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Roach v. Comptroller of Treasury, 327 Md. 438, 610 A.2d 754

Facts

Edward F. Roach and his wife, Josephine D. Roach, residents of Annapolis, Maryland, owned a partnership in the District of Columbia called Roach & Seagraves. During the 1986 tax year, Mr. Roach paid taxes to the District of Columbia on income earned through the partnership. They claimed a credit against their Maryland income tax for this amount, but the Maryland Comptroller disallowed the credit and assessed them for unpaid taxes, interest, and penalties. The Tax Court and subsequently the Circuit Court affirmed the Comptroller's decision based on a prior case.

The pertinent facts of this case are not in dispute. The taxpayers, Edward F. Roach and his wife, Josephine D. Roach, are residents of Annapolis, Maryland. Mr. Roach, during the 1986 tax year, was a 50% owner of a District of Columbia partnership called Roach & Seagraves. Pursuant to § 47–1808.1 of the D.C.Code, Mr. Roach paid taxes to the District of Columbia on income he realized through the partnership. On their 1986 joint Maryland income tax return, pursuant to § 10–703 of the Tax–General Article of the Maryland Code, the Roaches claimed as a credit against their Maryland income tax the amount of the tax on income paid to the District of Columbia.

Issue

Whether the District of Columbia's tax on unincorporated businesses is a 'tax on income' under Maryland law, allowing taxpayers to claim a credit against their Maryland income taxes.

This appeal presents the question of whether the District of Columbia's tax on unincorporated businesses, D.C.Code Ann. § 47–1808.1 through § 47–1080.7 (1981, 1990 Repl.Vol.), is a 'tax on income' under the above-quoted Maryland statute so that the taxpayers in this case are entitled to claim a credit against their Maryland income taxes.

Rule

Maryland Code (1988), § 10–703(a) of the Tax–General Article allows individuals to claim a credit against the State income tax for a 'tax on income' paid to another state.

Maryland Code (1988), § 10–703(a) of the Tax–General Article, provides, with certain exceptions not here relevant, that 'an individual may claim a credit only against the State income tax for a taxable year in the amount determined under subsection (c) of this section for tax on income paid to another state for the year.' (Emphasis added).

Analysis

The court analyzed the nature of the District of Columbia's unincorporated business tax, referencing the Bishop case, which classified it as an income tax rather than a franchise tax. The court emphasized that the tax is levied on net income and serves the same purpose as income taxes. It concluded that the taxpayers were entitled to the credit under Maryland law because the District's tax qualifies as a 'tax on income' paid to another state.

In light of the Bishop case, applying this Court's rationale in Gardella v. Comptroller, supra, 213 Md. at 4, 130 A.2d at 753, leads to a decision which is opposite from the result in Gardella. As previously discussed, the ruling in Gardella was based upon giving 'much and respectful weight' to the District of Columbia's 'declaration that [the] tax shall be of a particular character.'

Conclusion

The Court of Appeals reversed the Circuit Court's decision and remanded the case to the Tax Court, directing it to grant the credit for the taxes paid to the District of Columbia.

JUDGMENT OF THE CIRCUIT COURT FOR ANNE ARUNDEL COUNTY REVERSED, AND CASE REMANDED TO THAT COURT WITH DIRECTIONS TO REVERSE THE DECISION OF THE TAX COURT AND REMAND THE CASE TO THE TAX COURT FOR FURTHER PROCEEDINGS NOT INCONSISTENT WITH THIS OPINION. APPELLEE TO PAY COSTS.

Who won?

The Roaches prevailed in the case because the court determined that the District of Columbia's tax was indeed a 'tax on income,' allowing them to claim the credit against their Maryland income taxes.

The Roaches prevailed in the case because the court determined that the District of Columbia's tax was indeed a 'tax on income,' allowing them to claim the credit against their Maryland income taxes.

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