The Supreme Court on Tuesday agreed to consider a dispute over how a state may tax the income that its residents earn in another state.
In a case that could affect how taxes are collected in every state, the justices will hear an appeal from Maryland officials who want to overturn a lower court ruling that found the state's tax law unconstitutional.
Maryland law allows residents to deduct income taxes paid to other states from their Maryland state tax. But it does not apply that deduction when it comes to a local "piggyback tax" the state collects for counties and some city governments.
Last year, the Maryland Court of Appeals said the tax violates the Constitution's Commerce Clause. The court said the law discourages Maryland residents from earning money outside the state.
Maryland Attorney General Douglas Gansler says the state has authority to tax all income of its residents, even income earned outside the state. He said the Court of Appeals' decision could cost local governments $45 million to $50 million annually and warned that Maryland might have to refund up to $120 million in taxes.