Wynne Refund Interest Rates and Proper Jurisdiction

Mary Lundstedt, Esq.

On May 23, 2018, the Maryland Tax Court held that the Maryland legislature’s 2014 attempt to lower the interest rate for refunds resulting from the decision in Comptroller of the Treasury of Maryland v. Wynne[1] was unconstitutional.[2] As such, interest paid on Wynne refunds will be at a rate of 13 percent—the same rate for all other refunds. More recently, however, the Maryland Court of Special Appeals held that taxpayers challenging the amount of interest on their individual income tax refund claims are required to exhaust their administrative remedies in the Maryland Tax Court before filing a case in circuit court.

The Wynne saga began in 2013 when taxpayers challenged the Comptroller’s disallowance of a credit for the county income claimed on their 2006 tax return. Specifically, the taxpayers challenged the system’s two-tiered structure, comprised of a state tax and a state-administered county tax. In effect, the system penalized Marylanders who had a credit for taxes paid to other states that was greater than the taxpayer’s Maryland state-level tax. Such taxpayers were prevented from applying the excess credit to offset the county-level tax.

As the case made its way to the Supreme Court, the Maryland legislature, in 2014, tried to preemptively ameliorate the effects of a Supreme Court decision in favor of the taxpayers. Knowing that a decision in favor of the taxpayers would mean huge refund pay outs along with accumulated interest, the legislature enacted Section 16 of the Budget Reconciliation and Financing Act of 2014 to retroactively lower the interest rate (from 13% to 3.25%) for Wynne refunds only.

In 2015, the Supreme Court did indeed rule that Maryland’s system was unconstitutional, violating the dormant commerce clause. The Court noted that "the result in this case is all but dictated by this Court’s dormant Commerce Clause cases, [. . .] which all invalidated state tax schemes that might lead to double taxation of out-of-state income and that discriminated in favor of intrastate over interstate economic activity."[3]

After the Supreme Court ruling, taxpayers affected by Wynne reacted strongly to the interest adjustment. Shortly after the ruling, the interest dispute was filed in the Maryland Tax Court, and a multi-million-dollar class action suit regarding the same was filed in the Circuit Court for Baltimore City. Although the class action suit was ultimately dismissed with instructions to the plaintiffs to exhaust their administrative remedies, the Maryland Tax Court found the lower interest rates unconstitutional, stating:

  • The Wynne refunds are the result of income tax provisions relating to income earned in other states by Maryland residents that only allow credits against the State income tax and not against county "piggy back" taxes. The U.S. Supreme Court ruled this was unconstitutional.
  • Following the exact same logic, granting interest at a lower rate must also be unconstitutional.

On March 28, 2019, in Holzheid v. Comptroller of the Treasury,[4] the Maryland Court of Special Appeals held that taxpayers pursuing Wynne claims related to the amount of interest on their individual income tax refund claims are required to exhaust their administrative remedies in the Maryland Tax Court before filing a case in circuit court.

In Holzheid, the taxpayers had filed amended Maryland income tax returns in order to claim (1) a credit for county "piggy back" taxes, and (2) refunds of Maryland income taxes that they had overpaid per Wynne, along with applicable interest. Although the taxpayers eventually received the refunds and interest, the amount of interest which was refunded was calculated at the unconstitutional Section 16 rate of 3.25% instead of the 13% rate.

Thus, the taxpayers filed suit on behalf of themselves and class members in the Circuit Court for Baltimore City, challenging the legality of Section 16’s reduction of interest rate on their Wynne refunds. The State moved to dismiss the complaint, contending that the taxpayers failed to exhaust their administrative remedies in the Maryland Tax Court. The Circuit Court denied the motion to dismiss and the State’s motion for reconsideration; however, at a hearing on subsequent motions for class certification and summary judgment, Judge Bryant of the Circuit Court dismissed the suit, finding that the taxpayers failed to exhaust their administrative remedies. Significantly, Judge Bryant did note that if the Circuit Court had jurisdiction over the matter, she would have ruled "that Section 16 violated the dormant Commerce clause."[5] Specifically, she stated that:

  • The court has not provided in-depth written analysis as to what it would have found if ruling upon the parties’ motions for summary judgment because of the determination that Plaintiffs must exhaust administrative remedies in this case. However, this court recognizes that the Court of Special Appeals may be called upon to review the court’s determination, and, to that end, would like to advise of its view of the case in light of the parties’ pleadings, limited exhibits, and arguments.
  • The taxpayers filed a Notice of Appeal with the Maryland Court of Special Appeals.
  • The Maryland Court of Special Appeals employed an analysis of case law, the comprehensive nature of the Tax-General Article, and legislative history—concluding that jurisdiction over refund claims is exclusively vested within the Tax Court. Furthermore, the court determined that, even though the definition of refund does not include "interest," it is "inextricably intertwined with refunds statutorily."[6] As such, the court ruled that "the process for resolution of issues related to tax refunds, including the proper rate of interest, rests exclusively with the Tax Court."[7]

If you have questions about this development or need help with tax matters, please contact Frost & Associates, LLC today at 410-497-5947.


[1] Comptroller of Treasury of Md. V. Wynne, 135 S. Ct. 1787 (2015).

[2] Wynne v. Comptroller of Md., Md. T.C., No. 16-NI-OO-0216, 05/23/18.

[3]Id. at 1791.

[4] Md. Ct. Spec. App., No. 2374, 03/28/19.

[5] Id.

[6] Holzheid, at 21, citing Tax-Gen. §§13-901(a)(1), (a)(2).

[7] Id., at 9