In a 5-4 decision, the U.S. Supreme Court ruled today that a Maryland law is unconstitutional because it allows residents only a partial tax credit for out-of-state income that is taxed in other states.  The decision not only invalidates the Maryland law but may also limit similar taxes in New York, Pennsylvania, Indiana, and Ohio. And the closely-watched ruling will discourage other states from trying to tax such interstate income. The case, Comptroller of Maryland v. Wynne, puts a spotlight on the tension between the freedom of states to tax their residents and their ability to enact laws that could curb interstate commerce. In today’s decision, a bare majority of justices tilted in favor of interstate economic activity. The High Court ruled that the Maryland law violates the Constitutional prohibition against double-taxation that impedes interstate commerce. However, the decision also exposed a major rift over whether states must adjust their tax laws to accommodate revenue regimes in other states. While today’s decision divided the court 5-4, the split was not along usual ideological lines. Liberals Stephen Breyer and Sonia Sotomayor joined conservatives Anthony Kennedy, John Roberts, and Samuel Alito (who wrote the opinion)in rejecting the Maryland law while conservative justices  Antonin Scalia and Clarence Thomas joined liberals Elena Kagan and Ruth Bader Ginsburg (who wrote the primary dissent) in voting to uphold the Maryland statute. Maryland’s personal income tax comes in two parts—a state tax with a top rate of 5.75 percent and an additional levy of up to 3.2 percent imposed on residents of counties and the city of Baltimore. The state portion includes a full credit to state residents whose income earned in other states is taxed in those jurisdictions. But there is no credit for the county portion of the income tax. Alito’s majority opinion acknowledged that Maryland has the authority to tax out-of-state income under the Constitution’s Due Process Clause. However, the so-called dormant Commerce Clause bars the state from double taxing such income if the levy discriminates in favor of in-state business and interferes with interstate economic activity. But Ginsburg and the other dissenters argued there is no precedent for overturning the Maryland law. They cited multiple Supreme Court decisions that allowed states to tax all the income of their residents, wherever it is earned. Further, they said that no state should be required to adjust its taxes to accommodate tax laws in other states. Finally, they argued that citizens of a state have the political means to change a state tax regime they feel is unfair. They don’t need the U.S. Supreme Court to help them. For a detailed discussion about the issues raised by Wynne, watch this October, 2014 debate at the American Enterprise Institute. The decision will cost Maryland and its counties about $200 million in refunds and interest and about $40-$50 million annually in future revenues. And it comes at a time when newly-elected Republican Governor Larry Hogan and the state’s overwhelmingly Democratic state legislature are squabbling over taxes and spending. More broadly, the ruling limits how a state may tax its own residents and would foreclose future efforts by other states to adopt a Maryland-type law. Currently, 40 states grant a full credit against income taxes paid by their residents on out-of-state income. But given the closeness of the decision and the wide gulf between the majority and the minority, today’s ruling may not be the last word in the argument over whether, and how, states can tax out-of-state income.