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SCOTUS Ruling Could Slightly Change Indiana Tax Policy

By Brandon Smith

Posted May 18, 2015

A new U.S. Supreme Court opinion that could have an impact on Indiana ruled that Maryland is essentially double-taxing residents who earn out-of-state income, but the impact on the Hoosier State would likely be minimal.

If Maryland residents pay income taxes to other states and counties outside of Maryland, they can take a credit against their state tax, but not their local county tax.

The Supreme Court says that's not allowed and that Maryland must offer credits for all in-state taxes.

Indiana already offers those credits, except to reduce the amount Hoosiers have to pay in county economic development income taxes, or CEDITs.

Indiana University law professor William Popkin says that system may have to change.

"Insofar as the Indiana credit is limited to only certain of its income taxes but not all of its income taxes, that would be fatal under the Maryland decision," Popkin says.

Seventy-two of Indiana's 92 counties use CEDITs, but Indiana Fiscal Policy Institute president John Ketzenberger says the impact likely wouldn't be significant.

"That's just a very small," Ketzenberger says. "I should say a relatively small amount of money and there hasn't been a challenge to that to this point."

Ketzenberger says a change to Indiana's tax system would require either a lawsuit or legislative action.

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