pregnancy Center of Maui

Mauna Kea Recreational Users Group

Middle East Forum--The Legal Project

Mililani Conservatives for Change

Military Home Educators' Network Oahu

Missile Defense Advocacy

MIS Veterans Hawaii

Muslim Brotherhood in America

NAMI Hawaii


National Christian Foundation Hawaii

National Parents Org Hawaii

National Wind Watch

New Zeal

NFIB Hawaii News

No GMO Means No Aloha

Northwest Economic Policy Seminar

Not Dead Yet, Hawaii

Now What I Really Think

NRA-ILA Hawaii

Oahu Alternative Transport

ObamaCare Abortion Hawaii


OHA Lies

Opt Out Today

Pacific Aviation Museum

Patients Rights Council Hawaii

PEACE Hawaii

People vs Machine

Pritchett Cartoons 

Pro-GMO Hawaii


Rental by Owner Awareness Assn

Republican Party -- Hawaii State

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

Robotics Organizing Committee

Save Dillingham Airfield

School Choice in Hawaii

SIFE Remington

SIFE W. Oahu 

Sink the Jones Act

Smart About Marijuana--Hawaii

St Marianne Cope

State Budget Solutions Hawaii

State Policy Network

Statehood for Guam

Tax Foundation of Hawaii

The Harriet Tubman Agenda

The Long War Journal

The Real Hanabusa

Time Out Honolulu

Trustee Akina KWO Columns

Truth About Trade & Technology - Hawaii

UCC Truths

Union Members Know Your Rights

US Tax Foundation Hawaii Info

Valor in the Pacific

VAREP Honolulu

West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii