Frey v. Comptroller of the Treasury

ROBERT L. KARWACKI, Judge, (Ret., specially assigned). In July 2005, the Maryland Comptroller of the Treasury, appellee, issued Notices of Income Tax Assessment to David S. Antzis and Judith W. Antzis (“the Antzises”), Timothy A. Frey and Mary S. Frey (“the Freys”), and Rudolph Garcia and Randi E. Pastor-Garcia (“the Garcias”), appellants, with respect to each of their joint Maryland Nonresident Tax Returns for the year ended December 31, 2004. Following an informal hearing before a hearing officer, the Antzises, Freys, and Garcias each received a Notice of Final Determination assessing them for failure to calculate the Special Nonresident Tax on their tax returns. Appellants were also assessed penalties and interest.

They appealed to the Maryland Tax Court, where the cases were consolidated. The Tax Court affirmed the assessments but abated the penalties. Appellants petitioned for judicial review in the Circuit Court for Anne Arundel County. The circuit court affirmed the assessment of the Special Nonresident Tax against appellants, but remanded the case to the Maryland Tax Court for consideration of abatement of interest.

Appellants noted a timely appeal to this Court and present the following issues for our review: I. Whether the Special Nonresident Tax violates the Interstate Commerce Clause of the United States Constitution; ³²² II. Whether the Special Nonresident Tax violates the Equal Protection Clause of the United States Constitution; III. Whether the Special Nonresident Tax violates the Privileges and Immunities Clause of the United States Constitution; IV. Whether the Special Nonresident Tax violates the Maryland Constitution and Declaration of Rights because it is discriminatory against a special class of taxpayer; and V. Whether there is reasonable cause for the waiver of both penalties and interest.

Appellee noted a cross-appeal and raises one issue: I. Whether the Tax Court has discretionary authority to reduce or abate interest on the assessments against appellants when the interest is assessed by statute and no statute gives the Tax Court authority to reduce or modify the interest. For the reasons stated below, we hold that the Special Nonresident Tax does not violate the United States Constitution, Article 24 of the Declaration of Rights, or the Maryland Constitution. We also hold that the Tax Court has authority to consider the abatement of interest. FACTS AND LEGAL PROCEEDINGS In 2004, appellants, three married couples, resided in the Commonwealth of Pennsylvania and paid Pennsylvania income taxes and various local taxes to its subdivisions.

They did not own property in the State of Maryland and had no children enrolled in Maryland schools, but each couple filed a joint nonresident income tax return in Maryland because the husband was a partner in Saul Ewing, LLP (“the law firm” or “the partnership”), a multi-state law firm with offices in Maryland, Pennsylvania, Delaware, Washington, D.C., New York, and New Jersey. During the 2004 calendar year, Mr. Antzis conducted his legal practice at his office in Chesterbrook, Pennsylvania; Mr. Frey’s office was located in Wilmington, Delaware; and Mr. ³²³ Garcia’s office was in Philadelphia, Pennsylvania. Messrs. Antzis, Frey, and Garcia each paid Maryland State income taxes with respect to their allocable share of the profit from the law firm.

The law firm apportions its income among the states in which it does business, which, under Md.Code (2004), § 10-210 of the Tax-General Article (“T.G.”), creates Maryland taxable income for appellants. There is also a withholding obligation for the law firm under T.G. § 10-102.1. These taxes are not in dispute. In 2004, the General Assembly enacted a Special Nonresident Tax (“SNRT”), which applied to all taxable years beginning after December 31, 2003. 2004 Md. Laws 1915 , 1928.

The SNRT was imposed on an individual subject to Maryland State income tax, but not subject to the county or local income tax. 1 T.G. § 10-106.1(a). The tax rate of the SNRT “shall be equal to the lowest county income tax rate set by any Maryland county[.]” T.G. § 10-106.1(b). Appellants did not pay the amount required by T.G. § 10-106.1 and thus were assessed by appellee. 2 Appellants requested an informal hearing, which was held before a hearing officer on September 19, 2005. On September 26, 2005, appellee issued Notices of Final Determination to each of the appellants.

In the Notices, the hearing officer summarized appellants’ positions: Mr. Harry Shapiro, Esq. appeared on behalf of the Taxpayers [appellants]. He argued that the assessment against the Taxpayers is improper because the special nonresident tax violates the Interstate Commerce Clause and Due Process Clause of the United States Constitution, as well as the Maryland Constitution. The basis for this claim is that the special nonresident tax places a tax burden on nonresidents that is not imposed on residents. Mr. Shapiro stated that ³²⁴ the special nonresident tax is distinguishable from the local tax imposed on Maryland residents because the tax revenue from the special nonresident tax goes to the State of Maryland, while the tax revenue from the resident local tax goes to the Maryland counties.

The hearing officer then concluded: Mr. Shapiro’s constitutional challenges to the special nonresident tax exceed the scope of this hearing. Based upon the information provided, I find that the assessment was issued in accordance with Tax-General Article § 10-106.1. Therefore, the assessment is affirmed in the amounts stated above, which include additional interest accrued to date. The assessments, as affirmed by the hearing officer, for each couple were: Appellant Tax Interest to Date Penalty Total Antzises $579.96 $37.77 $58.00 $675.73 Freys $308.33 $20.08 $30.83 $359.24 Garcias $1,607.73 $104.72 $160.77 $1,873.22 On October 24, 2005, appellants each filed a Petition of Appeal to the Maryland Tax Court.

On February 15, 2006, by Order of the Tax Court, the cases were consolidated. On May 10, 2006, a hearing was held before the Tax Court. No testimony was presented as the parties entered into a stipulation, but the court heard oral argument. By Order dated June 22, 2006, the Tax Court affirmed the assessments levied by appellee, but abated the penalty assessments.

In its written opinion, the Tax Court commented that appellants had argued that T.G. § 10-106.1 “expressly discriminates against nonresidents by levying a tax on nonresident income which has no direct corollary with respect to residents.” The Tax Court agreed that, “[a]t first blush, § 10-106.1. does indeed appear to discriminate against the out-of-state taxpayer, arguably interfering with the free flow of commerce mandated by the Commerce Clause, as well as violating the privileges and immunities guaranteed by the Privileges and Immunities Clause of the United States Constitution.” The Tax Court further noted that “[t]his appearance of discrimination on the ³²⁵ surface ... does not end the inquiry” because under Fulton Corp. v. Faulkner, 516 U.S. 325 , 116 S.Ct. 848 , 133 L.Ed.2d 796 (1996), the government may “overcome the presumption of invalidity ‘by showing that the statute is a “compensatory tax” designed simply to make interstate commerce bear a burden already borne by intrastate commerce.’ Id. at 331 , 116 S.Ct. 848 (citations omitted).” The Tax Court went on to apply the three-pronged test in Fulton. Under the first prong, which requires the State to identify the intrastate tax burden for which the State is attempting to compensate, Fulton, 516 U.S. at 332 , 116 S.Ct. 848 , the Tax Court commented that local governmental benefits, such as “police and fire protection, waste disposal, water and sewer services, and the myriad of other local governmental activities on behalf of people within each local jurisdiction, ... accrue both directly and indirectly to nonresidents while they are present or doing business in a jurisdiction.” The Tax Court continued: Obviously, both residents and nonresidents receive these local governmental benefits by mere virtue of their physical presence within a jurisdiction, either in person or as part of a business entity doing business within the jurisdiction. It seems perfectly reasonable, therefore, for the State to seek compensation for these services from non-residents through the tax system. Although there is no direct mechanism to allocate the special non-resident tax revenue to a particular county, the General Fund of Maryland exists to provide funding for the benefit of all Maryland Counties and Baltimore City, selectively, through legislation and through the legislative budgeting process.

In this regard, the evidence is clear that the burden on intrastate commerce for which § 10-106.1., is compensating, is the burden of providing local governmental services, directly or indirectly, to all persons or entities situate or doing business within its local borders. When considering the second prong under Fulton , the Tax Court concluded that the SNRT “roughly approximates, but does not exceed the amount of the tax burden imposed on ³²⁶ residents.” See Fulton, 516 U.S. at 332 , 116 S.Ct. 848 (“Second, ‘the tax on interstate commerce must be shown roughly to approximate — but not exceed — the amount of the tax on intrastate commerce.’ ”) The Tax Court stated: “It is clear from the language of the statute, coupled with the existence of county income taxes paid by residents, that non-residents pay no more, and in most cases less, than their resident counterparts.” The Tax Court commented that although Comptroller of the Treasury v. Blanton, 390 Md. 528 , 890 A.2d 279 (2006), made “clear that the County income taxes are not just an element of the State income tax, but are rather separate and distinct taxes[,]” that “distinction does little to answer the question of whether § 10-106.1., as applied, is unconstitutional.” The Tax Court found that “the distinction between the state and county income taxes to be irrelevant to the constitutional issue.” The Tax Court added: “The facts reveal that the non-resident taxpayers are paying the same rate overall as the resident taxpayers, based on their Maryland income. Viewing this from a federal perspective, the burden on each class of taxpayer is the same overall.” The Tax Court stated: “§ 10-106.1. ensures that non-residents pay Maryland income taxes at the same rate or a lesser rate as Maryland residents, albeit the revenue derived from this taxation is distributed differently once collected.” Thus, the Tax Court concluded that the fact that the tax collected is distributed differently did not affect the constitutionality of the SNRT. The third prong of the test requires that the “the events on which the interstate and intrastate taxes are imposed must be ‘substantially equivalent’; that is, they must be sufficiently similar in substance to serve as mutually exclusive ‘proxies]’ for each other.” Fulton, 516 U.S. at 333 , 116 S.Ct. 848 (citations omitted).

The Tax Court concluded: With respect to § 10-106.1., income is the event on which the tax is based for both residents and non-residents. Being the same event for both classes of taxpayer, it meets the test for ‘substantially equivalent.’ Hence, the third prong of ³²⁷ the three-part test under Fulton is also satisfied, and this Court finds that § 10-106.1. is a valid compensatory tax.” The Tax Court continued: [TJhis Court finds that § 10-106.1. serves a rational purpose to create parity in the income tax burdens between Maryland residents and non-residents. There is no extra tax burden that would deter a non-resident from free and open commerce inside or outside the state, and there is no extra tax burden that might be construed to violate the privileges and immunities, and equal protection accorded to everyone. Accordingly, § 10-106.1. does not violate the Interstate Commerce Clause of the United States Constitution, the Equal Protection Clause of the United States Constitution, the Privileges and Immunities Clause of the United States Constitution, or the Maryland Constitution and the Declaration of Rights.

The Tax Court also abated the penalties, but concluded that it did not have the authority to abate interest. Appellants petitioned for judicial review in the Circuit Court for Anne Arundel County, where the cases were again consolidated. A hearing was held on July 2, 2007, and, by Order dated July 18, 2007, the circuit court affirmed the Tax Court’s Order upholding the assessment of the SNRT, but remanded the case to the Tax Court “for consideration of abatement of interest.” In its Memorandum Opinion, the circuit court stated that the local or county income tax was, in fact, a State tax: It is clear from the statute, the legislative history and the applicable case authorities that the special nonresident tax is intended to make up for the fact that nonresidents do not pay the county tax. However, the so-called county tax is, in fact, a component of the State tax and not a separate tax altogether.

The circuit court recognized that the county portion of the income tax was distributed to the counties while the SNRT was distributed to the General Fund of the State, but conclud ³²⁸ ed that “the ultimate use of the funds is not dispositive of the question.” The circuit court stated: As the local/county tax is a component of the Maryland State income tax and the total rate payable by nonresidents does not exceed that paid by residents, it follows that the nonresident tax does not place any increased burden upon nonresidents. Therefore, this tax is not discriminatory and does not violate any of the constitutional provisions relied upon by Petitioners. Regarding the abatement of interest, the circuit court found: Section 13-606 [of the Tax-General Article], entitled Waiver of Interest, provides that “[f]or reasonable cause, a tax collector may waive interest on unpaid tax.” This Section parallels [Section] 13-714 and clearly authorizes the abatement of interest in the appropriate circumstances. The Tax Court erroneously concluded that it did not have authority to waive interest, and declined to exercise its discretion in this regard.

While the Circuit Court has the power to determine de novo a question of law, this court may not rule on a discretionary matter in the first instance. Accordingly, the case will be remanded to the Tax Court for consideration of waiver of interest under Section 13-606. If this Court had the authority to make the decision regarding abatement of interest, the Court would be inclined to waive interest on the unpaid tax. This Court finds that the issues raised by Petitioners are substantial, and that they pursued this matter in good faith and with reasonable cause.

Appellants then noted an appeal to this Court. DISCUSSION Appellants claim that the SNRT is an additional Maryland State income tax imposed exclusively on nonresident taxpayers; therefore, it violates the commerce clause. According to appellants, as a result of the SNRT, in 2004, nonresidents were subject to Maryland State income tax at a rate of 6%, ³²⁹ that is, the 4.75% rate for the State income tax plus the 1.25% for the SNRT. In contrast, they claim that Maryland residents had to pay only Maryland State income tax at a rate of 4.75%.

Appellants assert that they “were subjected to Maryland State income tax at a rate more than 25% higher than the rate imposed on residents.” Appellants thus claim “that the SNRT is unconstitutional because (1) on its face, the SNRT discriminates against non-resident taxpayers and is thus prima facie unconstitutional and (2) the SNRT is not a valid ‘compensatory tax’ under the three part test set forth by the Supreme Court in” Fulton Corp. v. Faulkner, 516 U.S. 325 , 116 S.Ct. 848 , 133 L.Ed.2d 796 (1996). Appellants allege that the Tax Court incorrectly determined that the SNRT was a valid compensatory tax. They also claim that the circuit court failed to mention Fulton in its opinion and that it thus appears that the circuit court opinion is “predicated on the position that the SNRT does not discriminate against nonresidents because the local income taxes imposed by Maryland counties and the City of Baltimore are merely a component of Maryland State income taxes, and thus non-residents are not subjected to higher Maryland State income taxes than residents.” Appellants claim that this conclusion is directly contrary to the previous position of appellee and the Court of Appeals’ recent decision in Comptroller of the Treasury v. Blanton, 390 Md. 528 , 890 A.2d 279 (2006). Appellee responds that the SNRT does not treat nonresidents less favorably than residents because the tax is structured so that nonresidents will always pay the same or less tax on the same amount of income as residents pay.

Appellee asserts that the SNRT is not disfavored treatment of nonresidents, but is a special method of state tax computation necessary to create equal treatment. Appellee refers us to U.S. Supreme Court cases and cases from our sister states to claim that it is not unconstitutional discrimination if the State uses different or distinctive methods to calculate the tax on nonresidents, so long as the burden on equivalent incomes — that of the resident and the in-state income of the nonresident — are the same. Appellee asserts that the courts have rejected the ³³⁰ formalistic distinctions that appellants attempt to draw and, instead, focus on the actual tax obligations. Appellee further claims that the SNRT is a State tax and that the county tax imposed on residents is a State tax for constitutional purposes.

It alleges that Comptroller of the Treasury v. Blanton, 390 Md. 528 , 890 A.2d 279 (2006), did not alter that conclusion. Appellee thus asserts that the SNRT is not discriminatory. Standard of Review “Despite its name, the Tax Court is not a court; instead, it is an adjudicatory administrative agency in the executive branch of state government.” Fumitureland, South, Inc. v. Comptroller of the Treasury, 364 Md. 126 , 138 n. 8, 771 A.2d 1061 (2001) (citations omitted); see also State Dep’t of Assessments and Taxation v. Consolidation Coal Sales Co., 382 Md. 439, 453 , 855 A.2d 1197 (2004) (“Because the Maryland Tax Court is an administrative agency, ‘[t]he standard of review for Tax Court decisions is generally the same as that for other administrative agencies.’ ”) (Quoting Supervisor of Assessments v. Hartge Yacht Yard, Inc., 379 Md. 452, 461 , 842 A.2d 732 (2004)). Our inquiry “is not whether the circuit court erred, but rather whether the administrative agency erred.” Comptroller of the Treasury v. Clise Coal, Inc., 173 Md.App. 689, 697 , 920 A.2d 561 (2007) (citation omitted).

We thus undertake our own de novo review of the decision of the Tax Court. Maryland Bd. of Physicians v. Elliott, 170 Md.App. 369, 400 , 907 A.2d 321 , cert. denied, 396 Md. 12 , 912 A.2d 648 (2006) (quoting Pollard’s Towing, Inc. v. Berman’s Body Frame & Mech., Inc., 137 Md.App. 277, 287 , 768 A.2d 131 (2001)). Our review is narrow, Finucan v. Maryland State Bd. of Physician Quality Assurance, 151 Md.App. 399, 411 , 827 A.2d 176 (2003), aff'd, 380 Md. 577 , 846 A.2d 377 (2004), and is “ ‘limited to determining if there is substantial evidence in the record as a whole to support the agency’s findings and conclu ³³¹ sions, and to determine if the administrative decision is premised upon an erroneous conclusion of law.’ ” Bd. of Physician Quality Assurance v. Banks, 354 Md. 59, 67-68 , 729 A.2d 376 (1999) (quoting United Parcel Serv. v. People’s Counsel for Baltimore County, 336 Md. 569, 577 , 650 A.2d 226 (1994)). It is not our job to substitute our judgment for that of the Tax Court.

See Maryland-National Capital Park and Planning Comm’n v. Anderson, 395 Md. 172, 180-81 , 909 A.2d 694 (2006) (The reviewing court “ ‘must not itself make independent findings of fact or substitute its judgment for that of the agency’ ”) (quoting Baltimore Lutheran High School Ass’n v. Employment Security Admin., 302 Md. 649, 662 , 490 A.2d 701 (1985)); United Parcel, 336 Md. at 576-77 , 650 A.2d 226 (“The court’s task on review is not to ‘ “substitute its judgment for the expertise of those persons who constitute the administrative agency.” ’ ”) (Quoting Bulluck v. Pelham Wood Apts., 283 Md. 505, 512 , 390 A.2d 1119 (1978)) (quoting Bernstein v. Real Estate Comm’n, 221 Md. 221, 230 , 156 A.2d 657 (1959), appeal dismissed, 363 U.S. 419 , 80 S.Ct. 1257 , 4 L.Ed.2d 1515 (1960)) (emphasis in United Parcel). We are not bound by the Tax Court’s interpretation of the law. Gigeous v. Eastern Corr. Inst., 363 Md. 481, 496 , 769 A.2d 912 (2001).

We review the Tax Court’s conclusions of law de novo for correctness. Schwartz v. Maryland Dep’t of Natural Res., 385 Md. 534, 554 , 870 A.2d 168 (2005). “Determining whether an agency’s ‘conclusions of law are correct is always, on judicial review, the court’s prerogative, although we ordinarily respect the agency’s expertise and give weight to its interpretation of a statute that it administers.” Christopher v. Montgomery County Dep’t of Health and Human Services, 381 Md. 188, 198 , 849 A.2d 46 (2004) (citations omitted); see also Maryland Aviation Admin. v. Noland, 386 Md. 556, 573 , 873 A.2d 1145 (2005) (“ ‘Even with regard to some legal issues, a degree of deference should often be accorded the position of the administrative agency. Thus, an administrative agency’s interpretation and application of the ³³² statute which the agency administers should ordinarily be given considerable weight by reviewing courts.’ ”) (Quoting Banks, 354 Md. at 67-69 , 729 A.2d 376 ). 3 Moreover, “[a]n administrative agency may be affirmed only on the basis of the grounds on which it decided the case.” Dep’t of Health and Mental Hygiene v. Campbell, 364 Md. 108 , 111 n. 1, 771 A.2d 1051 (2001) (citations omitted); see also Evans v. Burruss, 401 Md. 586, 593 , 933 A.2d 872 (2007) (“ ‘in judicial review of agency action the court may not uphold the agency order unless it is sustainable on the agency’s findings and for the reasons stated by the agency’ ”) (quoting United Steelworkers of America AFL-CIO, Local 2610 v. Bethlehem Steel Corp., 298 Md. 665, 679 , 472 A.2d 62 (1984)), cert. denied, — U.S. -, 128 S.Ct. 1309 , 170 L.Ed.2d 73 (2008); County Council of Prince George’s County sitting as District Council v. Brandywine Enters., 350 Md. 339, 349 , 711 A.2d 1346 (1998) (“we will review an adjudicatory agency decision solely on the grounds relied upon by the agency”) (citations omitted). Finally, “recognizing that the agency’s decision is ‘prima facie correct and presumed valid,’ ‘we must review the agency’s decision in the light most favorable to it.’ ” Comptroller of the Treasury v. Citicorp Int'l Commc’ns, Inc., 389 Md. 156, 163 , 884 A.2d 112 (2005) (quoting Ramsay, Scarlett & Co. v. Comptroller of the Treasury, 302 Md. 825, 835 , 490 A.2d 1296 (1985)); see also T.G. § 13-411 (“[a]n assessment of tax ... is prima facie correct”). ³³³ The Commerce Clause The Commerce Clause of the United States Constitution provides: “The Congress shall have Power ... [t]o regulate Commerce ... among the several States.” U.S. Const, art.

I, § 8, cl. 3. “The very purpose of the Commerce Clause was to create an area of free trade among the several States.” McLeod v. J.E. Dilworth Co., 322 U.S. 327, 330 , 64 S.Ct. 1023 , 88 L.Ed. 1304 (1944); see also Armco Inc. v. Hardesty, 467 U.S. 638, 642 , 104 S.Ct. 2620 , 81 L.Ed.2d 540 (1984) (“It long has been established that the Commerce Clause of its own force protects free trade among the States.”) (Citations omitted). “Though phrased as a grant of regulatory power to Congress, the Clause has long been understood to have a ‘negative’ aspect that denies the States the power unjustifiably to discriminate against or burden the interstate flow of articles of commerce.” Oregon Waste Sys., Inc. v. Dep’t of Environmental Quality of the State of Oregon, 511 U.S. 93, 98 , 114 S.Ct. 1345 , 128 L.Ed.2d 13 (1994) (citations omitted); see also Assoc. Indus. of Missouri v. Lohman, 511 U.S. 641, 646 , 114 S.Ct. 1815 , 128 L.Ed.2d 639 (1994) (“[I]t is well established that the [Commerce] Clause also embodies a negative command forbidding the States to discriminate against interstate trade.”) (Citations omitted). This negative command, also known as the dormant Commerce Clause, “prohibit[s] certain state taxation even when Congress has failed to legislate on the subject.” Oklahoma Tax Comm’n v. Jefferson Lines, Inc., 514 U.S. 175, 179 , 115 S.Ct. 1331 , 131 L.Ed.2d 261 (1995). “The modern law of what has come to be called the dormant Commerce Clause is driven by concern about ‘economic protectionism-that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors.’ ” Dep’t of Revenue of Kentucky v. Davis, — U.S. -, 128 S.Ct. 1801, 1808 , 170 L.Ed.2d 685 (2008) (quoting New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 273 , 108 S.Ct. 1803 , 100 L.Ed.2d 302 (1988)). Thus, “[n]o State, consistent with the Commerce Clause, may ‘impose a ³³⁴ tax which discriminates against interstate commerce ... by providing a direct commercial advantage to local business[.]’ ” Boston Stock Exchange v. State Tax Comm’n, 429 U.S. 318, 329 , 97 S.Ct. 599 , 50 L.Ed.2d 514 (1977) (quoting Nw.

States Portland Cement Co. v. Minnesota, 358 U.S. 450, 458 , 79 S.Ct. 357 , 3 L.Ed.2d 421 (1959)); see also Armco Inc., 467 U.S. at 642 , 104 S.Ct. 2620 (“[A] State ‘may not discriminate between transactions on the basis of some interstate element.’ That is, a State may not tax a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the State.”) (Quoting Boston Stock Exchange, 429 U.S. at 332 n. 12, 97 S.Ct. 599 ). Here, we must pause briefly to consider whether the SNRT falls under the Commerce Clause. The parties proceed under the assumption that the Commerce Clause applies even though no goods or articles of trade cross state lines. In Colgate v. Harvey, 296 U.S. 404 , 56 S.Ct. 252 , 80 L.Ed. 299 (1935), overruled on other grounds, Madden v. Kentucky, 309 U.S. 83, 93 , 60 S.Ct. 406 , 84 L.Ed. 590 (1940), the challenged Vermont statute imposed a tax on dividends earned outside of Vermont, while exempting dividends earned within the state.

The statute also taxed interest earned on out-of-state loans, but not interest earned on in-state loans. The Supreme Court concluded that the Commerce Clause was not implicated. Id. at 419 n. 2, 56 S.Ct. 252 . The Supreme Court wrote that “elearly a tax upon income is not an interference with interstate commerce simply because the income is derived from a source within another state; and, moreover, if there be any tendency to interfere with such commerce, it is purely collateral and incidental.” Id.

(citations omitted); see also Shaffer v. Carter, 252 U.S. 37, 57 , 40 S.Ct. 221 , 64 L.Ed. 445 (1920) (Supreme Court assumed that Oklahoma income tax imposed on income from property owned by nonresident fell under the Commerce Clause because it “fairly appealed]” that nonresident’s method of business, which entailed shipping the products of his oil business out of state, constituted interstate commerce; Oklahoma income tax did not offend the ³³⁵ Commerce Clause). Nonetheless, in Dominion Nat'l Bank v. Olsen, 771 F.2d 108, 111 (6th Cir.1985), the Court of Appeals for the Sixth Circuit concluded that the Supreme Court decisions since Harvey , specifically Boston Stock Exchange v. State Tax Comm’n, 429 U.S. 318 , 97 S.Ct. 599 , 50 L.Ed.2d 514 (1977), demonstrated that the Commerce Clause did apply to a Tennessee statute levying a tax on earnings from certificates of deposits issued by out-of-state financial institutions, but owned by in-state residents. See also Fulton Corp. v. Faulkner, 516 U.S. 325 , 116 S.Ct. 848 , 133 L.Ed.2d 796 (1996) (North Carolina’s “intangibles tax” on corporate stock owned by residents allowed for a percentage deduction equal to the fraction of the issuing corporation’s income subject to North Carolina tax; therefore, intangibles tax facially discriminated against interstate commerce). In the present case, since the law firm is doing business in Maryland and appellants, Pennsylvania residents, are partners in the law firm and thus earn income in Maryland, which is taxed under the SNRT, the Commerce Clause applies.

Contra Carlson v. State of Alaska, Commercial Fisheries Entry Comm’n, 919 P.2d 1337, 1340 (Alaska 1996) (Alaska’s practice of charging nonresident commercial fishers licensing and limited entry fees three times greater than fees charged to resident commercial fishers was not analyzed under the Commerce Clause because the “fee differentials at issue ... are not predicated upon the movement of articles of commerce across state lines, but rather upon the residency status of those applying for permits”; fee differentials were thus analyzed under the Privileges and Immunities and Equal Protection Clauses); Kuhnen v. Musolf, 143 Wis.2d 134 , 420 N.W.2d 401, 413 (Ct.App.1988) (statutes prohibiting taxpayer from deducting moving expenses from state income tax that were deductible for federal income tax purposes and requiring proration of taxpayer’s personal exemptions and property tax credit for months during which taxpayer did not live in state did not violate the Commerce Clause; the Court noted that, “[cjontrary to the usual case, the claim is not that Wisconsin seeks, by its tax laws, to create a favorable climate for local ³³⁶ industry at the expense of other state’s, but that Wisconsin’s tax laws create an unfavorable climate for its own industries and labor force”; the Court did “not believe that the commerce clause was intended to extend its protection to individuals who claim a disadvantage from such state tax laws”; the statutes affected interstate commerce only incidently and remotely so that taxes levied were not a burden on interstate commerce). “[T]he first step in analyzing any law subject to judicial scrutiny under the negative Commerce Clause is to determine whether it ‘regulates evenhandedly with only “incidental” effects on interstate commerce, or discriminates against interstate commerce.’ ” Oregon Waste, 511 U.S. at 99 , 114 S.Ct. 1345 (quoting Hughes v. Oklahoma, 441 U.S. 322, 336 , 99 S.Ct. 1727 , 60 L.Ed.2d 250 (1979)). Discrimination “simply means differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.” Oregon Waste, 511 U.S. at 99 , 114 S.Ct. 1345 ; see also Gregg Dyeing Co. v. Query, 286 U.S. 472, 481 , 52 S.Ct. 631 , 76 L.Ed. 1232 (1932) (“Discrimination, like interstate commerce itself, is a practical conception. We must deal in this matter, as in others, with substantial distinctions and real injuries.”) (Citation omitted). “If a restriction on commerce is discriminatory, it is virtually per se invalid.” Id. (citations omitted); see also Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573, 579 , 106 S.Ct. 2080 , 90 L.Ed.2d 552 (1986) (“When a state statute directly regulates or discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests, we have generally struck down the statute without further inquiry.”) Further, “justifications for discriminatory restrictions on commerce [must] pass the ‘strictest scrutiny.’ ” Oregon Waste, 511 U.S. at 101 , 114 S.Ct. 1345 (quoting Hughes, 441 U.S. at 337 , 99 S.Ct. 1727 ).

Indeed, “[t]he State’s burden of justification is so heavy that ‘facial discrimination by itself maybe a fatal defect.’ ” Id. (quoting Hughes, 441 U.S. at 337 , 99 S.Ct. 1727 ). ³³⁷ “By contrast, nondiscriminatory regulations that have only incidental effects on interstate commerce are valid unless ‘the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.’ ” Oregon Waste, 511 U.S. at 99 , 114 S.Ct. 1345 (quoting Pike v. Bruce Church, Inc., 397 U.S. 137, 142 , 90 S.Ct. 844 , 25 L.Ed.2d 174 (1970)). Under the Pike balancing test, [w]here the statute regulates even-handedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits. If a legitimate local purpose is found, then the question becomes one of degree.

And the extent of the burden that will be tolerated will of course depend on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities. Occasionally the Court has candidly undertaken a balancing approach in resolving these issues, but more frequently it has spoken in terms of ‘direct’ and ‘indirect’ effects and burdens. Pike, 397 U.S. at 142 , 90 S.Ct. 844 (1970) (citations omitted). 4 The Supreme Court has recognized that “there is no clear line separating the category of state regulation that is virtually per se invalid under the Commerce Clause, and the category subject to the Pike v. Bruce Church balancing approach.” Brown-Forman Distillers, 476 U.S. at 579 , 106 S.Ct. 2080 ; see also General Motors Corp. v. Tracy, 519 U.S. 278, 298 , 117 S.Ct. 811 , 136 L.Ed.2d 761 (1997) (noting that “there is no clear line” between the two strands of analysis and citing to “several cases that have purported to apply the undue burden test (including Pike itself) [, but that] arguably turned in whole or in part on the discriminatory character of the challenged state regulations”) (citations omitted). The Supreme Court has also recognized that some of this problem results ³³⁸ from the ease-by-case analysis required by the Commerce Clause: On various occasions when called upon to make the delicate adjustment between the national interest in free and open trade and the legitimate interest of the individual States in exercising their taxing powers, the Court has counseled that the result turns on the unique characteristics of the statute at issue and the particular circumstances in each case.

Boston Stock Exchange, 429 U.S. at 329 , 97 S.Ct. 599 (citations omitted); see also Westinghouse Elec. Corp. v. Tully, 466 U.S. 388, 403 , 104 S.Ct. 1856 , 80 L.Ed.2d 388 (1984) (case-by-case analysis under the Commerce Clause has left “ ‘ “much room for controversy and confusion and little in the way of precise guides to the States in the exercise of their indispensable power of taxation” ’ ”) (quoting Boston Stock Exchange, 429 U.S. at 329 , 97 S.Ct. 599 ) (quoting Nw. States Portland Cement, 358 U.S. at 457 , 79 S.Ct. 357 ); Freeman v. Hewit, 329 U.S. 249, 252 , 67 S.Ct. 274 , 91 L.Ed. 265 (1946) (“The history of this problem [the dormant Commerce Clause] is spread over hundreds of volumes of our Reports. To attempt to harmonize all that has been said in the past would neither clarify what has gone before nor guide the future.

Suffice it to say that especially in this field opinions must be read in the setting of the particular cases and as the product of preoccupation with their special facts.”), overruled on other grounds, Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 288-89 , 97 S.Ct. 1076 , 51 L.Ed.2d 326 (1977); Tyler Pipe Indus. v. Washington State Dep’t of Revenue, 483 U.S. 232, 260 , 107 S.Ct. 2810 , 97 L.Ed.2d 199 (1987) (“The fact is that in the 114 years since the doctrine of the negative Commerce Clause was formally adopted as holding of this Court, and in the 50 years prior to that in which it was alluded to in various dicta of the Court, our applications of the doctrine have, not to put too fine a point on the matter, made no sense.”) (Scalia, J., concurring in part and dissenting in part). Nonetheless, under either test, “the critical consideration is the overall effect of the ³³⁹ statute on both local and interstate activity.” Brown-Forman Distillers, 476 U.S. at 579 , 106 S.Ct. 2080 (citation omitted). Further, “a facially discriminatory tax may still survive Commerce Clause scrutiny if it is a truly ‘ “compensatory tax” designed simply to make interstate commerce bear a burden already borne by intrastate commerce.’ ” Fulton, 516 U.S. at 331 , 116 S.Ct. 848 (quoting Assoc. Indus. of Missouri, 511 U.S. at 647, 114 S.Ct. 1815 ) (footnote omitted).

In Oregon Waste , the Supreme Court explained the principles of the compensatory tax doctrine: To justify a charge on interstate commerce as a compensatory tax, a State must, as a threshold matter, “identif[y] ... the [intrastate tax] burden for which the State is attempting to compensate.” [Maryland v. Louisiana, 451 U.S. 725, 758 , 101 S.Ct. 2114 , 68 L.Ed.2d 576 (1981) ]. Once that burden has been identified, the tax on interstate commerce must be shown roughly to approximate-but not exceed-the amount of the tax on intrastate commerce. See, e.g., Alaska v. Arctic Maid, 366 U.S. 199, 204-05 [, 81 S.Ct. 929 , 6 L.Ed.2d 227 ] (1961). Finally, the events on which the interstate and intrastate taxes are imposed must be “substantially equivalent”; that is, they must be sufficiently similar in substance to serve as mutually exclusive “proxies]” for each other.

Armco, supra, 467 U.S., at 643 [, 104 S.Ct. 2620 ]. As Justice Cardozo explained for the Court in [Henneford v. Silas Mason Co., 300 U.S. 577 , 57 S.Ct. 524 , 81 L.Ed. 814 (1937) ], under a truly compensatory tax scheme “the stranger from afar is subject to no greater burdens as a consequence of ownership than the dweller within the gates. The one pays upon one activity or incident, and the other upon another, but the sum is the same when the reckoning is closed.” 300 U.S., at 584 , 57 S.Ct. 524 . Oregon Waste, 511 U.S. at 103 , 114 S.Ct. 1345 (footnote omitted and some citations omitted); see also Maryland v. Louisiana, 451 U.S. 725, 759 , 101 S.Ct. 2114 , 68 L.Ed.2d 576 (1981) (“The common thread running through the cases upholding compensatory taxes is the equality of treatment be ³⁴⁰ tween local and interstate commerce.”) (Citations omitted). “As with any other defense of a facially discriminatory tax, the State has the burden to show that the requirements of the compensatory tax doctrine are clearly met.” Fulton, 516 U.S. at 344, 116 S.Ct. 848 (citation omitted).

Indeed, the Supreme Court stated that it “doubt[ed] that such a showing can ever be made outside the limited confines of sales and use taxes ____” Id. Appellants contend that because the SNRT is imposed on nonresidents only and results in nonresidents paying a higher Maryland State income tax than residents, the SNRT facially discriminates against interstate commerce. They assert that this facial discrimination is not cured or offset by the fact that residents are subject to the county income tax in addition to the Maryland State income tax. They claim this is so because the county income taxes are imposed by each separate county and not by the State.

Appellants contend that in Comptroller of the Treasury v. Blanton, 390 Md. 528, 533-34 , 890 A.2d 279 (2006), the Court of Appeals held that county income taxes are separate and distinct from the State income tax and rejected a claim that county income taxes should be considered as part of the State income tax. Appellants also note that all county income taxes are remitted to the counties that impose them and are used exclusively to provide governmental services to residents of those counties. In contrast, the SNRT is distributed to the General Fund of the State and not to a political subdivision of the State. Further, the county tax is imposed on each resident and does not relate to where the individual is employed or conducts his or her business. ■ Appellee responds that when the SNRT is considered in conjunction with the county income tax, which appellee asserts is also a State tax, there is no discriminatory effect.

The Tax Court looked solely at the SNRT and did not consider its place in the income tax scheme of the Tax-General Article. The Tax Court thus concluded that the SNRT was discriminatory on its face: ³⁴¹ Petitioners [appellants] cite the United States Supreme Court’s recent ruling in Fulton Corp. v. Faulkner, 516 U.S. 325 , 116 S.Ct. 848 , 133 L.Ed.2d 796 (1996), which found that ... the state laws discriminating against interstate commerce on their face are “virtually per se invalid.” They contend that Tax-General Art. § 10-106.1. is just such a statute in that it expressly discriminates against nonresidents by levying a tax on nonresident income which has no direct corollary with respect to residents. At first blush, § 10-106.1. does indeed appear to discriminate against the out-of-state taxpayer, arguably interfering with the free flow of commerce mandated by the Commerce Clause, as well as violating the privileges and immunities guaranteed by the Privileges and Immunities Clause of the United States Constitution. Taken on its face, this would make the statute unconstitutional as to the United States Constitution, as well as the Maryland Constitution and Declaration of Rights.

We conclude that the SNRT may be viewed by itself or part of the tax scheme because the U.S. Supreme Court cases demonstrate that, at times, the Court has looked at the tax scheme and, at other times, it has limited its view to the specific tax in question. In Maryland v. Louisiana, 451 U.S. at 756 , 101 S.Ct. 2114 (citations omitted), the Supreme Court explained: A state tax must be assessed in light of its actual effect considered in conjunction with other provisions of the State’s tax scheme. “In each case it is our duty to determine whether the statute under attack, whatever its name may be, will in its practical operation work discrimination against interstate commerce.” Best & Co. v. Maxwell, 311 U.S. 454, 455-56 , 61 S.Ct. 334 , 85 L.Ed. 275 (1940). See also General Motors Corp. v. Tracy, 519 U.S. 278, 304 , 117 S.Ct. 811 , 136 L.Ed.2d 761 (1997) (examining “Ohio’s tax scheme[,]” which imposed taxes on natural gas purchases made from sellers who are not considered “local distribution companies” as defined under Ohio regulations); Fulton, 516 ³⁴² U.S. at 333, 116 S.Ct. 848 (considering the tax “regime” in determining that the “intangibles tax” was facially discriminatory); Assoc. Indus. of Missouri, 511 U.S. at 654, 114 S.Ct. 1815 (“we repeatedly have focused our Commerce Clause analysis on whether a challenged [tax] scheme is discriminatory in ‘effect’ ”) (citations omitted); Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 69 , 83 S.Ct. 1201 , 10 L.Ed.2d 202 (1963) (“a proper analysis must take ‘the whole scheme of taxation into account’ ”) (quoting Galveston, H. & S.AR.

Co. v. Texas, 210 U.S. 217, 227 , 28 S.Ct. 638 , 52 L.Ed. 1031 (1908)); Henneford v. Silas Mason Co., 300 U.S. 577, 579-82 , 57 S.Ct. 524 , 81 L.Ed. 814 (1937) (Supreme Court examined the tax “system” to determine that it did not violate the Commerce Clause). At other times, the Court has compared the taxes imposed on an activity or product that is conducted, made, or sold both in-state and out-of-state, but which taxes the out-of-state activity or product at a higher rate. See Oregon Waste, 511 U.S. at 99 , 114 S.Ct. 1345 (surcharge on out-of-state waste that was three times higher than charge imposed on in-state waste was facially discriminatory); Chemical Waste Mgmt., Inc. v. Hunt, 504 U.S. 334, 342 , 112 S.Ct. 2009 , 119 L.Ed.2d 121 (1992) (Alabama’s surcharge on hazardous waste from other States was facially discriminatory because it imposed a higher fee on the disposal of out-of-state waste than on the disposal of identical in-state waste); Armco Inc. v. Hardesty, 467 U.S. 638, 642 , 104 S.Ct. 2620 , 81 L.Ed.2d 540 (1984) (gross receipts tax imposed on whole sale of tangible property manufactured out of state, but not imposed on tangible property manufactured in-state was discriminatory). In Boston Stock Exchange, 429 U.S. at 331 , 97 S.Ct. 599 , however, the Supreme Court looked at a single New York statute, which, as amended, imposed a higher transfer tax on out-of-state sales and was thus discriminatory.

We further note, that the Supreme Court also instructs that the reviewing court must determine whether the tax is discriminatory on its face. See Fulton, 516 U.S. at 331 , 116 S.Ct. 848 (“State laws discriminating against interstate commerce on their face are ‘virtually per se invalid.’ ”) (Citations omitted). This lends ³⁴³ itself to the conclusion that we need not look beyond the SNRT itself. We conclude that the SNRT, when examined within the tax scheme of the Tax-General Article, is not discriminatory.

We further determine that, within the case-by-case analysis permitted under the Commerce Clause, the Tax Court did not err in determining that the SNRT, on its face, was discriminatory, but that it was a valid compensatory tax. We believe that either approach passes constitutional muster. We explain. Maryland’s Income Tax Scheme The SNRT imposes a tax on all individuals subject to the State income tax, “but not subject to the county income tax----” T.G. § 10-106.1(a). 5 The tax rate of the SNRT is “equal to the lowest county income tax rate set by any Maryland county[.]” T.G. § 10 — 106.1(b).

In general, a “resident,” which, with some exceptions, is defined in T.G. § 10-101(k) as an individual domiciled in the State of Maryland, is subject to an income tax on the resident’s “Maryland adjusted gross income.” T.G. § 10-102. A resident’s Maryland adjusted gross income is, with certain exceptions and adjustments, the individual’s “federal adjusted gross income for the taxable year[.]” T.G. § 10-203. A resident’s Maryland taxable income is the individual’s “Maryland adjusted gross income, less the exemptions and deductions allowed” under the Tax-General Article. T.G. § 10-101(i)(l).

At the time in question, in most instances, the State ³⁴⁴ income tax rate of 4.75% was imposed upon an individual’s Maryland taxable income. T.G. § 10-105(a)(4)(v). 6 Maryland residents also pay a “county income tax,” 7 which is provided for under T.G. § 10-103(a), and which states, in part: (a) Required. — Each county shall have a county income tax on the Maryland taxable income of: (1) each resident, other than a fiduciary, who on the last day of the taxable year: (i) is domiciled in the county; or (ii) maintains a principal residence or a place of abode in the county; The rate of the county income tax is provided for in T.G. § 10-106, which states: (a) In general; exception in Howard County. — (1) Each county shall set, by ordinance or resolution, a county income tax equal to at least 1% but not more than the percentage of an individual’s Maryland taxable income as follows: Hi * H« (iii) 3.20% for a taxable year beginning after December 31, 2001. (2) A county income tax rate continues until the county changes the rate by ordinance or resolution. (3) (i) A county may not increase its county income tax rate above 2.6% until after the county has held a public hearing on the proposed act, ordinance, or resolution to increase the rate. ³⁴⁵ (ii) The county shall publish at least once each week for 2 successive weeks in a newspaper of general circulation in the county: 1. notice of the public hearing; and 2. a fair summary of the proposed act, ordinance, or resolution to increase the county income tax rate above 2.6%.

(4) Notwithstanding paragraph (1) or (2) of this subsection, in Howard County, the county income tax rate may be changed only by ordinance and not by resolution. (b) If a county changes its county income tax rate, the county shall: (1) increase or decrease the rate in increments of one one-hundredth of a percentage point, effective on January 1 of the year that the county designates; and (2) give the Comptroller notice of the rate change and the effective date of the rate change on or before July 1 prior to its effective date. In 2004, the lowest county tax rate was 1.25%. Although the Tax-General Article provides for a county income tax, the counties may not impose their own income tax.

Tax-General § 10 — 103(b) states: Except for the county income tax, a county, municipal corporation, special taxing district, or other political subdivision may not impose a general local income, earnings, or payroll tax, a general occupational license tax, or a general license or permit tax based on income, earnings, or gross receipts. The Comptroller thus administers both the State and county income taxes, which are paid on a single tax return. See T.G. § 2-102(4) (“the Comptroller shall administer the laws that relate to ... the income tax”); T.G. § 2-104(a) (“the Comptroller shall design the returns and other forms that, on completion, provide the information required for the administration of the tax laws listed in § 2-102 of this subtitle”); T.G. § 2-109(a) (the Comptroller collects the taxes that the Comp ³⁴⁶ troller administers, accounts for the revenue from those taxes, and distributes the revenue). The Comptroller also controls the distribution of tax revenue to the counties.

See T.G. § 2-608(a) (after certain other distributions are completed, “the Comptroller shall distribute to each county the remaining income tax revenue from individuals attributable to the county income tax for that county”); T.G. § 2-610(a) (“The Comptroller shall make the distributions of income tax revenue from individuals attributable to county income tax periodically to a county, municipal corporation, or special taxing district.”) The proceeds from the SNRT go to the General Fund of the State. 8 See T.G. § 10-106.1 (“The tax imposed under this section shall be distributed by the Comptroller in accordance with § 2-609 of this article.”); T.G. § 2-609 (“After making the distributions required under §§ 2-604 through 2-608.1 [, which require distributions to the refund account, the administrative fund account, the unallocated individual revenue account, municipal corporations and special taxing districts, the counties, and the municipalities,] the Comptroller shall distribute the remaining income tax revenue from individuals to the General Fund of the State.”) Here, contrary to appellants’ assertions, the SNRT is not disfavored treatment and is not discriminatory; rather, the SNRT is equivalent to the county income tax imposed upon residents. It is thus a State-imposed tax that nonresidents pay. In 1967, the concept of the local or county income tax was adopted for the first time. Stern v. Comptroller of the Treasury, 271 Md. 310, 312 , 316 A.2d 240 (1974).

In Stern , ³⁴⁷ the question before the Court of Appeals was whether the Sterns were entitled to claim a credit for income taxes paid to New York State against that portion of their Maryland income tax that would be collected by the Comptroller and paid to Montgomery County where Petitioners resided. Id. at 310 , 316 A.2d 240 . For two years, the Sterns filed Maryland income tax returns and took as a credit against the State and local income tax the amount of income taxes paid to New York State. Id. at 312 , 316 A.2d 240 .

The Comptroller assessed a deficiency along with penalty and interest. Id. at 313 , 316 A.2d 240 . In the Tax Court, the assessments were affirmed and the Sterns appealed. At the time in question, Art. 81, § 290 allowed Maryland residents a credit for income taxes paid to another state and provided: Whenever a resident individual of this State has become liable for income tax to another state upon such part of his net income for the taxable year as is properly subject to taxation in such state, the amount of income tax payable by him under this subtitle shall be reduced by the amount of the income tax so paid by him to such other state upon his producing to the Comptroller satisfactory evidence of the fact of such payment; but application of such credit shall not operate to reduce the tax payable under this subtitle to an amount less than would have been payable if the income subjected to tax in such other state were ignored....

(Emphasis supplied.) The provision allowing for the local income tax then appeared in Art. 81, § 283(a) and stated: The county council or board of county commissioners of any county and the mayor and city council of Baltimore, by ordinance or resolution enacted pursuant to their ordinary and regular legislative procedure, shall adopt, by reference, a local income tax imposed upon the residents of any county or Baltimore City as a percentage of the liability of such resident for State income tax. Any ordinance or resolution so enacted shall impose a rate of tax for any current ³⁴⁸ calendar year and may provide that such tax rate shall continue in effect for each succeeding calendar year, unless and until such tax rate is changed or modified by a subsequent ordinance or resolution. Any income tax so adopted shall not be less than twenty (20) percent nor more than fifty (50) percent of the State income tax liability of such resident, and any such tax imposed, and any increase or decrease in any tax so imposed, shall be in increments of five (5) percent. In Stern , the Court of Appeals discussed the nature of the local income tax: We think that the case turns simply on a question of statutory construction.

When section 290 provides that “the amount of income tax payable by him under this subtitle shall be reduced by the amount of the income tax so paid by him to such other state” (emphasis supplied), reference is clearly being made to taxes imposed by sections 729 through 323A of article 81, subtitled “Income Tax.” While the argument that the tax is actually imposed by the ordinance or resolution adopted by the political subdivision is liminally attractive, its appeal is considerably attenuated by the provision of section 283(c) that “Local income taxes imposed pursuant to this section shall be subject to the provisions of § 312 of this subtitle relating generally to withholding at the source, declaration of estimated tax due, and remittance thereof to the Comptroller.” Further, section 283(a) has provided since 1969 that the counties and Baltimore City “shall adopt ” (emphasis supplied) local income taxes. There is no discretion in the subdivisions to adopt or refuse to adopt such a tax; the imposition of the tax is mandatory, and it is only with respect to the establishment of the rate of tax that the local governments retain a modicum of flexibility. In other words, one mechanism, that prescribed by the subtitle, is used for the collection of the tax imposed by section 288(a) (individuals), section 288(b) (corporations), and that created by section 283. Stem, 271 Md. at 313-14 , 316 A.2d 240 (footnote omitted).

The Court of Appeals reversed the Tax Court and allowed the ³⁴⁹ out-of-state taxes to reduce the Sterns’ local income tax liability because the credit provided for in Art. 81, § 290 was allowed against State taxes. Id. at 313-15, 316 A.2d 240 . The Court of Appeals thus concluded that the local income tax was a State tax because it was imposed by State law. Id.

More recently, in Comptroller of the Treasury v. Blanton, 390 Md. 528 , 890 A.2d 279 (2006), the Court of Appeals was asked to determine whether a tax credit provided pursuant to T.G. § 10-703(a) could properly be applied to both State and local income taxes paid by an individual. Id. at 530-31, 890 A.2d 279 . Tax General § 10-703(a) provides, in relevant part, that “a resident may claim a credit only against the State income tax.” The Court of Appeals concluded that T.G. § 10-703(a) “does not reduce the amount owed by a Maryland resident for local income tax. The tax credit may be applied only to reduce the amount of an individual’s state income tax liability.” Id. at 531, 890 A.2d 279 .

In 2001, the Blantons were residents of Baltimore County and held property interests in North Carolina. Id. They paid income taxes in both states. Id.

The Court of Appeals noted that the Blantons were allowed a credit for the North Carolina income tax they paid, but that credit was nearly $6,000.00 less than the total amount of income tax they had paid to North Carolina. Id. at 532 , 890 A.2d 279 . In addition, this credit reduced the Maryland State income tax they owed, but did not affect the local income tax. Id.

The total income tax owed by the Blantons was $ 10,875.60. Id. The amount owed after prior payments, taxes withheld, and all credits and offsets was $4,637.60. Id.

On their 2001 Resident Maryland Tax Return, however, the Blantons subtracted the North Carolina income tax amount from the total of their Maryland state income tax and local income tax. Id. The Blantons thus calculated the amount of Maryland Tax owed to be $4,998.00. Id.

The Blantons enclosed a letter with their tax return, asserting that the tax return form was flawed because it required that the State and local income taxes be calculated independently of each other. Id. Although the Blantons claimed that they paid the Comptroller a total of $4,998.00, the Comptroller sent ³⁵⁰ them a letter requiring them to pay the outstanding tax balance of $4,637.60. Id.

The Blantons requested an informal hearing, after which the Comptroller affirmed the assessment. Id. at 532-33 , 890 A.2d 279 . The Blantons appealed to the Tax Court, which “determined that the Legislature defined State tax and local tax as two distinct taxes, and, as such, they ‘are not the same, they are two separate ideas.’ ” Id. at 533 , 890 A.2d 279 . The Tax Court further concluded that T.G. § 10-703(a) “directs a credit against the State income tax only.” Id. at 533, 890 A.2d 279 .

The Tax Court affirmed the Comptroller’s decision, holding that “the Legislature intended for the credit to apply against the State income tax and not the local income tax.” Id. at 533 , 890 A.2d 279 . The Blantons petitioned for judicial review in the Circuit Court for Baltimore County, which reversed the Tax Court. Id. Relying on Stem , the circuit court held that the definition of “State income tax” included the local income tax for purposes of the tax credit provided for in T.G. § 10-703(a).

Id. at 533, 890 A.2d 279 . The Comptroller appealed that decision to this Court, but before we could decide the appeal, the Court of Appeals, on its own initiative, issued a writ of certiorari. Id. at 531 , 890 A.2d 279 . The Court of Appeals framed the issue before it: “[WJhether the language of § 10-703(a) of the Tax-General Article allows for a credit solely toward the State income tax, or allows for a credit toward both State and local income taxes.” Blanton, 390 Md. at 535 , 890 A.2d 279 .

The Court of Appeals held that T.G. § 10-703(a) referred “only to the State income tax.” Id. at 535, 890 A.2d 279 . Tax General § 10-703(a) provides: § 10-703 Tax paid to another state. (a) Except as provided in subsection (b) of this section, a resident 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 State tax on income paid to another state for the year. ³⁵¹ The Court of Appeals concluded that the statute was unambiguous. Blanton, 390 Md. at 537 , 890 A.2d 279 .

The Court explained: In the case sub judice, if the General Assembly had intended to include, in the availability of the tax credit, both State and local income tax, it could have clearly stated that intent. It did not. Instead, the Legislature used the words “only ... State income tax.” In its expression of one narrow objective (a credit against only the State income tax), it canceled out all other possibilities.

The word “only” is limited by what it expresses, the credit applies only toward the State portion of the income tax, not the local income tax. The plain meaning of the statute is that the local tax is excluded, and only State tax may be offset or reduced. We hold that § 10-703(a) of the Tax-General Article shows a clear legislative intent to limit the credit to State income tax to Maryland residents who also pay income tax to another state. Id. at 539, 890 A.2d 279 .

The Blantons relied on Stem , but the Court of Appeals noted that following Stem , the Legislature “quickly” amended Art. 81, § 290. Id. at 542, 890 A.2d 279 . The Court wrote: “In February 1975, the Legislature enacted emergency legislation, amended § 290 by adding § 290(b), which provided that only the income tax portion of the State tax could be reduced and no reduction from the local tax portion would be permitted.” Id. at 541, 890 A.2d 279 (citation omitted). Article 81, § 290(b) then provided, in part: [Wjith respect to the taxable year 1974 and each taxable year thereafter, the credit provided for by this section operates to reduce only the State income tax payable under this subtitle and does not operate to reduce any local income tax imposed....

When Art. 81, § 290(a) and (b) were recodified as T.G. § 10-703, the language of § 290(b) was deemed unnecessary. Blanton, 390 Md. at 542 , 890 A.2d 279 . Relying on the Revisor’s Note, the Court of Appeals explained: “[T]he Legis ³⁵² lature intended that the addition of the word ‘only’ in § 290(a) would replace § 290(b). Further, § 290(b) was deemed ‘unnecessary.’” Id. at 542, 890 A.2d 279 .

The Court thus concluded: “[W]e hold that the Legislature did not intend the term ‘only against the State income tax’ to include local income tax for purposes of credits under § 10-703(a) of the Tax-General Article.” Id. at 543, 890 A.2d 279 . Contrary to appellants’ assertion, in Blanton the Court of Appeals did not determine that the local income tax imposed under T.G. § 10-106 was not a State tax for constitutional purposes. Rather, the Court determined that the local income tax did not fall within the meaning of “only against the State income tax” under T.G. § 10-703(a). We perceive nothing in Blanton that requires the conclusion that the local income tax is not a State-imposed tax.

Blanton holds only that the local income tax is not the same as the State income tax within the meaning of T.G. § 10-703(a). In appellants’ case, the Circuit Court for Anne Arundel County correctly noted: “The Court of Appeals’ observation in Blanton that the State tax and the local tax are two distinct taxes does not mean that they are imposed by different authorities.” The State and county taxes are different, but that does not mean that they are not both State taxes. They are imposed by the same authority. The local tax is not imposed by the county, it is imposed by the State.

We thus conclude that the local income tax imposed under T.G. § 10-106 is a State tax. Nor do we perceive any discrimination because the proceeds from the SNRT are distributed to the General Fund of the State, while the proceeds from the local income tax, after certain other distributions are completed, are distributed by the Comptroller to each county. The taxes are both paid to the State and the State distributes the revenue. Moreover, they are both income taxes, that is, general forms of taxation that distribute the expenses of government.

See generally Oregon Waste, 511 U.S. at 104, 114 S.Ct. 1345 (“[general] tax payments are received for the general purposes of the [gov- ³⁵³ eminent], and are, upon proper receipt, lost in the general revenues”) (quoting Flast v. Cohen, 392 U.S. 83, 128 , 88 S.Ct. 1942 , 20 L.Ed.2d 947 (1968) (Harlan, J., dissenting)); Shaffer v. Carter, 252 U.S. 37, 51 , 40 S.Ct. 221 , 64 L.Ed. 445 (1920) (“Income taxes are a recognized method of distributing the burdens of government, favored because requiring contributions from those who realize current pecuniary benefits under the protection of the government, and because the tax may be readily proportioned to their ability to pay.”); Reynolds Metal Co. v. Martin, 269 Ky. 378 , 107 S.W.2d 251, 258 (1937) (Income tax “is a contribution exacted from those domiciled or doing business in the state for the purpose of defraying the expenses of government, the contribution being measured by the ability of the taxpayer to pay, which in turn is determined by the extent of his income. He is required to pay this tax because he is domiciled or doing business in the state, and so enjoys the protection of government, the right to earn a living, to receive, keep, and expend, income, and to be safe in his property and pursuit of happiness.”), appeal dismissed, 302 U.S. 646 , 58 S.Ct. 146 , 82 L.Ed. 502 (1937); Wood v. Tawes, 181 Md. 155,166 , 28 A.2d 850 (1942) (“ ‘A tax measured by the net income of residents is an equitable method of distributing the burdens of government among those who are privileged to enjoy its benefits. The tax, which is apportioned to the ability of the taxpayer to pay it, is founded upon the protection afforded by the state to the recipient of the income in his person, in his right to receive the income and in his enjoyment of it when he received.’ ”) (Quoting People of the State of New York ex rel. Cohn v. Graves, 300 U.S. 308, 313 , 57 S.Ct. 466 , 81 L.Ed. 666 (1937)).

In sum, the income taxes paid, whether under the SNRT imposed upon nonresidents or under the local income tax imposed upon residents, merely distributes the burdens of government upon the individuals who enjoy its benefits. See Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 254 , 58 S.Ct. 546 , 82 L.Ed. 823 (1938) (“It was not the purpose of the commerce clause to relieve those engaged in interstate commerce from their just share of state tax burden even ³⁵⁴ though it increases the cost of doing the business[.]”) Further, we perceive no unequal treatment of nonresidents in the statutory scheme because nonresidents will never pay more income tax than residents. See generally Lung v. O’Chesky, 94 N.M. 802 , 617 P.2d 1317, 1319 (1980) (New Mexico Supreme Court agreed with State’s position that tax was not discriminatory because nonresidents paid income tax at the same rate as residents and because the State may constitutionally apportion exemptions and deductions in relation to the total income earned within New Mexico) 9 . This was not a position relied upon by the Tax Court, however, and we may affirm the Tax Court only upon the grounds upon which it relied.

The SNRT, viewed by itself, is discriminatory, but the Tax Court properly concluded that it was a valid compensatory tax. The SNRT is a Compensatory Tax The Tax Court focused on Fulton Corp. v. Faulkner, 516 U.S. 325 , 116 S.Ct. 848 , 133 L.Ed.2d 796 (1996), in determining that the SNRT was a valid compensatory tax. But, we begin with a discussion of Oregon Waste Systems, Inc. v. Dep’t of Environmental Quality of the State of Oregon, 511 U.S. 93 , 114 S.Ct. 1345 , 128 L.Ed.2d 13 (1994), because the Supreme Court relied heavily on Oregon Waste in reaching its decision in Fulton . At issue in Oregon Waste was an Oregon statute that imposed a surcharge on every person who disposed of solid waste generated out-of-state at an in-state disposal site.

Id. at 96 , 114 S.Ct. 1345 . The amount of the surcharge was left to the Environmental Quality Commission to determine through rulemaking, but the Oregon Legislature required that the ³⁵⁵ surcharge “ ‘be based on the costs to the State of Oregon and its political subdivisions of disposing of solid waste generated out-of-state which are not otherwise paid for’ under specified statutes.” Id. (citation omitted). The Commission set the surcharge on out-of-state solid waste at $2.25 per ton.

Id. The Oregon Legislature also imposed a fee on the in-state disposal of waste generated in Oregon. Id. The in-state fee was capped by statute at $0.85 per ton.

Id. Thereafter, the Oregon Legislature added the $0.85 per ton fee to out-of-state waste, on top of the $2.25 surcharge, with the proviso that if the surcharge survived judicial challenge, the $0.85 per ton fee would again be limited to in-state waste. Id. The Supreme Court deemed the $2.25 per ton surcharge to be discriminatory on its face.

Id. at 99 , 114 S.Ct. 1345 . The Court wrote: The surcharge subjects waste from other States to a fee almost three times greater than the $0.85 per ton charge imposed on solid in-state waste. The statutory determinant for which fee applies to any particular shipment of solid waste to an Oregon landfill is whether or not the waste was “generated out-of-state.” It is well established, however, that a law is discriminatory if it “ ‘tax[es] a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the State.’ ” [Chemical Waste Management, Inc. v. Hunt, 504 U.S. 334, 342 , 112 S.Ct. 2009 , 119 L.Ed.2d 121 (1992) ] (quoting Armco Inc. v. Hardesty, 467 U.S. 638, 642 , 104 S.Ct. 2620 , 81 L.Ed.2d 540 (1984)). Id. at 99-100 , 114 S.Ct. 1345 (some citations omitted).

Because the surcharge was discriminatory, the Supreme Court applied “the virtually per se rule of invalidity” legal standard. Id. at 100 , 114 S.Ct. 1345 . Thus, the surcharge had to be invalidated unless the Department of Environmental Quality could “ ‘sho[w] that it advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.’ ” Id. at 100-01 , 114 S.Ct. 1345 (quoting New Energy Co. of Ind. v. Limbach, 486 U.S. 269 , ³⁵⁶ 278, 108 S.Ct. 1803 , 100 L.Ed.2d 302 (1988)). The Court added that “justifications for discriminatory restrictions on commerce [must] pass the ‘strictest scrutiny.’ ” Id. at 101, 114 S.Ct. 1345 (quoting Hughes v. Oklahoma, 441 U.S. 322, 337 , 99 S.Ct. 1727 , 60 L.Ed.2d 250 (1979)).

Further, “ ‘[t]he State’s burden of justification is so heavy that ‘facial discrimination by itself may be a fatal defect.’ ” Id. (quoting Hughes, 441 U.S. at 337 , 99 S.Ct. 1727 ) (citations omitted). The Department of Environmental Quality (“the Department”) defended the surcharge on out-of-state waste as a “ ‘compensatory tax’ necessary to make shippers of such waste pay their ‘fair share’ of the costs imposed on Oregon by the disposal of their waste in the State.” Id. at 102, 114 S.Ct. 1345 . After setting forth the three-pronged analysis, the Supreme Court determined that the surcharge was not a compensatory tax.

Id. at 104 , 114 S.Ct. 1345 . The Court explained: Oregon does not impose a specific charge of at least $2.25 per ton on shippers of waste generated in Oregon, for which the out-of-state surcharge might be considered compensatory. In fact, the only analogous charge on the disposal of Oregon waste is $0.85 per ton, approximately one-third of the amount imposed on waste from other States. [The Department’s] failure to identify a specific charge on intrastate commerce equal to or exceeding the surcharge is fatal to their claim. Id.

(citations omitted). The first and second prongs were thus not met. The Department asserted that, even -without a $2.25 per ton charge on in-state waste, intrastate commerce paid its share of the costs underlying the surcharge through general taxation. Id.

(footnote omitted). The Supreme Court responded: “Whether or not that is true is difficult to determine, as ‘[general] tax payments are received for the general purposes of the [government], and are, upon proper receipt, lost in the general revenues.’ ” Id. (quoting Flast v. Cohen, 392 U.S. 83, 128 , 88 S.Ct. 1942 , 20 L.Ed.2d 947 (1968) (Harlan, J., dissent ³⁵⁷ ing)). The Court added: “Even assuming, however, that various other means of general taxation, such as income taxes, could serve as an identifiable intrastate burden roughly equivalent to the out-of-state surcharge, respondents’ compensatory tax argument fails because the in-state and out-of-state levies are not imposed on substantially equivalent events.” Id.

That is, the third prong of the analysis was not satisfied. The Court continued: The prototypical example of substantially equivalent taxable events is the sale and use of articles of trade. In fact, use taxes on products purchased out of state are the only taxes we have upheld in recent memory under the compensatory tax doctrine. Typifying our recent reluctance to recognize new categories of compensatory taxes is [Armco Inc. v. Hardesty, 467 U.S. 638, 642 , 104 S.Ct. 2620 , 81 L.Ed.2d 540 (1984) ], where we held that manufacturing and wholesaling are not substantially equivalent events. 467 U.S., at 643 [, 104 S.Ct. 2620 ].

In our view, earning income and disposing of waste at Oregon landfills are even less equivalent than manufacturing and wholesaling. Indeed, the very fact that in-state shippers of out-of-state waste, such as Oregon Waste, are charged the out-of-state surcharge even though they pay Oregon income taxes refutes respondents’ argument that the respective taxable events are substantially equivalent. We conclude that, far from being substantially equivalent, taxes on earning income and utilizing Oregon landfills are “entirely different kind[s] of tax[es].” Washington v. United States, 460 U.S. 536, 546, n. 11 , 103 S.Ct. 1344 , 75 L.Ed.2d 264 (1983). Oregon Waste, 511 U.S. at 105 , 114 S.Ct. 1345 (some citations omitted).

The Court thus declined “to ‘plunge ... into the morass of weighing comparative tax burdens’ by comparing taxes on dissimilar events.” Id. (quoting American Trucking Assns., Inc. v. Scheiner, 483 U.S. 266, 289 , 107 S.Ct. 2829 , 97 L.Ed.2d 226 (1987) (internal quotation marks omitted and footnote omitted)). ³⁵⁸ In Fulton Corp. v. Faulkner, 516 U.S. 325 , 116 S.Ct. 848 , 133 L.Ed.2d 796 (1996), North Carolina imposed an “intangibles tax” on a fraction of the value of corporate stock owned by state residents. The tax was inversely proportional to the income tax the corporation paid to North Carolina. The Supreme Court described how the tax worked: [A] corporation doing all of its business within the State would pay corporate income tax on 100% of its income, and the taxable percentage deduction allowed to resident owners of that corporation’s stock under the intangibles tax would likewise be 100%.

Stock in a corporation doing no business in North Carolina, on the other hand, would be taxable on 100% of its value. For the intermediate cases, holders of stock were able to look up the taxable percentage for a large number of corporations as determined and published annually by the North Carolina Secretary of Revenue (Secretary). In 1990, for example, the Secretary determined the appropriate taxable percentage of IBM stock to be 95%, meaning that IBM did 5% of its business in North Carolina, with its stock held by North Carolina residents being taxable on 95% of its value. Fulton, 516 U.S. at 328 , 116 S.Ct. 848 (citation omitted).

Fulton Corp. was a North Carolina company that owned stock in six other corporations, five of which did no business and earned no income in the State. Id. As a result, Fulton’s stock in those five corporations was subject to the intangibles tax on 100% of its value. Id.

The sixth corporation in which Fulton held stock conducted 46% of its business in North Carolina; therefore, Fulton’s stock in that corporation was subject to an intangibles tax on 54% of its value. Id. Upon considering the intangibles tax, the Supreme Court concluded that it was facially discriminatory: There is no doubt that the intangibles tax facially discriminates against interstate commerce. A regime that taxes stock only to the degree that its issuing corporation participates in interstate commerce favors domestic corporations over their foreign competitors in raising capital among ³⁵⁹ North Carolina residents and tends, at least, to discourage domestic corporations from plying their trades in interstate commerce.

Id. at 333 , 116 S.Ct. 848 . The Supreme Court went on to consider whether the intangibles tax could be sustained as compensatory. The Court wrote: [O]ur cases have distilled three conditions necessary for a valid compensatory tax. First, “a State must, as a threshold matter, ‘identify] ... the [intrastate tax] burden for which the State is attempting to compensate.’” Oregon Waste, supra, 511 U.S., at 103[, 114 S.Ct. 1345 ] (quoting Maryland v. Louisiana, 451 U.S. 725, 758 , 101 S.Ct. 2114 , 68 L.Ed.2d 576 (1981)).

Second, “the tax on interstate commerce must be shown roughly to approximate-but not exceed-the amount of the tax on intrastate commerce.” Oregon Waste, 511 U.S., at 103 [, 114 S.Ct. 1345 ]. “Finally, the events on which the interstate and intrastate taxes are imposed must be ‘substantially equivalent’; that is, they must be sufficiently similar in substance to serve as mutually exclusive ‘proxies]’ for each other.” Ibid, (quoting Armco Inc. v. Hardesty, supra, at 643[, 104 S.Ct. 2620 ]). Fulton, 516 U.S. at 332-33 , 116 S.Ct. 848 . Regarding the first factor, the Supreme Court added: “[A] State that invokes the compensatory tax defense must identify the intrastate tax for which it seeks to compensate, and it should go without saying that this intrastate tax must serve some purpose for which the State may otherwise impose a burden on interstate commerce.” Id. at 334 , 116 S.Ct. 848 (citation omitted). The Secretary of Revenue of North Carolina (“the Secretary”) suggested “that the intangibles tax, with its taxable percentage deduction, compensates for the burden of the general corporate income tax paid by corporations doing business in North Carolina.” Id. at 334 , 116 S.Ct. 848 .

But the Supreme Court commented that because North Carolina had no general sovereign interest in taxing income earned out of state, the Secretary had to “identify some in ³⁶⁰ state activity or benefit in order to justify the compensatory levy.” Id. The Supreme Court added that it had “repeatedly held that ‘no state tax may be sustained unless the tax ... has a substantial nexus with the State ... [and] is fairly related to the services provided by the State.’ ” Id. (quoting Maryland v. Louisiana, 451 U.S. at 754 , 101 S.Ct. 2114 ). The Secretary asserted that North Carolina could “impose a compensatory tax upon foreign corporations because they may avail themselves of access to North Carolina’s capital markets.” Fulton, 516 U.S. at 384-35 , 116 S.Ct. 848 .

The Supreme Court summarized the Secretary’s position: The Secretary’s theory is that one of the services provided by the State, and supported through its general corporate income tax, is the maintenance of a capital market for corporations wishing to sell stock to North Carolina residents. Since those corporations escape North Carolina’s income tax to the extent those corporations do business in other States, the Secretary says, the State may require those companies to pay for the privilege of access to the State’s capital markets by a tax on the value of the shares sold. So, the Secretary concludes, the intangibles tax “rests squarely on ‘the settled principle that interstate commerce may be made to pay its way.’ ” Id. at 335 , 116 S.Ct. 848 (citations omitted). The Supreme Court found the Secretary’s argument “unconvincing” and noted that it had rejected a counterpart to it in Oregon Waste .

The Court reiterated its holding in Oregon Waste “that Oregon could not charge an increased fee for disposal of waste generated out of state on the theory that instate waste generators supported the cost of waste disposal facilities through general income taxes.” Id. In Fulton, 516 U.S. at 335 , 116 S.Ct. 848 , the Court further discussed Oregon Waste : Although we relied primarily upon the conclusion that earning income and disposing of waste are not “substantially equivalent taxable events,” [Oregon Waste, 511 U.S.] at 105,[ 114 S.Ct. 1345 ] we also spoke of the danger of treating ³⁶¹ general revenue measures as relevant intrastate burdens for purposes of the compensatory tax doctrine. “[PJermitting discriminatory taxes on interstate commerce to compensate for charges purportedly included in general forms of intrastate taxation would allow a state to tax interstate commerce more heavily than in-state commerce anytime the entities involved in interstate commerce happened to use facilities supported by general state tax funds.” Id., at 105, n. 8 ,[ 114 S.Ct. 1345 ] (internal quotation marks and citation omitted). We declined then, as we do now, “to open such an expansive loophole in our carefully confined compensatory tax jurisprudence.” Ibid. The Fulton Court was not persuaded that North Carolina’s corporate income tax was designed to support the intrastate capital market.

Id. at 336 , 116 S.Ct. 848 . Rather, access to those markets was regulated by blue sky laws and their accompanying regulations, which prescribe who may sell securities, the procedures that must be followed, and the fees imposed. Id. Without any evidence to the contrary, the Supreme Court assumed that North Carolina “has provided for the upkeep of its capital market through these provisions, not through the general corporate income tax.” Id.

(footnote omitted). The Supreme Court continued: If the corporate income tax does not support the maintenance of North Carolina’s capital market, then the State has not justified imposition of a compensating levy on the ownership of shares in corporations not subject to the income tax. While we need not hold that a State may never justify a compensatory tax by an intrastate burden included in a general form of taxation, the linkage in this case between the intrastate burden and the benefit shared by out-ofstaters is far too tenuous to (mercóme the risk posed by recognizing a general levy as a complementary twin. Id.

(Emphasis added). Although the first prong was not met, the Supreme Court went on to apply the second prong of the analysis, which requires that “ ‘the tax on interstate commerce ... be shown ³⁶² roughly to approximate-but not exeeed-the amount of the tax on intrastate commerce,’ ” Fulton, 516 U.S. at 333-34 , 116 S.Ct. 848 (quoting Oregon Waste, 511 U.S. at 103 , 114 S.Ct. 1345 ). The Supreme Court noted that, “[w]hen a corporation doing business in a state pays its general corporate income tax, it pays for a wide range of things: construction and maintenance of the transportation network, institutions that educate the work force, local police and fire protection, and so on.” Fulton, 516 U.S. at 337 , 116 S.Ct. 848 . But the Secretary’s justification for the intangibles tax rested on only one of the services funded by the corporate income tax, that is, “the maintenance of a capital market for the shares of both foreign and domestic corporations.” Id.

The Supreme Court reasoned that if corporations conduct their business outside the state, “they get little else from the State.” Id. Accordingly, even if the Supreme Court “suppressed [their] suspicion that North Carolina actually funds its capital markets through its blue sky fees, not its general corporate taxation,” the relevant comparison for the Court’s analysis was “between the size of the intangibles tax and that of the corporate income taxes component that purportedly funds the capital market.” Id. at 337-38 , 116 S.Ct. 848 . The Supreme Court concluded that such an analysis was “for the present practical purpose impossible.” Id. at 338 , 116 S.Ct. 848 . The Court explained: The corporate income tax is a general form of taxation, not assessed according to the taxpayer’s use of particular services, and before its revenues are earmarked for particular purposes they have been commingled with funds from other sources.

As a result, the Secretary cannot tell us what proportion of the corporate income tax goes to support the capital market, or whether that proportion represents a burden greater than the one imposed on interstate commerce by the intangibles tax. True, it is not inconceivable, however unlikely, that a capital markets component of the corporate income tax exceeds the intangibles tax in magnitude, but the Secretary cannot carry her burden of demonstrating this on the record in front of us. ³⁶³ This difficulty simply confirms our general unwillingness to “permi[t] discriminatory taxes on interstate commerce to compensate for charges purportedly included in general forms of intrastate taxation.” Oregon Waste, 511 U.S., at 105, n. 8 [, 114 S.Ct. 1345 ]. Where general forms of taxation are involved, we ordinarily cannot even begin to make the sorts of quantitative assessments that the compensatory tax doctrine requires. Fulton, 516 U.S. at 338 , 116 S.Ct. 848 (one citation omitted).

The Supreme Court then concluded that the intangibles tax also failed the third prong, “which requires the compensating taxes to fall on substantially equivalent events.” Id. The Court noted that it had previously found such equivalence between sales and use taxes, but in its most recent cases had shown “extreme reluctance to recognize new compensatory categories.” Id. The Court pointed out that in Oregon Waste , it had commented that “‘use taxes on products purchased out of state are the only taxes we have upheld in recent memory under the compensatory tax doctrine.’ ” Fulton, 516 U.S. at 338 , 116 S.Ct. 848 (quoting Oregon Waste, 511 U.S. at 105 , 114 S.Ct. 1345 ). The Court added: On the other hand, we have rejected equivalence arguments for pairing taxes upon the earning of income and the disposing of waste, ibid., the severance of natural resources from the soil and the use of resources imported from other States, Maryland v. Louisiana, 451 U.S., at 759 ,[ 101 S.Ct. 2114 ] and the manufacturing and wholesaling of tangible goods, Tyler Pipe Industries, Inc. v. Washington State Dept. of Revenue, 483 U.S. 232, 244 , 107 S.Ct. 2810 , 97 L.Ed.2d 199 (1987); Armco Inc. v. Hardesty, 467 U.S., at 642 [, 104 S.Ct. 2620 ].

In each case, we held that the paired activities were not “sufficiently similar in substance to serve as mutually exclusive proxies] for each other.” Oregon Waste, supra, at 103[, 114 S.Ct. 1345 ] (internal quotation marks and citation omitted). Fulton, 516 U.S. at 338-39 , 116 S.Ct. 848 . The Supreme Court thus concluded that the intangibles tax was not functionally equivalent to the corporate income tax. ³⁶⁴ Id. at 339 , 116 S.Ct. 848 ; see also Armco Inc. v. Hardesty, 467 U.S. 638, 643 , 104 S.Ct. 2620 , 81 L.Ed.2d 540 (1984) (wholesale gross receipts tax imposed on out-of-state company selling its products in West Virginia discriminated against interstate commerce; tax did not compensate for the higher manufacturing tax imposed on in-state manufacturers because “manufacturing and wholesaling are not ‘substantially equivalent events’ such that the heavy tax on in-state manufacturers can be said to compensate for the admittedly lighter burden placed on wholesalers from out of state. Manufacturing frequently entails selling in the State, but we cannot say which portion of the manufacturing tax is attributable to manufacturing, and which portion to sales.

The fact that the manufacturing tax is not reduced when a West Virginia manufacturer sells its goods out of State, and that it is reduced when part of the manufacturing takes place out of State, makes clear that the manufacturing tax is just that, and not in part a proxy for the gross receipts tax imposed on Armco and other sellers from other States.”) (footnote omitted); Boston Stock Exchange, 429 U.S. at 331 , 97 S.Ct. 599 (amendment to New York State transfer tax statute, which afforded nonresidents a 50% reduction in the rate of tax when the transaction involved an in-state sale of shares and limited the total tax liability of any taxpayer, resident or nonresident, to $350 if it involved a New York sale of shares violated the commerce clause because the “obvious effect of the tax [was] to extend a financial advantage to sales on the New York exchanges at the expense of the regional exchanges”; the tax did not “compensate” for a prior New York tax statute, which taxed a sale and transfer of shares in New York the same as a transaction involving instate transfer but an out-of-state sale, and, instead, “foreclose[d] tax-neutral decisions and create[d] both an advantage for the exchanges in New York and a discriminatory burden on commerce to its sister states”). Turning to the present case, we conclude that the SNRT is a valid compensatory tax. Under the first prong of the test, the “State must, as a threshold matter, ‘identify] ... the [intrastate tax] burden for which the State is attempting to ³⁶⁵ compensate.’ ” Oregon Waste, 511 U.S. at 103 , 114 S.Ct. 1345 (quoting Maryland v. Louisiana, 451 U.S. at 758 , 101 S.Ct. 2114 ). In finding that the first prong was met, the Tax Court wrote: As to prong one of the three prong Fulton test, the Comptroller asserts that § 10-106.1., strives to equalize the income tax burden between residents and non-residents, and that non-residents will not pay more than residents who are also subject to a county tax.

The Comptroller contends that this alone is sufficient to justify imposing the special non-resident tax. Not surprisingly, Petitioners [appellants] argue that the special non-resident tax is not compensating for any burden imposed on intrastate commerce for which residents are paying the county tax, and fails, therefore, to satisfy the first prong of identifying the intrastate tax burden for which the facially discriminatory tax is compensating. Fulton, 516 U.S. at 332 , 116 S.Ct. 848 . Petitioners argue that the special tax compensates for nothing, and cannot be “fairly related to the services provided by the State [which benefit interstate commerce].” Id.

To fully explore these contrasting points-of-view, this Court questioned counsel as to whether the nonresident taxpayer gains any direct or indirect benefit from local services being provided by a Maryland county or Baltimore City. Such local services traditionally include police and fire protection, waste disposal, water and sewer services, and the myriad of other local governmental activities on behalf of people within each local jurisdiction. It was conceded that such local benefits do, in fact, accrue both directly and indirectly to nonresidents [10] while they are present or doing business in a jurisdiction. Obviously, both residents and nonresidents receive these local governmental benefits by mere virtue of their physical presence within a jurisdiction, either in person or as part of a business entity doing business within the jurisdiction.

It seems perfectly reason ³⁶⁶ able, therefore, for the State to seek compensation for these services from non-residents through the tax system. Although there is no direct mechanism to allocate the special non-resident tax revenue to a particular county, the General Fund of Maryland exists to provide funding for the benefit of all Maryland counties and Baltimore City, selectively, through legislation and through the legislative budgeting process. In this regard, the evidence is clear that the burden on intrastate commerce for which § 10-106.1., is compensating, is the burden of providing local governmental services, directly or indirectly, to all persons or entities physically situate or doing business within its local borders. Appellants assert that, at oral argument before the Tax Court, counsel for appellants stated that the real estate and personal property taxes paid by the law firm compensated the local jurisdictions for the various governmental services they provided.

Appellants further contend that the Tax Court misunderstood the first prong of the Fulton test. They refer us to the Supreme Court’s acknowledgment in Fulton that “ ‘use taxes on products purchased out of state are the only taxes we have upheld in recent memory under the compensatory tax doctrine.’ ” Fulton, 516 U.S. at 338 , 116 S.Ct. 848 (quoting Oregon Waste, 511 U.S. at 105 , 114 S.Ct. 1345 ). The Supreme Court continued: On the other hand, we have rejected equivalence arguments for pairing taxes upon the earning of income and the disposing of waste, the severance of natural resources from the soil and the use of resources imported from other States, and the manufacturing and wholesaling of tangible goods. Fulton, 516 U.S. at 338-39 , 116 S.Ct. 848 (citations omitted).

The difficulty with appellants’ position is that the above quoted portions of Fulton address the third prong of the compensatory tax analysis and not the first prong. Accordingly, it has no relevance to our determination of whether appellee has met the first prong of the test, that is, whether appellee has adequately identified the intrastate tax burden ³⁶⁷ for which the State is attempting to compensate. We will, however, consider this argument when we reach the third prong of the compensatory tax analysis. Appellants also claim that the SNRT does not compensate for any burden imposed on intrastate commerce for which residents pay the county income tax.

Appellants further allege that the county income tax is different from the State income tax in several respects. First, unlike the State income tax, which is paid to the General Fund of the State, the county income tax is distributed to the county or Baltimore City where the taxpayer resides. Second, the county or Baltimore City decides how the revenue from the county income tax is to be spent. Third, the revenues are used by the county or Baltimore City for governmental services and purposes while the expenditures from the state income tax are determined by the Governor and the General Assembly.

Further, appellants contend, the SNRT is added to the General Fund of the State just as the State income tax is added to the General Fund; therefore, the SNRT is not compensating for any burden imposed on intrastate commerce for which residents pay the county income tax. Appellee responds that the first prong is met “because the in-state burden that the special nonresident tax is designed to equalize is the total income tax paid by state residents — the combined state and local components of the state income tax.” Here, as found by the Tax Court, the county income tax is the burden on intrastate commerce for which the SNRT is attempting to compensate. The county income tax and the SNRT are imposed on an in-state activity, that is, earning income in Maryland. In addition, both taxes are general revenue taxes designed to support government services.

Cf. Maryland v. Louisiana, 451 U.S. at 758-59 , 101 S.Ct. 2114 (Louisiana’s first-use tax did not compensate for the State’s severance tax on local production of natural gas; Louisiana has an interest in protecting its natural resources and chose to impose a severance tax on the privilege of severing resources from the soil, but the first-use tax did not meet the same ends ³⁶⁸ since it was imposed on the severance of resources from the federally owned continental shelf and thus Louisiana has no sovereign interest in being compensated for resources from land it does not own; “[t]he two events are not comparable in the same fashion as a use tax complements a sales tax”). Appellants assert that they already pay real and personal property taxes, but so do residents. Indeed, any individual owning property in Maryland may be subject to property tax.

See Md.Code (2007), § 6-101(a)(l) of the Tax-Property Article (“Except as otherwise provided in this article, all property located in this State is subject to assessment and property tax and is taxable to the owner of the property.”); § l-101(z) of the Tax Property Article (“property” is defined as “real and personal property”). The SNRT, however, is only equalizing the income tax burden on residents and nonresidents who earn income in Maryland. The fact that appellants pay property taxes does not affect the validity of the SNRT. Under the second prong of the compensatory tax analysis, “the tax on interstate commerce must be shown roughly to approximate — but not exceed — the amount of the tax on intrastate commerce.” Oregon Waste, 511 U.S. at 103 , 114 S.Ct. 1345 .

Here, the Tax Court found, in relevant part: It is clear from the language of the statute [the SNRT], coupled with the existence of county income taxes paid by residents, that non-residents pay no more, and in most cases less, than their resident counterparts. Petitioners argue that the facial discrimination against non-resident taxpayers is in no way cured or offset by the fact that, in addition to Maryland state income tax, resident taxpayers are also subject to county income taxes. Petitioners find significance in the fact that county income taxes are imposed by each separate county in Maryland, and not by the State of Maryland. Likewise, the counties set their own local tax rate.

Petitioners add that the proceeds of all county taxes are remitted to the counties that impose them, and are used exclusively to provide governmental services to residents of those counties. In contrast, the special non ³⁶⁹ resident tax is imposed by the State of Maryland, and all proceeds from this tax are distributed to the General Fund of the State of Maryland. In support of this distinction, Petitioners cite Comptroller of The Treasury v. Edward L. Blanton, Jr., et al., 390 Md. 528 , 890 A.2d 279 (2006) where the Court of Appeals of Maryland, upholding a Tax Court finding, make[s] it clear that the County income taxes are not just an element of the State income tax, but are rather separate and distinct taxes. Although it is clear from Blanton that the State income tax and the county income tax are separate taxes, this distinction does little to answer the question of whether § 10-106.1., as applied, is unconstitutional.

The Court finds the distinction between the state and county income taxes to be irrelevant to the constitutional issue. The facts reveal that the non-resident taxpayers are paying the same rate overall as the resident taxpayers, based on their Maryland income. Viewing this from a federal perspective, the burden on each class of taxpayer is the same overall. For example, if one looks at the border between Maryland and other jurisdictions and asks ... is a non-resident outsider paying more income tax than an inside resident, simply because he is a non-resident outsider ... the answer is no, he is not paying more.

There is merit, therefore, in the Comptroller’s assertion that what matters is not where the revenue is allocated, but rather whether there is a discriminatory burden on nonresidents. The Comptroller states that numerous cases have sustained state taxes against claims of discrimination, even thought] the taxes are calculated in different ways for residents and non-residents. Thus in Shaffer v. Carter, 252 U.S. 37 , 40 S.Ct. 221 , 64 L.Ed. 445 (1920), the court sustained a tax calculation method that was different for a nonresident and only allowed him to deduct losses from operations within the taxing state. Under this rule, states are free to limit non-residents to deductions related to income within the taxing state, even if deductions allowed to residents are not so limited.

Additional case examples were cited which need not be described here. ³⁷⁰ The Comptroller’s position is that a distinction in the direction of funds does not affect the amount Petitioners pay, and therefore cannot be unconstitutional discrimination. In support of this assertion, the Comptroller cites Lundi[n]g v. N.Y. Tax Appeals Tribunal, 522 U.S. 287 , 118 S.Ct. 766 , 139 L.Ed.2d 717 (1998) for the proposition that states must be afforded a “considerable amount of leeway in aligning the tax burden of nonresidents to in-state activities.” Indeed, a reference in Fulton supports this same contention. Quoting Justice Cardozo in Gregg Dyeing Co. v. Query, 286 U.S. 472, 480 , 52 S.Ct. 631 , 76 L.Ed. 1232 (1932), explaining a compensatory tax scheme, “the stranger from afar is subject to no greater burdens as a consequence of ownership than the dweller within the gates. The one pays upon one activity or incident, and the other upon another, but the sum is the same when the reckoning is closed.” § 10-106.1. ensures that non-residents pay Maryland income taxes at the same rate or lesser rate as Maryland residents, albeit the revenue derived from this taxation is distributed differently once collected.

Appellants claim that the Tax Court erred in concluding that the State income tax combined with the SNRT paid by the nonresident is not greater than the sum of the State income tax and county income tax paid by the resident. Appellants insist that this analysis fails because the SNRT is not the same as the county income tax, that is, they are collected by two different governments and the county income tax is spent by the county or Baltimore City. Appellants also contend that in Fulton the Supreme Court “rejected a similar argument with respect to the Intangibles tax.” Relying on Fulton , appellants claim that appellee cannot demonstrate “what portion of the SNRT goes to support the various services that the Tax Court noted as being provided in the City of Baltimore[]” where the law firm has its Maryland offices. Appellants assert that “[t]he SNRT, like the income tax, is commingled with funds from other sources, and it is impossible to track it to any particular expenditure.” ³⁷¹ They allege that the two cases cited by the Tax Court, Shaffer v. Carter, 252 U.S. 37 , 40 S.Ct. 221 , 64 L.Ed. 445 (1920), and Lunding v. New York Tax Appeals Tribunal, 522 U.S. 287 , 118 S.Ct. 766 , 139 L.Ed.2d 717 (1998), do not support the Tax Court’s conclusions.

Appellee states only that the second prong of the compensatory tax analysis is satisfied “because the relevant burden is the total or combined burden: the state portion and the local portion for the resident, and the state portion and the tax of § 10-106.1 for the nonresident.” In the present case, the SNRT very closely approximates the county income tax imposed on residents. In addition, because the SNRT is tied to the lowest possible county income tax rate, a nonresident will never pay more Maryland income tax than a resident pays. In addition, the SNRT and the county income tax are not collected by different governments. They are both collected by the State.

All the funds are commingled before distributions are made. Finally, the taxes pay for the services provided by government, whether at the State or county level. This stands in marked contrast to the intangibles tax at issue in Fulton . There, the Secretary asserted that the intangibles tax was imposed to support the capital market within the State and that it compensated for the general corporate income tax paid by corporations doing business in the State. 516 U.S. at 334 , 116 S.Ct. 848 .

When a corporation pays income tax, it pays for a wide variety of governmental services, such as, the construction and maintenance of the transportation network and police and fire protection. Id. at 337 , 116 S.Ct. 848 . Although the Supreme Court suspected that the capital market was funded by North Carolina’s blue sky fees, it commented that the Secretary could not show “what portion of the corporate income tax goes to support the capital market, or whether that portion represents a burden greater than the one imposed on interstate commerce by the intangibles tax.” Id. at 338 , 116 S.Ct. 848 . In contrast, in the present case, the SNRT and the county income tax are both income taxes.

All of the funds are ³⁷² collected by the State, commingled, and then distributed to provide governmental services. The funds collected from the county income tax are not earmarked in the same way that the funds collected from the intangibles tax were earmarked. In Fulton , the Supreme Court briefly discussed Henneford v. Silas Mason Co., 300 U.S. 577 , 57 S.Ct. 524 , 81 L.Ed. 814 (1937), which, in turn, relied on and quoted Justice Cardozo in Gregg Dyeing Co. v. Query, 286 U.S. 472, 480 , 52 S.Ct. 631 , 76 L.Ed. 1232 (1932). In Henneford, 300 U.S. at 580 , 57 S.Ct. 524 , the Supreme Court upheld a use tax imposed by Washington State on the privilege of using any article of tangible personal property within the state.

Exempt from the use tax was tangible personal property that had already been subject to a sales tax equal to or greater than the use tax. Id. at 581 , 57 S.Ct. 524 . In effect, the use tax applied only to goods purchased outside of Washington State. Id.

The use tax was facially discriminatory, but the combined effect of the sales and use taxes ensured that interstate and intrastate commerce were subject to equal burdens. The Court wrote, id. at 583-84 , 57 S.Ct. 524 : Equality is the theme that runs through all the sections of the statute. There shall be a tax upon the use, but subject to an offset if another use or sales tax has been paid for the same thing. This is true where the offsetting tax became payable to Washington by reason of purchase or use within the state.

It is true in exactly the same measure where the offsetting tax has been paid to another state by reason of use or purchase there. No one who uses property in Washington after buying it at retail is to be exempt from a tax upon the privilege of enjoyment except to the extent that he has paid a use or sales tax somewhere. Every one who has paid a use or sales tax anywhere, or, more accurately, in any state, is to that extent to be exempt from the payment of another tax in Washington. When the account is made up, the stranger from afar is subject to no greater burdens as a consequence of ownership than the dweller within the gates.

The one pays upon one ³⁷³ activity or incident, and the other upon another, but the sum is the same when the reckoning is closed. Equality exists when the chattel subjected to the use tax is bought in another state and then carried into Washington. It exists when the imported chattel is shipped from the state of origin under an order received directly from the state of destination. In each situation the burden borne by the owner is balanced by an equal burden where the sale is strictly local. ‘There is no demand in (the) Constitution that the state shall put its requirements in any one statute.

It may distribute them as it sees fit, if the result, taken in its totality, is within the state’s constitutional power.’ Gregg Dyeing Co. v. Query, 286 U.S. 472, 480 , 52 S.Ct. 631 , 76 L.Ed. 1232 (1932). In the present case, equality is also the theme that runs through the income tax statutes. We further conclude that the Tax Court committed no error in citing to Shaffer and Lunding . In those cases, the Supreme Court discussed the states’ abilities to tax residents and nonresidents as each must pay for the government services from which they benefit.

The Court noted, as we have already discussed, supra, that the effect of the tax is the critical consideration. See generally Lunding, 522 U.S. at 297 , 118 S.Ct. 766 (1998) (“Because state legislatures must draw some distinctions in light of ‘local needs,’ they have considerable discretion in formulating tax policy.”) (Citation omitted); Shaffer, 252 U.S. at 55 , 40 S.Ct. 221 (“[W]here the question is whether a state taxing law contravenes rights secured by [the Federal Constitution], the decision must depend not upon any mere question of form, construction, or definition, but upon the practical operation and effect of the tax imposed.”) (Citations omitted); see also Brown-Forman Distillers Corp., 476 U.S. at 579 , 106 S.Ct. 2080 (“the critical consideration is the overall effect of the statute on both local and