Frey v. Comptroller of the Treasury

BARBERA, J. In this case we consider the State’s authority to impose a certain tax known as the “Special Nonresident Tax” (“SNRT”) upon nonresidents who neither live nor work in Maryland but have a source of income in the State. Petitioners David S. and Judith W. Antzis, Timothy A. and Mary S. Frey, and Rudolph Garcia and Randi E. Pastor-Garcia reside in Pennsylvania but pay Maryland State income taxes on the income earned by each husband as a partner in Saul Ewing, LLP (“the firm”), a multi-state law firm with offices in Maryland, Pennsylvania, Delaware, Washington, D.C., New York, and New Jersey. In 2005, the Comptroller of the Treasury issued a notice of assessment against Petitioners’ 2004 joint Maryland nonresident income tax returns for failure to pay the SNRT. 1 The assessment included the amount owed for the SNRT, interest, and a penalty. Petitioners challenge, on federal and state constitutional grounds, the State’s authority to impose the SNRT. ¹²³ I. Maryland residents 2 and nonresidents alike are taxed under Maryland Code (1988, 2004 Repl.Vol.), § 10-105 of the Tax General Article (“T.G.”), 3 which establishes the State income tax rates. 4 In addition, Maryland residents are subject to a ¹²⁴ county tax, which is mandated by T.G. § 10-103 and § 10-106. 5 The rate of a resident’s county tax is determined by ¹²⁵ where the resident is domiciled on the last day of the taxable year. § 10-103(a)(1)(i).

The only county income taxes permitted in the State are those prescribed in these sections of the Tax General Article, and the counties have no authority to impose income taxes other than those established by State statute. See T.G. § 10-103(b). Residents file a single tax return that reflects both county and State income taxes. The Comptroller collects all taxes imposed under the Tax General Article, accounts for the revenue from those taxes, and distributes that revenue as directed in the Tax General Article.

See T.G. § 2—109(a)(1)—(3). As to the State and county income taxes, the Comptroller collects them and, after distributing a portion of each income tax to various State funds designated by statute, see T.G. §§ 2-604 through 2-607, the Comptroller distributes the remaining State income tax revenue to the General Fund, T.G. § 2-609, and “distribute^] to each county the remaining income tax revenue from individuals attributable to the county income tax for that county,” T.G. § 2-608(a). In other words, the Comptroller ultimately directs State income tax revenue to the General Fund for State use and directs the local income tax revenue to the counties for their use. 6 Of course, because nonresidents have no State county of residence, they are not required under T.G. § 10-106 to pay a local tax. Nonresidents are, however, subject to the SNRT.

In 2004, the General Assembly enacted the SNRT, which applied retroactively to “all taxable years beginning after December 31, 2003.” 2004 Md. Laws Ch. 430 § 30. The ¹²⁶ SNRT is codified at T.G. § 10-106. 1(a) and requires that “[a]n individual subject to the State income tax under § 10-105(a) of this subtitle, but not subject to the county income tax under § 10-106 of this subtitle, shall be subject to the tax imposed under this section.” 7 T.G. § 10-106.1(a). The section further provides that “[t]he rate of the tax imposed ... shall be equal to the lowest county income tax rate set by any Maryland county in accordance with § 10-106 of this subtitle.” 8 T.G. § 10-106.1(b). Although not obvious without reference to the cited statutory provisions, the SNRT imposes on nonresidents, in addition to the Maryland State income tax, an income tax equal to the lowest county tax rate available during the applicable tax year.

During the time period relevant to this case, § 10-106.1 required a nonresident who owed income taxes in Maryland to pay the State income tax of 4.75%, see T.G. § 10-105(a)(4)(v), and a tax equal to the lowest county tax rate imposed by any county in the State, which, at the time, was 1.25%. The SNRT, however, is not distributed to any particular county after it is collected by the Comptroller. Instead, T.G. § 2-609 provides that, “[a]fter making the distributions required under §§ 2— 604 through 2-608.1 of this subtitle, the Comptroller shall distribute the remaining income tax revenue from individuals to the General Fund of the State.” In other words, the Comptroller distributes to the taxpayers’ county of residence ¹²⁷ the remaining county tax revenue, and then deposits the remaining SNRT revenues into the State’s General Fund. This Case During 2004, Petitioners, though residents of Pennsylvania who worked outside of and owned no property in Maryland, paid State income taxes and local real estate and personal property taxes to the respective State subdivisions.

At that time, Messrs. Antzis and Garcia conducted their legal practice in Pennsylvania, in Chesterbrook and Philadelphia, respectively, and Mr. Frey conducted his legal practice in Wilmington, Delaware. The firm is a partnership formed in Delaware, but, because it earns income in each of the states in which its offices are located, the firm apportions its income among these states when reporting its income. As a result, during the relevant time period, the firm reported taxable income and paid the applicable State income and other taxes in Maryland for each of the firm’s partners, including Petitioners.

See T.G. § 10-102.1 (imposing State income tax on partnerships with nonresident partners and requiring such partnerships to pay that tax on behalf of such partners). These taxes are not in dispute. The Litigation As mentioned, Petitioners did not pay the additional SNRT imposed on their income attributed to the firm’s operations in Maryland, and consequently, in 2005, the Comptroller issued notices of assessment to Petitioners for the unpaid SNRTs. 9 In response, and pursuant to T.G. § 13-508, 10 Petitioners ¹²⁸ asked the Comptroller to revise the assessment, at an informal hearing held on September 19, 2005. On September 26, 2005, the Comptroller issued to each Petitioner a Notice of Final Determination affirming the assessment.

At the hearing, Petitioners presented the same constitutional challenges they raise in this appeal. The hearing officer summarized those arguments as follows: [Petitioners argue that] 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 [SNRT] places a tax burden on nonresidents that is not imposed on residents.... [SNRT] is distinguishable from the local tax imposed on Maryland residents because the tax revenue from the [SNRT] goes to the State of Maryland, while the tax revenue from the resident local tax goes to the Maryland counties. The hearing officer determined as an initial matter that Petitioners’ constitutional challenges to the SNRT exceeded the scope of the hearing.

The officer then determined that, based on the information presented at the hearing, the assessment was consistent with T.G. § 10-106.1. The officer therefore affirmed the assessment. The Tax Court On October 24, 2005, Petitioners individually appealed to the Maryland Tax Court. 11 On February 15, 2006, upon the Comptroller’s motion, that court consolidated Petitioners’ cases, and on May 10, 2006, heard the parties’ arguments. ¹²⁹ Neither party offered testimony, however, because they had agreed to a stipulation of the background and facts pertinent to the appeal. On June 22, 2006, the Tax Court affirmed the assessments on Petitioners but abated the penalties.

The court acknowledged at the outset Petitioners’ argument that, because the SNRT imposes a nonresident tax that is applicable solely to nonresident income, not resident income, the provision is facially discriminatory and therefore violates the United States Constitution and the Maryland Constitution and Declaration of Rights. To support that contention, Petitioners cited Fulton Corp. v. Faulkner, 516 U.S. 325 , 116 S.Ct. 848 , 133 L.Ed.2d 796 (1996), in which the Supreme Court emphasized that state laws that are facially discriminatory against interstate commerce are “virtually per se invalid.” 516 U.S. at 331 , 116 S.Ct. 848 (internal quotation marks omitted) (quoting Or. Waste Sys., Inc. v. Dep’t of Env’t Quality, 511 U.S. 93, 99 , 114 S.Ct. 1345 , 128 L.Ed.2d 13 (1994)). Although the court neither denied this characterization of Fulton nor that “§ 10-106.1 ... appear[s] to discriminate against the out-of-state taxpayer,” the court reasoned that an “appearance of discrimination ... does not end the inquiry.” Under the Tax Court’s interpretation of Fulton, when a tax is facially discriminatory and therefore presumed invalid, the government may overcome this presumption by showing that the statute is a “ ‘compensatory tax’ designed simply to make interstate commerce bear a burden already borne by intrastate commerce.” 516 U.S. at 331 , 116 S.Ct. 848 (internal quotation marks omitted) (quoting Associated Indus. of Mo. v. Lohman, 511 U.S. 641, 647 , 114 S.Ct. 1815 , 128 L.Ed.2d 639 (1994)).

To do so, however, the court pointed out that the government must satisfy a three-prong test applied in Fulton: (1) “identify] ... the [intrastate tax] burden for which the State is attempting to compensate”; (2) show that “the tax on interstate commerce [is] roughly ... approximate [to]-but [does] not exceed—the amount of the tax on intrastate commerce”; and (3) demonstrate that “the events on which the interstate and intrastate taxes are imposed [are] substantially equivalent,” i.e., that they are “sufficiently similar in substance ¹³⁰ to serve as mutually exclusive proxies] for each other.” 516 U.S. at 332-33 , 116 S.Ct. 848 (some internal quotation marks omitted) (some alterations in original) (quoting Or. Waste Sys., 511 U.S. at 103 , 114 S.Ct. 1345 ). As to the first prong of the compensatory tax doctrine, the Tax Court determined that “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 situated or doing business within its local borders.” By showing that the SNRT did not exceed the local tax burden upon Maryland residents, the Tax Court was satisfied that the Comptroller had demonstrated, under the second prong, that the tax on interstate commerce roughly approximates the tax on intrastate commerce. Specifically, the court noted that “§ 10-106.1 ensures that non-residents pay Maryland income taxes at the same rate or a lesser rate as Maryland residents.” Finally, with regard to the third prong, the Tax Court found that “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.’ ” After concluding that analysis, the Tax Court turned to the remaining constitutional issues and ruled: [Section] 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 ..., the Equal Protection Clause ..., the Privileges and Immunities Clause of the United States Constitution, or the Maryland Constitution and the Declaration of Rights. Because, however, the Tax Court judged the appeal to be in good faith, the court abated the penalties assessed against ¹³¹ Petitioners.

The Tax Court, however, denied Petitioners’ request to abate the accrued interest, reasoning that the court lacked the authority to do so. Judicial Review On July 12, 2006, each of the Petitioners filed in the Circuit Court for Anne Arundel County a petition for judicial review of the Tax Court’s decision. Upon Petitioners’ motion, on December 5, 2006, the Circuit Court consolidated their cases. After hearing oral argument from the parties, on July 19, 2007, the court issued a memorandum opinion and order affirming, with respect to the constitutionality of the SNRT, the decision of the Tax Court.

Under the Circuit Court’s analysis, the permissibility of the SNRT depended on whether it “is truly a county tax or a State tax imposed for the benefit of the counties.” Unlike the Tax Court, the Circuit Court found that, because the State establishes the county taxes and the corresponding rates, the county tax is simply a variation of the State tax. The Circuit Court explained that, under this scheme, a taxpayer pays the State tax and either the local resident tax or the SNRT. The Circuit Court dismissed any contention that, because the Comptroller distributes the local income tax to the counties and the SNRT to the General Fund, and they are therefore distributed differently, the local resident tax and the SNRT are not State taxes. Accordingly, the Circuit Court found that the local tax and the SNRT are correlative components of the State income tax.

Under this State tax scheme, the Circuit Court found that nonresidents bear a burden no more onerous than that of residents. The Circuit Court thus deemed the SNRT constitutional. As to the Tax Court’s determination that it could not abate the interest assessed against Petitioners, the Circuit Court disagreed. Citing T.G. § 13-606, which provides that, “[f]or reasonable cause, a tax collector may waive interest on unpaid tax,” the Circuit Court inferred that the Tax Court had the authority to abate interest.

Because the abatement of interest is discretionary, however, the Circuit Court declined to decide ¹³² the matter and. remanded the case to the Tax Court to consider the issue. On August 16, 2007, Petitioners timely noted an appeal to the Court of Special Appeals, seeking review of the same constitutional issues presented to the Circuit Court and a determination of whether the penalties and interest assessed against them should be waived for reasonable cause. On August 24, 2007, the Comptroller noted a cross-appeal, questioning whether the Tax Court “has discretionary authority to reduce or abate interest on the assessments against [Petitioners] when the interest is assessed by statute.” As to the constitutional questions, the Court of Special Appeals held that the SNRT does not violate the United States Constitution or the Maryland Constitution and Declaration of Rights. Frey v. Comptroller, 184 Md.App. 315, 322 , 965 A.2d 923, 927 (2009).

The court further held that the Tax Court has the authority to consider and order the abatement of interest. Id., 965 A.2d at 927 . The Court of Special Appeals began by considering whether the SNRT discriminates against interstate commerce, either on its face or in effect, and concluded that the tax was neither facially discriminatory nor discriminatory in effect. See id. at 343 , 965 A.2d at 939 (stating that the court “need not look beyond the SNRT itself’ to conclude that the tax is not discriminatory).

In reaching its conclusion that the SNRT is not facially discriminatory, the Court of Special Appeals reasoned that, if the State tax, the county resident tax, and the SNRT are components of a single State tax scheme, the SNRT is not impermissibly discriminatory because the county taxes and the SNRT are both “paid to the State and the State distributes the revenue” and “they are both income taxes, that is, general forms of taxation that distribute the expenses of government.” Id. at 352 , 965 A.2d at 945 . The court nevertheless concluded that, because the outcome was the same, “the Tax Court did not err in determining that the SNRT, on its face, was discriminatory, but that it was a valid compensatory tax.” Id. at 343 , 965 A.2d at 939 . ¹³³ After completing that analysis, however, the Court of Special Appeals acknowledged that it may affirm the Tax Court “only upon the grounds upon which it relied,” 12 and thus the intermediate appellate court turned to the issue of whether the SNRT is a valid compensatory tax as defined by Fulton. Id. at 354, 965 A.2d at 946 . To reach its conclusion that the SNRT is a valid compensatory tax, and thereby affirm the Tax Court’s decision, the Court of Special Appeals relied on both Fulton and Oregon Waste Systems, which the Supreme Court cited heavily in Fulton.

Frey, 184 Md.App. at 354-64 , 965 A.2d at 946-52 . In Oregon Waste Systems, the Court established the presumption that a facially discriminatory tax is per se invalid, 511 U.S. at 103 n. 9, 114 S.Ct. 1345 , and the above-mentioned three factors a state must satisfy to overcome that presumption, id. at 103 , 114 S.Ct. 1345 . The Court of Special Appeals then applied those three factors to the SNRT to conclude that the SNRT is a valid compensatory tax. Frey, 184 Md.App. at 392 , 965 A.2d at 968 .

The Court of Special Appeals then addressed Petitioners’ contention that, because there is “no rational justification for the State of Maryland to impose a tax on nonresidents with respect to income earned within the State that is greater than that imposed on residents,” the SNRT violates the Equal Protection Clause. Id. at 393 , 965 A.2d at 969 . The court rejected this contention and agreed "with the Tax Court, reasoning that the SNRT serves the “rational purpose of equalizing the income tax burdens between residents and nonresidents,” serves “the legitimate purpose of helping to pay for government services from which [Petitioners] benefit,” and “does not impose an additional tax burden on nonresidents because [they] do not pay a higher income tax to the State.” Id. at 399 , 965 A.2d at 972-73 . ¹³⁴ The Court of Special Appeals similarly rejected Petitioners’ contention that the SNRT violates the Privileges and Immunities Clause. That court noted that the Clause “is phrased in terms of state citizenship and was designed ‘to place the citizens of each State upon the same footing with citizens of other States, so far as the advantages resulting from citizenship in those States are concerned.’ ” Id. at 401 , 965 A.2d at 974 (internal quotation marks omitted) (quoting United Bldg. & Constr.

Trades Council v. Camden, 465 U.S. 208, 215-216 , 104 S.Ct. 1020 , 79 L.Ed.2d 249 (1984)). The Court of Special Appeals concluded that, though “the SNRT is imposed only on nonresidents, residents also pay the county income tax,” id. at 409, 965 A.2d at 974 , and thus “the SNRT places nonresidents and residents on an equal footing because nonresidents pay no more Maryland income tax than residents,” id. at 409 , 965 A.2d at 978 . Likewise, the Court of Special Appeals held that the SNRT does not violate Article 24 of the Declaration of Rights and the Maryland Constitution. 13 Id. at 417 , 965 A.2d at 983 . The Court of Special Appeals acknowledged that, under Frankel v. Board of Regents, 361 Md. 298 , 761 A.2d 324 (2000), “a governmental regulation placing a greater burden on some Marylanders than on others based on geographical factors must ‘rest upon some ground of difference having a fair and substantial relation to the object of the’ regulation.” 184 Md.App. at 414-15 , 965 A.2d at 981-82 (some internal quotation marks omitted).

The court determined, though, that “the SNRT bears a fair and substantial relationship to the goal of ¹³⁵ requiring out-of-state residents to pay for governmental services” and therefore held that the SNRT does not violate the Maryland Declaration of Rights. Id. at 415 , 965 A.2d at 982 . Finally, the Court of Special Appeals considered whether the Tax Court has the authority to modify or abate interest assessed by the Comptroller. 184 Md.App. at 417 , 965 A.2d at 983 . The court reasoned that, because the Tax Court may consider appeals concerning the “application for an abatement, reduction, or revision of any assessment,” id. at 421 , 965 A.2d at 985 (quoting T.G. § 3-103(a)(4)), and “reassess, or reclassify, abate, modify, change or alter any valuation, assessment, classification, tax or final order appealed,” id. at 421, 965 A.2d at 985 (quoting T.G. § 13-528(a)), parties may appeal to the Tax Court the Comptroller’s assessment of interest, id. at 421-22, 965 A.2d at 985-86 .

Given that parties may appeal the assessment of interest to the Tax Court, the Court of Special Appeals held that a plain reading of the relevant statutory provisions compels the conclusion that the Tax Court may consider and order the abatement of interest. Id., 965 A.2d at 985-86 . The Court of Special Appeals therefore remanded the case to the Tax Court to consider the issue of abatement. Id. at 423 , 965 A.2d at 986 .

On April 9, 2009, Petitioners filed with this Court a petition for writ of certiorari, and on May 8, 2009, the Comptroller filed a cross-petition for writ of certiorari. We granted both petitions. Frey v. Comptroller, 409 Md. 46 , 972 A.2d 861 (2009). Petitioners present for our consideration the following four issues: 1.

Whether the Court of Special Appeals erred in determining that although the Special Non-Resident Tax was discriminatory on its face, it was nonetheless a valid compensatory tax under the Interstate Commerce Clause of the U.S. Constitution. 2. Whether the Court of Special Appeals erred in determining that the Special Non-Resident Tax does not violate the Equal Protection Clause of the U.S. Constitution. ¹³⁶ 3. Whether the Court of Special Appeals erred in determining that the Special Non-Resident Tax does not violate the Privileges and Immunities Clause of the U.S. Constitution. 4. Whether the Court of Special Appeals erred in determining that the Special Non-Resident Tax does not violate the Maryland Constitution and the Declaration of Rights.

Additionally, we consider the single question presented by the Comptroller: Did the Maryland Tax Court correctly determine that it lacks the authority to reduce the interest payable on an assessment of tax when the Legislature granted that power only to Tax Collectors identified in the statute and historically, the Tax Court has never been part of the tax collection process? For reasons we shall explain, we hold that the SNRT does not violate the United States Constitution or the Maryland Constitution and Declaration of Rights and, moreover, that the Tax Court has the authority to consider and order the abatement of interest assessed against parties appealing to that court. We, therefore, affirm the judgment of the Court of Special Appeals.

II

The Tax Court is “an adjudicatory administrative agency in the executive branch of state government.” Furnitureland S., Inc. v. Comptroller, 364 Md. 126 , 137 n. 8, 771 A.2d 1061 , 1068 n. 8 (2001). As such, the Tax Court is subject to the same standards of judicial review as other administrative agencies. T.G. § 13-532(a)(1) (“A final order of the Tax Court is subject to judicial review as provided for contested cases in §§ 10-222 and 10-223 of the State Government Article.”); Supervisor of Assessments v. Hartge Yacht Yard, Inc., 379 Md. 452, 461 , 842 A.2d 732, 737 (2004). Moreover, because we are reviewing the decision of an administrative agency, our review looks “through the circuit court’s and intermediate appellate court’s decisions ... and evaluates the ¹³⁷ decision of the agency.” People’s Counsel for Baltimore County v. Surina, 400 Md. 662, 681 , 929 A.2d 899, 910 (2007).

As mentioned, we may not uphold the final decision of an administrative agency on grounds other than the findings and reasons set forth by the agency. Evans v. Burruss, 401 Md. 586, 593 , 933 A.2d 872, 876 (2007); Dep’t of Health & Mental Hygiene v. Campbell, 364 Md. 108, 123 , 771 A.2d 1051, 1060 (2001) (“[A]n appellate court will review an adjudicatory agency decision solely on the grounds relied upon by the agency.”). Although we retain the power to review administrative decisions, judicial review of these decisions is narrow. We shall not “substitute [our] judgment for the expertise of those persons who constitute the administrative agency.” People’s Counsel for Baltimore County v. Loyola College in Md., 406 Md. 54, 66 , 956 A.2d 166, 173 (2008) (internal quotation marks omitted) (quoting United Parcel Serv., Inc. v. People’s Counsel for Baltimore County, 336 Md. 569, 576-77 , 650 A.2d 226, 230 (1994)).

Accordingly, we review the Tax Court’s factual findings and the inferences drawn therefrom under a substantial evidence standard. Surina, 400 Md. at 681 , 929 A.2d at 910 ; Md. Aviation Admin. v. Noland, 386 Md. 556, 571 , 873 A.2d 1145, 1154 (2005) (“A reviewing court should defer to the agency’s fact-finding and drawing of inferences if they are supported by the record.” (quoting Bd. of Physician Quality Assurance v. Banks, 354 Md. 59, 67-69 , 729 A.2d 376, 380-81 (1999))). Under this standard, we consider “whether a reasoning mind reasonably could have reached the factual conclusion the agency reached.” State Ins. Comm’r v. Nat’l Bureau of Cas.

Underwriters, 248 Md. 292, 309 , 236 A.2d 282, 292 (1967); see also Surina, 400 Md. at 681 , 929 A.2d at 910 (explaining that under the substantial evidence standard courts examine whether the administrative record contains “such evidence as a reasonable mind might accept as adequate to support a conclusion”) (internal quotation marks omitted) (quoting Mayor and Aldermen of Annapolis v. Annapolis Waterfront Co., 284 Md. 383, 398 , 396 A.2d 1080, 1089 (1979)). ¹³⁸ Just as we defer to an agency’s factual findings, we afford great weight to the agency’s legal conclusions when they are premised upon an interpretation of the statutes that the agency administers and the regulations promulgated for that purpose. Surina, 400 Md. at 682 , 929 A.2d at 911 ; Noland, 386 Md. at 572 , 873 A.2d at 1154 . This deference, however, “extends only to the application of the statutes or regulations that the agency administers.” Loyola College, 406 Md. at 67 , 956 A.2d at 174 . When an agency’s decision is necessarily premised upon the “application and analysis of caselaw,” that decision rests upon “a purely legal issue uniquely within the ken of a reviewing court.” Id. at 67-68 , 956 A.2d at 174 .

In this case, the Tax Court’s decision required the application and analysis of cases interpreting the United States Constitution as well as the Maryland Constitution and Declaration of Rights. Under these circumstances, we evaluate an agency’s legal conclusions to determine whether they are based upon an error of law, without deference to the agency’s determination. Id. at 68 , 956 A.2d at 174 ; Surina, 400 Md. at 683 , 929 A.2d at 911 ; Adventist Health Care, Inc. v. Md. Health Care Comm’n, 392 Md. 103, 120 , 896 A.2d 320, 331 (2006). Before addressing the various issues presented in the parties’ petitions for certiorari, we consider the import of the structure of the State’s income tax scheme and whether the Court of Special Appeals correctly concluded that the county income tax imposed under T.G. § 10-106 is a State tax.

Although this issue did not control the Tax Court’s decision, we deem it prudent to address the Court of Special Appeals’s analysis on this point. It is especially so because Petitioners argue that the judgment of the Court of Special Appeals affirming the Tax Court is erroneous because that judgment is “entirely dependent on its [incorrect] determination that the county income tax and State income tax are one and the same.” To support this assertion, Petitioners cite Comptroller v. Blanton, contending that this Court held that the State and ¹³⁹ local taxes are “two distinct taxes.” 390 Md. 528, 533, 543 , 890 A.2d 279, 282, 288 (2006). Comptroller, naturally, disagrees with Petitioners’ characterization of that case and contends that, because the State mandates the county income tax, restricts the authority of the counties to set the rate, and distributes the funds collected pursuant to the tax, the county income tax is part of a single State-imposed income tax scheme. The General Assembly adopted Maryland’s county income tax in 1967 when the legislature overhauled the State’s entire income tax law.

Stern v. Comptroller, 271 Md. 310, 311-12 , 316 A.2d 240, 240-41 (1974) (citing 1967 Md. Laws, ch. 142, § 6). In addition to implementing the county tax, this restructuring adopted the federal adjusted gross income amount as the base for Maryland’s individual and corporate income tax. Id. at 312, 316 A.2d at 241 . Yet, the General Assembly did not amend the applicable “scheme of exemptions, exclusions, and deductions” as radically.

See id., 316 A.2d at 241 . As a result, residents claimed credits for income taxes paid to another state against State and county income taxes, as they had prior to the revisions. See id. at 312-13 , 316 A.2d at 241 . After the Comptroller denied the credits against the county income tax on the ground that the credits were only available to offset the State income tax, the aggrieved parties sought review of that decision.

Id., 316 A.2d at 241 . Ultimately, this Court was faced with determining whether the statutory provision authorizing the credit against “the amount of income tax payable ... under this subtitle” applied to both the State and county income taxes. Id. at 311 , 316 A.2d at 240 . We held in Stem that the credit applied to all taxes, including the county income tax, appearing in the State “Income Tax” subtitle.

Id. at 313-14 , 316 A.2d at 241-42 . In reaching this conclusion, we rejected the argument that the local political subdivisions, rather than the State, imposed the county tax thus precluding the application of the credit in question. Id., 316 A.2d at 241-42 . We did so, in part, because the county income taxes were adopted, mandated, and collected by the State.

Id., 316 A.2d at 241-42 . In other words, ¹⁴⁰ because the county income tax was prescribed in the “Income Tax” subtitle and was administered by the State, that tax was just as susceptible to the credit as other State-imposed income taxes. In Blanton, however, we again considered whether Maryland residents who owed State and county income taxes could claim a credit for income taxes paid in another state against both their State and county income taxes. After our opinion in Stem, the General Assembly added T.G. § 10-703(a), which provides that a taxpayer may “claim a credit only against the State income tax.” Additionally, the General Assembly expressly defined State income tax as “State tax on income imposed under this title” and county income tax as “county tax on income authorized in § 10-103 of this subtitle.” Blanton, 390 Md. at 535 n. 8, 890 A.2d at 283 n. 8 (quoting T.G. § 10-101(d) & (n)).

We recognized as an initial matter that permitting Maryland residents to deduct credits from county income taxes in the amount of income taxes paid to other states “would have the possible absurd result of [certain taxpayers] paying little or no local tax for the services provided by the county while a neighbor with similar income, exemptions, and deductions might be paying a substantial local tax to support those services.” Id. at 536 n. 9, 890 A.2d at 284 n. 9 (internal quotation marks omitted) (quoting Coerper v. Comptroller, 265 Md. 3, 8 , 288 A.2d 187, 189 (1972)). We then analyzed T.G. § 10-703(a) under the traditional rules of statutory construction. Id. at 537-38, 890 A.2d 279 , 890 A.2d at 284-85 . First, we reasoned that the General Assembly did not intend to permit taxpayers to apply, against the county tax, credit for out-of-state taxes paid, because § T.G. 10-703(a) expressly limited the applicability to “only ...

State income tax,” thus, cancelling “out all other possibilities.” Id. at 539, 890 A.2d at 286 (emphasis added). We reasoned further that the statutory provision allocating the available tax credits undermined any assertion that the credit at issue applied to the county tax because, when a credit was applicable to both the State and county income taxes, the statute so provided. Id. at 539-40 , 890 A.2d at 286 . As additional support for the ¹⁴¹ credit’s limited applicability, we noted that, after our decision in Stem, the legislature had amended the income tax statutes to prohibit specifically the application of the out-of-state tax credit to county income tax.

Id. at 541-42 , 890 A.2d at 287-88 . We also looked to the Revisor’s Notes related to § 10-703(a), which explained the legislature’s intent that the word “only” indicate that taxpayers were precluded from applying, against the county tax, credit for out-of-state income taxes paid. Id. at 543, 890 A.2d at 288 . Accordingly, we concluded that the State and county income taxes were treated separately under the Maryland income tax scheme and “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).” Id. at 543, 890 A.2d at 288 .

Petitioners’ contention that the State and county income taxes are not part of a single State-imposed income tax scheme rests on the assumption that Blanton overruled our holding in Stem that the county income tax is a part of a State-administered income tax scheme. We do not interpret Blanton to have such an effect. Both Stem and Blanton were concerned primarily with the applicability of the out-of-state tax credit to the county tax, and in both cases, we resolved the issue by resorting to the rules of statutory construction. After our holding in Stem, the General Assembly amended the income tax provisions to provide explicitly that the out-of-state tax credit does not apply to county taxes.

Our holding in Blanton was entirely contingent on the revision of the applicable statutory language and was silent as to the significance of the scheme through which the State and county taxes were administered. We may not infer from this silence the Blanton Court’s intent to overrule the portion of Stem in which we concluded that the county tax was not administered by the local political subdivisions. Accordingly, we conclude that our determination in Stem that the county income tax is part of a State-administered income tax scheme was neither overruled nor undermined by this Court’s holding in Blanton. Further ¹⁴² more, for these same reasons, we affirm the Court of Special Appeals’s conclusion that the county tax levied under T.G. § 10-103 and § 10-106 is a State tax.

As the Tax Court correctly noted, however, whether the county tax is imposed by the local political subdivisions or the State is not determinative of the constitutional issues presented to this Court.

III

The Commerce Clause of the United States Constitution provides Congress with the power to “regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” U.S. Const. art. I, § 8, cl. 3. “Though phrased as a grant of regulatory power to Congress, the [Commerce] 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.” Or. Waste Sys., 511 U.S. at 98 , 114 S.Ct. 1345 . The negative commerce clause, often referred to as the “dormant” Commerce Clause, operates as an “implied limitation on the power of state and local governments to enact laws affecting foreign or interstate commerce.” Bd. of Trs. v. City of Baltimore, 317 Md. 72, 131 , 562 A.2d 720, 749 (1989).

This limit on the authority of state and local governments applies “even when Congress has failed to legislate on the subject.” Okla. Tax Comm’n v. Jefferson Lines, Inc., 514 U.S. 175 , 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 v. Davis, 553 U.S. 328 , 128 S.Ct. 1801 , 170 L.Ed.2d 685 (2008) (internal quotation marks omitted) (quoting New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 273-74 , 108 S.Ct. 1803 , 100 L.Ed.2d 302 (1988)). This interpretive approach represents an effort to “effectuate[ ] the Framers’ purpose to ‘preven[t] a State from retreating into economic isolation or jeopardizing the welfare of the ¹⁴³ Nation as a whole, as it would do if it were free to place burdens on the flow of commerce across its borders that commerce wholly within those borders would not bear.’ ” Fulton, 516 U.S. at 330-31 , 116 S.Ct. 848 (quoting Jefferson Lines, 514 U.S. at 180 , 115 S.Ct. 1331 ). 14 Despite these concerns, the dormant Commerce Clause does not entirely prohibit the states from regulating aspects of interstate commerce. In the context of the taxing power of the several states, the Supreme Court has interpreted the dormant Commerce Clause to permit states to tax interstate commerce so long as “the levy is not discriminatory and is properly apportioned to local activities within the taxing State forming sufficient nexus to support the tax.” Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 285 , 97 S.Ct. 1076 , 51 L.Ed.2d 326 (1977).

In other words, “interstate commerce may be made to ‘pay its way.’ ” Or. Waste Sys., 511 U.S. at ¹⁴⁴ 102, 114 S.Ct. 1345 (quoting Complete Auto, 430 U.S. at 281 , 97 S.Ct. 1076 ). “It was not the purpose of the commerce clause to relieve those engaged in interstate commerce from their just share of state tax burden[s].” Id. (internal quotation marks omitted) (quoting W. Live Stock v. Bureau of Revenue, 303 U.S. 250, 254 , 58 S.Ct. 546 , 82 L.Ed. 823 (1938)). Accordingly, the dormant Commerce Clause has been interpreted to permit the states to impose taxes on “that aspect of interstate commerce to which the [s]tate[s] b[ear] a special relation, and that the [s]tate[s] bestow[] powers, privileges, and benefits sufficient to support a tax.” Complete Auto, 430 U.S. at 286 , 97 S.Ct. 1076 Likewise, the dormant Commerce Clause does not prohibit states from taxing in-state income earned by out-of-state individuals.

See Shaffer v. Carter, 252 U.S. 37, 52-53 , 40 S.Ct. 221 , 64 L.Ed. 445 (1920). The authority to impose such taxes rests in the proposition that [sjtates have general dominion, and, saving as restricted by particular provisions of the Federal Constitution, complete dominion over all persons, property, and business transactions within their borders; they assume and perform the duty of preserving and protecting all such persons, property, and business, and, in consequence, have the power normally pertaining to governments to resort to all reasonable forms of taxation in order to defray the governmental expenses. Id. at 50 , 40 S.Ct. 221 . From these principles the Supreme Court has drawn the conclusion that, just as states may tax residents, states may “levy a duty of like character, and not more onerous in its effect, upon incomes accruing to nonresidents from their property or business within the State, or their occupations carried on therein.” Id. at 52 , 40 S.Ct. 221 (emphasis added).

Regardless of the states’ authority to tax income earned by nonresidents incidental to in-state transactions, facially discriminatory state taxes raise a presumption of per se invalidity. Such laws are subject to the strictest scrutiny, ¹⁴⁵ and the “burden of justification is so heavy that ‘facial discrimination by itself may be a fatal defect.’ ” Or. Waste Sys., 511 U.S. at 101, 114 S.Ct. 1845 (quoting Hughes v. Oklahoma, 441 U.S. 322, 337 , 99 S.Ct. 1727 , 60 L.Ed.2d 250 (1979)). States may overcome this presumption of invalidity, however, by establishing that the facially discriminatory tax “advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.” Id. at 101, 114 S.Ct. 1345 (internal quotation mark omitted) (quoting Limbach, 486 U.S. at 278 , 108 S.Ct. 1803 ).

To determine whether the law in question satisfies this standard, the Supreme Court has adopted the compensatory tax doctrine, under which a facially discriminatory tax survives strict scrutiny if it is the “rough equivalent of an identifiable and ‘substantially similar’ tax on intrastate commerce.” 15 Id. at 103, 114 S.Ct. 1345 . In other words, under the doctrine, a facially discriminatory state law will survive judicial review so long as the law was “designed simply to make interstate commerce bear a burden already borne by intrastate commerce.” Fulton, 516 U.S. at 331 , 116 S.Ct. 848 (internal quotation mark omitted) (quoting Lohman, 511 U.S. at 647 , 114 S.Ct. 1815 ). To repeat, the compensatory tax doctrine consists of three prongs, which to satisfy the state must: (1) “identif[yj ... the [intrastate tax] burden for which the State is attempting to compensate”; (2) show that the tax on interstate commerce “roughly ... approximate^]—but [does] not exceed—the amount of the tax on intrastate commerce”; and (3) demonstrate that “the events on which the interstate and intrastate taxes are imposed Tare] substantially equivalent,” i.e., that they are “sufficiently similar in substance to serve as mutually exclusive prox[ies] for each other.” Fulton, 516 U.S. at 332-33 , 116 S.Ct. 848 (some internal quotation marks omitted) (some alterations in original) (quoting Or. Waste Sys., 511 U.S. at 103, 114 S.Ct. 1345 ). ¹⁴⁶ Because the constitutional flaws of a facially discriminatory tax appear in the language of the statute, analyzing that statute in isolation would reveal little about the compensatory character of the tax.

Accordingly, courts applying the compensatory tax doctrine consider the effect of the facially discriminatory tax as related to the state’s general tax scheme. See Or. Waste Sys., 511 U.S. at 103, 114 S.Ct. 1345 (referring to the validity of a facially discriminatory tax as part of a “compensatory tax scheme ” (emphasis added)); C & A Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383, 402 , 114 S.Ct. 1677 , 128 L.Ed.2d 399 (1994) (O’Connor, J., concurring) (“[T]he critical consideration is the overall effect of the statute on both local and interstate activity.” (internal quotation mark omitted) (quoting Brown-Forman Distillers, Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 579 , 106 S.Ct. 2080 , 90 L.Ed.2d 552 (1986))). A “truly compensatory tax scheme” is such that “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.” Or. Waste Sys., 511 U.S. at 103, 114 S.Ct. 1345 (internal quotation marks omitted) (quoting Henneford v. Silas Mason Co., 300 U.S. 577, 584 , 57 S.Ct. 524 , 81 L.Ed. 814 (1937)). Moreover, “[t]here is no demand in ... [the] Constitution that the State shall put its requirements in any one statute ... [i]t may distribute them as it sees fit, if the result, taken in its totality, is within the State’s constitutional power.” Fulton, 516 U.S. at 332 , 116 S.Ct. 848 (internal quotation marks omitted) (some alterations in original) (quoting Henneford, 300 U.S. at 584 , 57 S.Ct. 524 ). Petitioners argue not only that the SNRT is facially discriminatory but also that the SNRT fails the first prong of the compensatory tax doctrine because the Comptroller has failed to identify the intrastate burden for which the tax compensates.

Petitioners contend that, because the proceeds of the SNRT flow to the General Fund rather than to the localities, we cannot know what costs the SNRT revenues cover and thus the Tax Court incorrectly found that the SNRT compen ¹⁴⁷ sates for “the burden of providing local governmental services, directly or indirectly, to all persons or entities physically situated or doing business within its local borders.” Petitioners further argue that the SNRT does not constitute a compensatory tax because it is a general tax used to provide local services, and the Supreme Court has stated that “permitting 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.’ ” Or. Waste Sys., 511 U.S. at 105 n. 8, 114 S.Ct. 1345 (quoting Gov’t Suppliers Consolidating Servs., Inc. v. Bayh, 975 F.2d 1267 , 1284 (7th Cir.1992)). Moreover, Petitioners suggest that, even though they do not pay county taxes, they pay their fair share of the cost of providing local governmental services because the firm pays real estate and personal property taxes. In response, the Comptroller argues that the SNRT is not facially discriminatory, and, even if it is, the tax is a valid compensatory tax because the SNRT does not tax interstate transactions more heavily than intrastate transactions.

As to the first prong of the compensatory tax doctrine, the Comptroller contends that the SNRT serves a legitimate state interest by equalizing the total income tax burden of State residents, comprised of the State and county income taxes, with the income tax burden of nonresidents. The Comptroller asserts that Petitioners wrongly focus on the distinct distribution methods of the SNRT and county income tax revenues rather than the amount paid. Instead, the Comptroller contends that Fulton requires us to consider whether the total burden on residents and nonresidents is equivalent. Moreover, the Comptroller argues that “appropriations from the State’s general fund also ... benefit local governments, [and] ... nonresidents benefit from these appropriations,” and therefore “it is reasonable to require nonresidents to pay the same combined tax as residents.” ¹⁴⁸ Before addressing the application of the compensatory tax doctrine to the SNRT, we pause to address the Comptroller’s contention that the SNRT is not facially discriminatory.

The Comptroller argues that the SNRT is not facially discriminatory because under the tax a “nonresident is not taxed more heavily” than a resident. The Comptroller, however, is conflating facial discrimination with discriminatory effect. In Oregon Waste Systems, the Supreme Court considered a law that imposed a surcharge upon “solid waste generated out-of-state” but did not apply to solid waste generated in-state. 511 U.S. at 96, 114 S.Ct. 1345 (quotation marks omitted). Moreover the surcharge was three times the fee that applied to the disposal of instate waste.

Id. at 99-100 , 114 S.Ct. 1345 . Despite this express classification based on geographic origin and the disparity between the in-state and out-of-state charges, the Oregon Supreme Court held that the surcharge was not facially discriminatory because the law’s purpose was to compensate the state for “actual costs incurred [by state and local government].” Id. at 97 , 114 S.Ct. 1345 (internal quotation mark omitted). The Supreme Court disagreed. Id.

The Court described the Oregon court’s focus on the statute’s “compensatory aim” as contrary to precedent and clarified that “the purpose of, or justification for, a law has no bearing on whether it is facially discriminatory.” Id. at 100 , 114 S.Ct. 1345 . The surcharge applied in Oregon Waste Systems was three times greater than the charge imposed on in-state waste and thus the law’s discriminatory character was more obvious than in this case, in which the SNRT rate is equal to the “lowest county income tax rate set by any Maryland county.” T.G. § 10-101(b). Yet, the SNRT undeniably singles out nonresidents and imposes upon them a State income tax not applicable to residents and, thereby, discriminates against nonresidents “on the basis of some interstate element.” Boston Stock Exch. v. State Tax Comm’n, 429 U.S. 318 , 332 n. 12, 97 S.Ct. 599 , 50 L.Ed.2d 514 (1977). Even though the Comptroller points out that the SNRT rate is not more than the lowest county income tax rate, we cannot ignore that, on its face, the ¹⁴⁹ SNRT applies solely to nonresidents and thus appears on its face to subject their income to a higher State income tax than that of residents.

Cf. Lohman, 511 U.S. at 646-47 , 114 S.Ct. 1815 (treating as facially discriminatory a Missouri use tax that exempted goods subject to the state’s sales tax even though the tax was purportedly part of a scheme intended to equalize the tax burdens imposed on purchasers of in-state and out-of-state goods). Moreover, we hesitate to accept the Comptroller’s assertion that SNRT is not facially discriminatory on the ground the SNRT rate will never be more than a resident’s county income tax rate because to do so requires the concession that the two taxes are interchangeable. Making such an assumption seems tantamount to concluding that the SNRT and the county tax are “sufficiently similar in substance to serve as mutually exclusive ‘proxfies]’ for each other,” which is part of the analysis required under the compensatory tax doctrine.

Fulton, 516 U.S. at 333 , 116 S.Ct. 848 (internal quotation mark omitted) (alteration in original) (quoting Or. Waste Sys., 511 U.S. at 103, 114 S.Ct. 1345 ). If states were able to escape the doctrine’s scrutiny at this stage by satisfying this single test, even though a statute appeared to be discriminatory on its face, the compensatory tax doctrine’s utility would be limited. Accordingly, we decline the Comptroller’s invitation to adopt such a practice in this case and conclude that the SNRT is a facially discriminatory tax. 16 Whether SNRT violates the Commerce Clause, however, depends on whether the tax merely imposes on interstate commerce a burden already borne by intrastate commerce, and in other words, is a compensatory tax.

The first prong of the compensatory tax doctrine requires the state to “identify the intrastate tax for which it seeks to compensate.” Fulton, 516 U.S. at 334 , 116 S.Ct. 848 . The corollary to this requirement is that the “intrastate tax must ¹⁵⁰ serve some purpose for which the State may otherwise impose a burden on interstate commerce.” Id. In other words, the state must “identify some in-state activity or benefit in order to justify the compensatory levy.” Id. As discussed, it is well-settled that a state possesses the authority to impose taxes on income generated within the state.

Shaffer, 252 U.S. at 50 , 40 S.Ct. 221 . The validity of a state income tax is not compromised merely because that tax applies to residents and nonresidents. As long as the burden the state imposes on nonresidents is not more onerous in effect than that imposed on residents, such a tax remains a legitimate exercise of state power. Id. at 52 , 40 S.Ct. 221 .

The states retain this authority, in part, because income taxes are an effective “method of distributing the burdens of government, favored because ... contributions [are collected] 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.” Id. at 51 , 40 S.Ct. 221 . Consequently, we need not belabor the issue of whether it is within the State’s authority to impose a tax on the income of nonresidents earned in Maryland. As recognized by the Tax Court, any taxpayer, resident or not, earning income in Maryland has availed herself of State services as well as the “services being provided by a Maryland county or by 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.” Further, during the proceedings in that court, “[i]t was conceded that such local benefits do, in fact, accrue both directly and indirectly to nonresidents while they are present or doing business in a jurisdiction.” Thus, the SNRT survives the first prong of the compensatory tax doctrine insofar as it imposes a tax on income earned in Maryland to compensate for services provided to the nonresidents earning that income.

Having established the basis upon which the State may impose the SNRT, we turn to whether the Comptroller ¹⁵¹ has identified a legitimate intrastate tax burden for which the SNRT compensates. The intrastate burden for which the putative compensatory tax serves as a counterpart must be specific and reasonably related to the costs the state seeks to offset with the compensatory tax. See Fulton, 516 U.S. at 335-36 , 116 S.Ct. 848 (holding that a discriminatory tax on out-of-state corporate stock was not compensatory in relation to general in-state taxation); Or. Waste Sys., 511 U.S. at 104-05 , 114 S.Ct. 1345 (holding that a discriminatory tax on out-of-state waste disposal was not compensatory in relation to general in-state taxation); Henneford, 300 U.S. at 584 , 57 S.Ct. 524 (permitting the imposition of a use tax on out-of-state products to complement sales taxes of the same amount on in-state products because both related to the use of property within the state and operated to balance the burden between intrastate and interstate commerce).

The most common example of an intrastate burden for which a state may impose a complementary tax is a sales tax. Lohman, 511 U.S. at 648 , 114 S.Ct. 1815 . Indeed, the Supreme Court has acknowledged that “[a] use tax is generally perceived as a necessary complement to [a] sales tax.” Id. (internal quotation marks omitted) (alteration in original) (quoting Williams v. Vermont, 472 U.S. 14, 24 , 105 S.Ct. 2465 , 86 L.Ed.2d 11 (1985)).

Use taxes are deemed complementary to sales taxes because they serve to ensure that all “tangible property used or consumed in the State [is] subject to a uniform tax burden irrespective of whether it is acquired within the State ... or from without the State.” Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 66 , 83 S.Ct. 1201 , 10 L.Ed.2d 202 (1963). Suggesting that intrastate commerce bears a general burden, not otherwise shared by interstate commerce, is insufficient. See Fulton, 516 U.S. at 335 , 116 S.Ct. at 856 (rejecting state’s contention that a facially discriminatory tax compensated for an intrastate burden funded through general taxation); Or. Waste Sys., 511 U.S. at 104, 114 S.Ct. 1345 .

For example, in Oregon Waste Systems, the Supreme Court rejected Oregon’s argument that a surcharge imposed solely upon waste generated out-of-state compensated for the intrastate funds ¹⁵² allocated to the cost of in-state waste disposal. Id. In reaching that conclusion, the Court noted that the only comparable fee the state applied to the disposal of waste generated in state was approximately one-third of the amount imposed on out-of-state waste and therefore the surcharge was not complementary. Id.

Additionally, the Court disagreed with the state’s contention that the surcharge was complementary to the portion of the costs of in-state waste disposal funded through general taxation. Id. The Court reasoned that to determine whether, and to what extent, funds raised through general taxation funded the disposal costs was too difficult. Id.

In Fulton , the Court also recognized the risk of permitting states to treat “general revenue measures as relevant intrastate burdens for purposes of the compensatory tax doctrine.” 516 U.S. at 335 , 116 S.Ct. 848 . Fulton addressed whether a North Carolina “intangibles tax” violated the Commerce Clause. Id. at 327 , 116 S.Ct. 848 . The intangibles tax applied to the fair market value of corporate stock owned by residents or otherwise having a taxable situs in the state.

Id. at 327-28 , 116 S.Ct. 848 . The tax was offset, however, by a deduction equal to the amount of the corporation’s income subject to taxation in North Carolina and therefore applied only to corporations that earned income not taxable in North Carolina. Id. at 328 , 116 S.Ct. 848 . To justify applying the tax to corporations organized outside North Carolina, the state argued that the tax compensated for the privilege of accessing North Carolina’s capital markets.

Id. at 334-35 , 116 S.Ct. 848 . The state then argued that the corresponding intrastate tax burden through which the state supported its capital markets was the state’s general corporate income tax. Id. at 335 , 116 S.Ct. 848 . The Fulton Court rejected the argument that , a general revenue measure was a relevant intrastate burden under the compensatory tax doctrine because whether intrastate commerce paid through general taxation its share of costs related to maintaining the state’s capital markets was too difficult to determine because the revenues raised through general taxation were not traceable to that particular expense. ¹⁵³ Id.

The Court further rejected the state’s contention that the intangibles tax compensated for the cost of access to North Carolina’s capital markets borne by the intrastate market because the state’s blue sky laws regulated access to its capital markets and imposed a fee for that privilege. Id. at 336 , 116 S.Ct. 848 . Here, the Comptroller submits that the intrastate burden for which the SNRT seeks to compensate is “to equalize the total income tax paid by State residents—the combined State and local components of the State income tax.” More specifically, the Comptroller argues that nonresidents earning income in Maryland benefit from local governmental services but do not pay their fair share of the cost because these services are funded by the county tax, which applies solely to residents. 17 The SNRT is a valid means through which to achieve this goal. Although the Supreme Court has expressed skepticism regarding whether general forms of taxation may serve as relevant intrastate burdens, Fulton, 516 U.S. at 335 , 116 S.Ct. 848 , the limited application of the county income tax and the specific purpose it serves distinguish the county tax from the more general forms of taxation rejected as relevant ¹⁵⁴ intrastate burdens.

Rather, the coupling of the SNRT and the county income tax as offsetting taxes is more akin to the constitutional adoption of a use tax to offset a sales tax. In Lohman , the Supreme Court rejected Missouri’s contention that its uniform use tax upon all goods purchased out-of-state and “stored, used, or consumed within the State,” 511 U.S. at 643, 114 S.Ct. 1815 , was intended to compensate for local sales taxes because the local tax rates varied by jurisdiction and whether the use tax exceeded the applicable local sales tax was a matter of chance, id. at 648-49 , 114 S.Ct. 1815 . The SNRT, however, will always be equal to the lowest county tax in effect, and thus will never exceed the relevant intrastate burden for which it compensates. For these same reasons, the complementary tax scheme at issue in this case is distinguishable from the schemes involving the unconstitutional surcharge in Oregon Waste Systems and the intangibles tax in Fulton .

Unlike the discriminatory surcharge in Oregon Waste Systems, which was three times the amount of the most similar charge applied to the disposal of in-state waste, the SNRT is equivalent to the lowest county tax rate. This similarity bolsters the Comptroller’s argument that the SNRT is meant to compensate for the intrastate burden funded through the county tax system. The county income tax is materially distinguishable from those intrastate burdens identified in Oregon Waste Systems and Fulton . The tax at issue here serves a specific purpose, funding local services, and the amount of funds allocated to this purpose are quantifiable.

Cf. Fulton, 516 U.S. at 334-35 , 116 S.Ct. 848 (holding that funds raised through general taxation were not a relevant intrastate burden to which the state’s discriminatory intangibles tax served as a complement); Or. Waste Sys., 511 U.S. at 104, 114 S.Ct. 1345 (criticizing the state’s argument that the surcharge compensated for costs funded through general taxation because whether those taxes funded waste disposal, and, if so, to what extent, was too difficult to determine). Moreover, the relationship between ¹⁵⁵ the county tax revenues and the local services they fund is much less tenuous than in either of those cases.

Despite the relative simplicity of the scheme through which the State collects funds for local services, i.e., the county tax scheme, Petitioners argue that the SNRT does not compensate for a relevant intrastate burden because they pay their fair share for local services in real estate and personal property taxes. Cf. Fulton, 516 U.S. at 336 , 116 S.Ct. 848 (rejecting North Carolina’s argument that its intangibles tax funded its capital markets because the state charged fees for accessing those markets under its blue sky laws). Petitioners ignore, however, that residents also pay real estate and personal property taxes and, therefore, the payment of real estate and personal property taxes does not compensate for the intrastate burden borne exclusively by residents, i.e., the county tax.

We also reject Petitioners’ contention that the county tax is not a relevant intrastate burden because the county tax revenues, in contrast to the revenues raised by the SNRT, are eventually allocated among the various counties to spend at their discretion. This distinction is not determinative. The common thread of equality running through the cases upholding taxes under the compensatory tax doctrine does not require that the tax identified as the relevant intrastate burden be identical to the compensatory tax, but rather that the in-state and out-of-state interests be treated equally. See Maryland v. Louisiana, 451 U.S. 725, 759 , 101 S.Ct. 2114 , 68 L.Ed.2d 576 (1981) (describing the compensatory tax doctrine as requiring “equality of treatment between local and interstate commerce”).

In this sense, the county tax serves a relevant intrastate burden for which the State may impose a compensatory burden on interstate commerce because, even though the taxes are executed differently, the effect of the compensatory tax scheme is to equalize the burden among residents and nonresidents. See id. at 759-60 , 101 S.Ct. 2114 (reasoning that a Louisiana use tax was not a valid compensatory tax because the tax was part of a statutory scheme under which residents were ultimately taxed less heavily). Indeed, ¹⁵⁶ the majority of nonresidents subject to the SNRT are treated more favorably than their Maryland resident counterparts because the SNRT imposes the lowest county tax rate. We have noted that “[t]here 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.” Henneford, 300 U.S. at 584 , 57 S.Ct. 524 (internal quotation marks omitted) (first alteration not in original) (quoting Gregg Dyeing Co. v. Query, 286 U.S. 472, 480 , 52 S.Ct. 631 , 76 L.Ed. 1232 (1932)). In the context of the compensatory tax doctrine, interpreting this principle to permit states to enact separate taxes as necessary to fund government services but to require those statutes to be equivalent in substance and effect would unnecessarily restrict the states’ regulatory power and undermine the purpose of the compensatory tax doctrine. See id. at 585-88 , 57 S.Ct. 524 (explaining that the purpose of the compensatory tax doctrine is to ensure that states do not impose heavier burdens on interstate commerce but permits imposing taxes that operate differently). As the Supreme Court has noted, “[discrimination, like interstate commerce itself, is a practical conception.

We must deal in this matter, as in others, with substantial distinctions and real injuries.” Gregg, 286 U.S. at 481 , 52 S.Ct. 631 . Thus we will not discount the intrastate burden for which the State seeks to compensate merely because the revenues generated are allocated differently. We agree with the Tax Court’s finding that “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.” Through this process, the State may allocate funds to compensate those counties in need of assistance. Accordingly, we agree with the Court of Special Appeals, and the Tax Court, that the county income tax is the intrastate burden for which the State seeks to compensate through the SNRT. ¹⁵⁷ We turn now to the second prong of the compensatory tax doctrine: whether the State has shown that the tax on interstate commerce roughly approximates the amount of the tax on interstate commerce.

Or. Waste Sys., 511 U.S. at 103, 114 S.Ct. 1345 . Petitioners argue that the SNRT does not approximate the amount of the tax on intrastate commerce because the SNRT does not fund the same expenses as does the county income tax. The Comptroller responds that the proper focus of the compensatory tax doctrine’s second prong is on whether the amounts paid are substantially equivalent, not on how those taxes are allocated.

Thus, the Comptroller contends that, because the SNRT rate is necessarily equal to the lowest county income tax rate, the two amounts are roughly equivalent and the doctrine’s second prong is satisfied. In arguing that a compensatory tax is not a rough approximate of the tax on intrastate commerce if it does not fund the same expenses, Petitioners cite Oregon Waste Systems, in which the Supreme Court rejected Oregon’s argument that its discriminatory surcharge roughly approximated the intrastate costs funded through the general taxation. Id. at 104 , 114 S.Ct. 1345 . In reaching that conclusion, the Court reasoned that determining whether the relevant intrastate and interstate burdens were roughly equivalent was too difficult because the funds generated through general taxation were “lost in general revenues” and the portion allocated to waste disposal could not be quantified.

Id. Likewise, Petitioners point to Fulton , in which the Court noted that “[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.” Fulton, 516 U.S. at 335 , 116 S.Ct. 848 (internal quotation marks omitted) (quoting Or. Waste Sys., 511 U.S. at 105 n. 8, 114 S.Ct. 1345 ). Petitioners’ reliance on these principles, however, is unfounded.

The relationship between the county income tax and providing funds for local services is much less tenuous than ¹⁵⁸ the relationship between the putative corresponding intrastate burden identified in either Oregon Waste Systems or Fulton . In Oregon Waste Systems, the state attempted to justify imposing a surcharge on out-of-state waste disposal by arguing that intrastate commerce paid its fair share through general taxation. In Fulton , the state attempted to justify its discriminatory intangibles tax on out-of-state corporations, by arguing that intrastate commerce paid its fair share through corporate income taxation. Both arguments were unsuccessful.

In Fulton , the Court explained the pitfalls of accepting North Carolina’s argument that its intangibles tax compensated for corporate income tax revenues allocated to funding the state’s capital markets: 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. 516 U.S. at 338 , 116 S.Ct. 848 . Here, the Comptroller argues that the SNRT compensates for costs funded through a specific tax, the county income tax. Unlike the State income tax or other taxes allocated to the General Fund and “lost in general revenues,” the county income tax revenues are apportioned to the counties in accordance with the applicable county rate and the total amount paid by county residents.

As such, the amount of the county income tax that funds local services is more easily quantifiable than the proportion of general income tax revenues dedicated to funding waste disposal in Oregon Waste Systems or of the corporate income tax revenues that supported North Carolina’s capital markets in Fulton . The SNRT is further distinguished from the impermissible discriminatory taxes in those cases because the rate of the SNRT is tied directly to the lowest county tax rate and thus guarantees that the ¹⁵⁹ proportion of the burden imposed on intrastate commerce “represents a burden greater than the one imposed on interstate commerce.” Id. Moreover, unlike more general forms of taxation, the county tax revenues are earmarked for a particular purpose. Because the local municipalities retain the authority to set the county tax rates in accordance with local budgetary needs and the discretion to expend locally the revenues collected, we may reasonably infer that the county income tax revenues are collected to serve a specific purpose-funding local governmental services.

Furthermore, precedent dictates that the practical effect, not the form, of the compensatory tax scheme controls. See, e.g., Lohman, 511 U.S. at 647-49 , 114 S.Ct. 1815 (concluding that a state-imposed use tax intended to compensate for locally imposed sales taxes was discriminatory only in the jurisdictions in which the corresponding local sales tax was less than the use tax). The cases upholding use taxes under the compensatory tax doctrine emphasize that the doctrine requires “equality of treatment between local and interstate commerce.” Maryland v. Louisiana, 451 U.S. at 759 , 101 S.Ct. 2114 . In the context of the dormant Commerce Clause, such “equality of treatment” is necessary to ensure that states do not enact laws favoring local economic interests to the detriment of interstate interests.

That objective is not furthered by striking down a law such as the SNRT on the ground that it is not roughly equivalent to the burden on intrastate commerce, even though the SNRT imposes a tax no greater than the county income tax. See Alaska v. Arctic Maid, 366 U.S. 199, 205 , 81 S.Ct. 929 , 6 L.Ed.2d 227 (1961) (“No ‘iron rule of equality’ between taxes laid by a State on different types of business is necessary.”). The SNRT rate is exactly equivalent to the lowest county income tax rate effective during the relevant tax year, and, consequently, we conclude that the SNRT satisfies the second prong of the compensatory tax doctrine. Turning to the third prong of the doctrine, we consider whether the State has shown that “the events on which the ¹⁶⁰ interstate and intrastate taxes are imposed [are] substantially equivalent.” Fulton, 516 U.S. at 333 , 116 S.Ct. 848 (internal quotation marks omitted) (quoting Or.

Waste, 511 U.S. at 103, 114 S.Ct. 1345 ). Petitioners contend, of course, that the SNRT and the county income tax are not sufficiently similar because the SNRT revenues are distributed to the General Fund and the county tax revenues are apportioned to the counties. Petitioners further argue that the equality of treatment required under this third prong dictates that taxes fall on the same class of taxpayers, which is a condition that cannot be met, because the SNRT is imposed solely on nonresidents. The Comptroller counters that the taxable events are sufficiently equivalent because both taxes are triggered by earning income in Maryland.

As under the second prong, our focus remains not on whether the triggering events are identical, but on whether they are “sufficiently similar in substance” to serve as proxies for each other. Id. (quoting Or. Waste Sys., 511 U.S. at 103, 114 S.Ct. 1345 ).

For example, when considering whether correlative taxes fall upon “substantially equivalent events” for the purposes of the compensatory tax doctrine, the Supreme Court has held that sales and use taxes are sufficiently similar because, even though the taxes are difference in substance, they both tax, essentially, the use and enjoyment of personal property and operate to balance the respective burdens on intrastate and interstate commerce, thereby, putting the parties affected on equal footing. See Henneford, 300 U.S. at 581-84 , 57 S.Ct. 524 . Likewise, the SNRT and the county income tax are imposed on the same event, earning income in Maryland, and operate to ensure that any individual earning income in Maryland is subject to the same income tax burden. As to Petitioners’ contention that administrative differences between a putative compensatory tax and its counterpart preclude the determination that they are substantially equivalent, we find no support for that interpretation of the doctrine.

The Supreme Court has refused to treat as taxes on substantially equivalent events: a Louisiana tax on the first-use of natural gas transported into Louisiana and a sales tax on ¹⁶¹ natural gas produced in state, Armco, Inc. v. Hardesty, 467 U.S. 638, 642-43 , 104 S.Ct. 2620 , 81 L.Ed.2d 540 (1984) (describing Maryland v. Louisiana, 451 U.S. at 758-59 , 101 S.Ct. 2114 ); a West Virginia tax on products sold at wholesale in the state but produced out of state that did not apply to products manufactured in the state and an in-state manufacturing tax, id. at 642, 104 S.Ct. 2620 ; an Alabama tax that applied to a percent of a foreign firm’s capital employed in the state and a tax on 1% of the par value of the stock of domestic firms because the former taxed the foreign corporation’s decision to do business in the state and the later taxed the domestic firm’s ownership of property within the state, S. Cent. Bell Tel. Co. v. Alabama, 526 U.S. 160, 170 , 119 S.Ct. 1180 , 143 L.Ed.2d 258 (1999); as already discussed, an Oregon tax on disposal of out-of-state waste and a tax on earning income, Or. Waste Sys., 511 U.S. at 105 , 114 S.Ct. 1345 ; and an intangibles tax on corporations doing business outside North Carolina and a tax on resident shareholders because the taxes imposed burdens on different classes of taxpayers, Fulton, 516 U.S. at 340-43 , 116 S.Ct. 848 .

Administrative differences, meaning methods of collection and distribution, however, were not the determinative factor in those cases. Just as in the sales/use tax cases, the Court focused, rather, on whether the taxes were quantitatively equal and whether they functioned to enable intrastate and interstate commerce to compete on a level playing field by taxing similarly situated taxpayers. Id. at 340-41 , 116 S.Ct. 848 (emphasizing that a true compensatory tax regime permits a court to make “a finding of combined neutrality on interstate competition” and that the incidence of the taxes at issue must fall upon taxpayers within the same class). We therefore decline to impose an additional requirement of administrative equivalence in this case.

Contrary to Petitioners’ assertions, taxes that fall upon differently described taxpayers do not necessarily fall upon dissimilarly situated taxpayers. This contention is undermined by the numerous sales/use tax regimes that have been upheld under the compensatory tax doctrine. The statutes ¹⁶² enacting use taxes necessarily describe the events and persons upon which the tax falls differently from the events and persons upon which sales taxes are imposed. Use taxes are imposed on persons who purchase goods out-of-state where those goods were not subject to a sales tax, and sales taxes are imposed on persons who purchase goods in-state.

The circumstances giving rise to the need for such a compensatory tax scheme require that the statutes describe differently the persons subject to each tax. Were the two taxes imposed on identical taxpayers, the imbalance between intrastate and interstate commerce would not be corrected. See Henneford, 300 U.S. at 581-84 , 57 S.Ct. 524 . Likewise, the SNRT and the county income tax necessarily describe differently the taxpayers subject to each levy.

The SNRT falls upon taxpayers subject to the State income tax but not the county income tax, which effectively imposes a tax on anyone who earns taxable income in Maryland but who is not a resident of a Maryland county. See T.G. § 10-102 (“[A] tax is imposed on the Maryland taxable income of each individual.... ”). The county income tax is imposed “on the Maryland taxable income” of taxpayers domiciled in a Maryland county or Baltimore City. T.G. § 10-103(a); see T.G. § 1-101(f) (defining “county” as “a county of the State and, unless expressly provided otherwise, Baltimore City”).

The taxable events prescribed under both levies are the same—earning taxable income in Maryland. The taxpayers are necessarily described differently, however, to equalize the burden imposed on the taxable income of taxpayers who reside in a Maryland county or Baltimore City. By imposing a tax on those taxpayers who earn taxable income in Maryland but escape the county income tax, the SNRT ensures that all individuals competing in Maryland’s marketplace compete on equal footing. The compensatory tax doctrine is intended to permit exactly this.

We therefore conclude that the SNRT and the county income tax fall upon substantially equivalent events. Accordingly, we hold that the SNRT satisfies the compensatory tax doctrine and, consequently, does not violate ¹⁶³ the dormant Commerce Clause. Our inquiry, however, is far from complete. We must now consider whether the SNRT violates the Equal Protection Clause of the Fourteenth Amendment of the United States Constitution.

IV

The Equal Protection Clause provides that “no State shall make or enforce any law which shall ... deny to any person within its jurisdiction the equal protection of the laws.” U.S. Const. amend.

XIV

Yet, in the context of “internal taxation schemes[,] ‘the States have large leeway in making classifications and drawing lines which in their judgment produce reasonable systems of taxation.’” Williams v. Vermont, 472 U.S. 14, 22 , 105 S.Ct. 2465 , 86 L.Ed.2d 11 (1985) (quoting Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 359 , 93 S.Ct. 1001 , 35 L.Ed.2d 351 (1973)). “Unless a classification trammels fundamental personal rights or is drawn upon inherently suspect distinctions such as race, religion, or alienage, [Supreme Court] decisions presume the constitutionality of the statutory discriminations and require only that the classification challenged be rationally related to a legitimate state interest.” City of New Orleans v. Dukes, 427 U.S. 297, 303 , 96 S.Ct. 2513 , 49 L.Ed.2d 511 (1976); see also Lehnhausen, 410 U.S. at 359 , 93 S.Ct. 1001 (“The Equal Protection Clause does not mean that a State may not draw lines that treat one class of individuals or entities differently from the others. The test is whether the difference in treatment is an invidious discrimination.”). In other words, “[i]f the classification is not purely arbitrary and has a rational basis, the statute does not violate the Equal Protection Clause.” Governor of Md. v. Exxon Corp., 279 Md. 410, 439 , 370 A.2d 1102, 1118 (1977) (citing McGowan v. Maryland, 366 U.S. 420, 425-428 , 81 S.Ct. 1101 , 6 L.Ed.2d 393 (1961)). Moreover, “[t]he burden is on the one attacking the legislative arrangement to negative every conceivable basis which might support it.” Lehnhausen, 410 U.S. at 364 , 93 S.Ct. 1001 (internal quotation marks omitted) (quoting Madden v. Kentucky, 309 U.S. 83, 88 , 60 S.Ct. 406 , 84 L.Ed. 590 (1940)). ¹⁶⁴ Petitioners argue that the SNRT violates the Equal Protection Clause because the tax does not equalize the income tax burdens borne by residents and nonresidents, but rather subjects nonresidents to a State income tax rate 25% higher than that applicable to residents, and thus the discriminatory tax has no rational basis.

The Comptroller, not surprisingly, disagrees and argues that, because the total amount of income tax paid by nonresidents does not exceed the total amount of income tax paid by residents, the SNRT does not violate the Equal Protection Clause. Even assuming arguendo that the SNRT imposes a higher State income tax on nonresidents than is imposed on residents, an argument with which we have dispensed, Petitioners fail to overcome the presumption of constitutionality that bolsters state tax legislation. See id. (“There is a presumption of constitutionality which can be overcome ‘only by the most explicit demonstration that a classification is hostile and oppressive discrimination against particular persons and classes.’” (quoting Madden, 309 U.S. at 88 , 60 S.Ct. 406 )).

The Equal Protection Clause “imposes no iron rule of equality, prohibiting the flexibility and variety that are appropriate to reasonable schemes of state taxation.” Id. at 359, 93 S.Ct. 1001 (quoting Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. 522, 526 , 79 S.Ct. 437 , 3 L.Ed.2d 480 (1959)). States, when adopting tax regimes, are “not required to resort to close distinctions or to maintain a precise, scientific uniformity with reference to composition, use or value.” Bowers, 358 U.S. at 527 , 79 S.Ct. 437 . Instead, our analysis considers whether the distinction present in the law is supported by any rational basis, and we are not to assume that a law was enacted for reasons other than those that are rational. Lehnhausen, 410 U.S. at 364-65 , 93 S.Ct. 1001 (“[Cjourts cannot assume that [the Legislature’s] action is capricious, or that, with its informed acquaintance with local conditions to which the legislation is to be applied, it was not aware of facts which afford reasonable basis for its action.” (quoting Carmichael v. S. Coal & Coke Co., 301 U.S. 495, 510 , 57 S.Ct. 868 , 81 L.Ed. 1245 (1937))). “The fact that a statute discriminates in favor of a ¹⁶⁵ certain class does not make it arbitrary, if the discrimination is founded upon a reasonable distinction----” State Bd. of Tax Comm’rs v. Jackson, 283 U.S. 527, 537 , 51 S.Ct. 540 , 75 L.Ed. 1248 (1931).

The Tax Court ruled that the SNRT does not violate the Equal Protection Clause because the distinction made by the tax is supported by a rational basis. The court reasoned that non-residents earning income in Maryland benefit from local services and “[i]t seems perfectly reasonable ... for the State to seek compensation for these services from nonresidents through the tax system.” Specifically, the Tax Court determined that “§ 10-106.1 serves a rational purpose to create parity in the income tax burdens between Maryland residents and non-residents.” That court further explained that the discrimination was not impermissible because “[tjhere 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 ... equal protection accorded to everyone.” In other words, the Tax Court determined, not only that the SNRT serves a rational purpose, but also that the tax’s distinction between nonresidents and residents has a rational basis. We agree. We infer from the foregoing analysis of the Tax Court that it correctly reasoned that the SNRT reasonably distinguishes between residents and nonresidents because residents are subject to a county income tax to fund the local services from which they benefit and nonresidents are subject to no such tax.

Moreover, the SNRT’s distinction between residents and nonresidents is not made solely by reason of the state in which the nonresident taxpayer is domiciled, but rather is made because the system through which the State funds local services imposes taxes according to a person’s domicile. See Bowers, 358 U.S. at 528-30 , 79 S.Ct. 437 (explaining that a tax that differentiates between taxpayers based on place of residence does not violate the Equal Protection Clause so long as other circumstances justify distinguishing between two classifications of taxpayers). ¹⁶⁶ Moreover, even if nonresident taxpayers contribute more in taxes to the General Fund, the total amount contributed by nonresidents and residents to funding the costs of providing State and local governmental services is the same. See St. Louis Sw. Ry.

Co. v. Arkansas, 235 U.S. 350, 362 , 35 S.Ct. 99 , 59 L.Ed. 265 (1914) (“[W]hen the question is whether a tax imposed by a State deprives a party of rights secured by the Federal Constitution!,] ... [w]e must regard the substance, rather than the form, and the controlling test is to be found in the operation and effect of the law as applied and enforced by the State.”). Thus, nonresidents and residents who earn taxable income in Maryland are treated equally even though the laws distinguish between them. See Caskey Baking Co. v. Virginia, 313 U.S. 117 , 61 S.Ct. 881 , 85 L.Ed. 1223 (1941) (“Classification is not discrimination. It is enough that those in the same class are treated with equality.”).

To bolster their contention that the classification made in the SNRT is not supported by any rational basis, Petitioners direct us to Williams , the only case in which the Supreme Court struck down a state tax on the basis of an Equal Protection Clause violation. In that case, Vermont imposed a use tax on cars purchased outside the state but registered in Vermont. 472 U.S. at 15 , 105 S.Ct. 2465 . Residents who had purchased a car in Vermont, however, were exempt from the use tax if they had paid a Vermont sales tax. Id.

Residents were also exempt from the use tax if they had paid an out-of-state sales tax that exceeded amount of the Vermont use tax. Id. The same credit, however, did not apply to registrants who purchased a car outside of Vermont before becoming residents of that state. Id. at 15-16 , 105 S.Ct. 2465 .

The Court concluded that the use tax violated the Equal Protection Clause because the tax served “no legitimate purpose” furthered by the discriminatory exemption and “residence at the time of purchase [was] a wholly arbitrary basis on which to distinguish among present Vermont registrants.” Id. at 23 , 105 S.Ct. 2465 . The Court reasoned that “[t]he purposes of the statute would be identically served, and with an identical burden,” if the tax applied to all residents who had purchased ¹⁶⁷ a car out of state and registered that car in Vermont, regardless of whether the car had been used outside the state before it was registered there. Id. at 24 , 105 S.Ct. 2465 . Petitioners’ reliance on Williams ignores that the decision was based on the Court’s conclusion that “appellants have not been ‘accorded equal treatment, and the inequality is not because of the slightest difference in [Vermont’s] relation to the decisive transaction, but solely because of the[ir] different residence’ ” at the time of the transaction.

Id. at 24 , 105 S.Ct. 2465 (quoting Wheeling Steel Corp. v. Glander, 337 U.S. 562, 572 , 69 S.Ct. 1291 , 93 L.Ed. 1544 (1949)). In other words, Vermont denied an exemption to new residents registering a car there because they had purchased the car out of state before they became Vermont residents, regardless of whether they had paid a corresponding sales tax, and the state could not rationally explain the distinction. Here, however, nonresidents are taxed, not because they are nonresidents earning income in Maryland, but because the tax scheme through which the State funds local services imposes taxes according to the county in which the taxpayer is domiciled and nonresidents will otherwise fall outside the scope of that scheme. Moreover, unlike the Vermont residents who were exempt from the use tax if they had paid an out-of-state sales tax of equal value, Maryland residents do not escape liability because they are subject to the county income tax of at least an equal rate.

Prohibiting the State from collecting revenues to fund the local services that benefit both nonresidents and residents only because the State has employed this two-tiered tax scheme would result in a windfall to nonresidents. Furthermore, such a prohibition likely would require the State to adopt a new tax scheme, which, given the effectiveness of the current system, would be nothing more than a wasteful substitute. As we have already explained, the Equal Protection Clause does not mandate that the State create a perfect tax scheme, merely a reasonable one. For this and the other reasons discussed, we hold that the SNRT does not violate the Equal Protection Clause. ¹⁶⁸ V. The Privileges and Immunities Clause of Article IV of the United States Constitution provides: “The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.” U.S. Const. art.

IV, § 2, cl. 1. The purpose of this provision is to “plac[e] the citizens of each State upon the same footing with citizens of other States, so far as the advantages resulting from citizenship in those States are concerned.” Lunding v. N.Y. Tax Appeals Tribunal, 522 U.S. 287, 296 , 118 S.Ct. 766 , 139 L.Ed.2d 717 (1998) (quoting Paul v. Virginia, 75 U.S. (8 Wall.) 168, 180 , 19 L.Ed. 357 (1869)). To that end, “it was long ago decided that one of the privileges which the clause guarantees to citizens of State A is that of doing business in State B on terms of substantial equality with the citizens of that State.” Toomer v. Witsell, 334 U.S. 385, 396 , 68 S.Ct. 1156 , 92 L.Ed. 1460 (1948). Doing business on terms of substantial equality includes the right not to be subjected, “in property or person[,] to taxes more onerous than the citizens of the latter State are subjected to.” Lunding, 522 U.S. at 296 , 118 S.Ct. 766 (internal quotation mark omitted) (quoting Shaffer, 252 U.S. at 56 , 40 S.Ct. 221 ); see also Travis v. Yale & Towne Mfg.

Co., 252 U.S. 60, 78 , 40 S.Ct. 228 , 64 L.Ed. 460 (1920) (explaining that the Privileges and Immunities Clause “plainly and unmistakably secures and protects the right of a citizen of one State ... to be exempt from any higher taxes or excises than are imposed by the State upon its own citizens” (internal quotation mark omitted) (quoting Ward v. Maryland, 79 U.S. (12 Wall.) 418, 430 , 20 L.Ed. 449 (1870))). Petitioners argue that, “[i]f the constitutionality of the SNRT is upheld, nothing will prevent other states from enacting similar provisions, imposing additional taxes on Maryland residents, that will shift income tax revenues away from Maryland in the form of credits for taxes paid to those other states.” Petitioners suggest that such an outcome is inconsistent with the Privileges and Immunities Clause and, therefore, the SNRT must fail. Petitioners further contend that the tax should fail because, as they have argued throughout, the ¹⁶⁹ SNRT imposes a higher State income tax on nonresidents than is imposed on residents. The Comptroller responds that Maryland’s tax scheme, which necessitates and implements the SNRT, is “wholly different” from any tax scheme that the Supreme Court has held to be in violation of the Privileges and Immunities Clause because, under Maryland’s income tax scheme, nonresidents pay no more than residents.

The Comptroller further argues that the State’s tax scheme is permissible because it treats residents and nonresidents equally without relying on credits or deductions available in the nonresident’s home state to create this balance. Before addressing Petitioners’ fear that permitting Maryland to impose the SNRT on nonresidents will instigate a “tax war” among the states, we dispense with their argument that the SNRT impermissibly taxes nonresidents at a higher rate than residents. We have indicated that the Privileges and Immunities Clause does not prohibit the states from taxing nonresidents, but rather permits the states to impose taxes on nonresidents as long as those taxes are “not more onerous in effect than those imposed under like circumstances upon citizens of the ... State.” Lunding, 522 U.S. at 297 , 118 S.Ct. 766 (internal quotation mark omitted) (quoting Shaffer, 252 U.S. at 53 , 40 S.Ct. 221 ).

Yet, even under the Privileges and Immunities Clause, state legislatures retain, “in taxation, even more than in other fields, ... the greatest freedom in classification.” Austin v. New Hampshire, 420 U.S. 656, 661 , 95 S.Ct. 1191 , 43 L.Ed.2d 530 (1975) (internal quotation marks omitted) (quoting Madden, 309 U.S. at 88 , 60 S.Ct. 406 ). Despite this pragmatic approach to the Privileges and Immunities Clause, the states do not have carte blanche to adopt taxes that, based solely on geographical distinctions, distinguish between resident and nonresident taxpayers. In such cases, the standard of review is “substantially more rigorous than that applied to state tax distinctions among ... forms of business organizations or different trades and professions.” Id. at 663, 95 S.Ct. 1191 . To justify a tax that distinguishes between residents and nonresidents, a state ¹⁷⁰ must demonstrate that “(i) there is a substantial reason for the difference in treatment; and (ii) the discrimination practiced against nonresidents bears a substantial relationship to the State’s objective.” Lunding, 522 U.S. at 298 , 118 S.Ct. 766 (internal quotation marks omitted) (quoting Supreme Court of N.H. v. Piper, 470 U.S. 274, 284 , 105 S.Ct. 1272 , 84 L.Ed.2d 205 (1985)).

Generally, the Supreme Court has interpreted this test to require the state to demonstrate that, despite the discriminatory tendency of the tax at issue, the tax results in “substantial equality of treatment for the citizens of the taxing State and nonresident taxpayers.” Austin, 420 U.S. at 665 , 95 S.Ct. 1191 ; see also Travellers’ Ins. Co. v. Connecticut, 185 U.S. 364, 372 , 22 S.Ct. 673 , 46 L.Ed. 949 (1902) (“The object should be to place the burden so that it will bear as nearly as possible equally upon all.”). To determine whether the law in question effectuates the requisite equal treatment, we do not examine merely the form of the law in question but instead, just as under the Equal Protection Clause, we consider whether the practical operation and effect of the challenged tax imposes on nonresidents a burden more onerous than that imposed on residents. Lunding, 522 U.S. at 297 , 118 S.Ct. 766 (“[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.” (internal quotation marks omitted) (first alteration not in original) (quoting Shaffer, 252 U.S. at 55 , 40 S.Ct. 221 )); see also Shaffer, 252 U.S. at 56 , 40 S.Ct. 221 (rejecting, as “paying too much regard to theoretical distinctions and too little to the practical effect and operation of the respective taxes as levied,” a challenge to an Oklahoma tax on nonresident property and business within the state because residents paid a sufficiently equivalent income tax).

The Comptroller proffers that the SNRT permissibly distinguishes between residents and nonresidents because the tax is offset by the county income taxes imposed on State residents. ¹⁷¹ The Tax Court gave credence to the Comptroller’s justification, finding that the SNRT operates to “equalize the income tax burden between residents and non-residents, and that nonresidents will not pay more than residents who are also subject to a county tax.” We agree that the discriminatory treatment evident on the face of the statute reaches no farther than the statute’s text. We have explained throughout this opinion that the SNRT’s effect on nonresidents is no more onerous than the comparable county income taxes paid by residents. The total tax on the Maryland taxable income of nonresidents is no higher than the total tax on the Maryland taxable income of residents. With regard to whether the distinction between residents and nonresidents “bears a substantial relationship to the State’s objective,” which is to equalize the tax burden on nonresidents and residents, we again agree with the Tax Court.

That court determined that the State may seek compensation for the local governmental services enjoyed by nonresidents and, to capture those revenues under Maryland’s current tax scheme, the State required a separate tax not tied to the county in which those services were provided. Admittedly, the taxes operate differently and are apportioned to different governmental entities, State and local. Nevertheless, those