Gardella v. Comptroller of Maryland

Prescott, J., delivered the opinion of the Court. The appellants in this case are husband and wife who filed joint income tax returns for the taxable years involved, 1950, 1951 and 1952. For these years, the appellant Wallis H. Gardella, was a partner in an unincorporated business known as “The Shade Shop” in the District of Columbia. Apparently, there was at least one other partner in the business.

The Shade Shop had a place of business within the District and conducted its business entirely from that location. For the years involved, The Shade Shop was liable and paid the District of Columbia Unincorporated Business Franchise Tax provided for in Sections 47-1574 to 47-1574e of the District of Columbia Code. For the years 1950, 1951 and 1952, the appellants, who were residents of the State of Maryland, filed their Maryland income tax returns, reporting total income from The Shade ³ Shop, in computing gross income. From the gross income received from The Shade Shop, the appellants first deducted! certain personal business expenses and then deducted the amount of income which was taxable under the District of Columbia Unincorporated Business Franchise Tax.

The effect of this deduction was to allow the appellants a credit against the Maryland tax to the extent that Maryland would tax the same income which was subject to the District of Columbia Unincorporated Business Franchise Tax. The Comptroller disallowed this credit, and was affirmed by the State Tax Commission. On appeal to the Baltimore City Court, the State Tax Commission was in turn affirmed, and from that decision the appellants have appealed. There is no issue in this case as to the amount of the credit, if it be allowed, but only as to whether the appellants are entitled to the credit claimed.

The sole question involved is whether or not the District of Columbia Unincorporated Business Franchise Tax is an “income tax” upon part of the “net income” of appellants within the meaning of Art. 81, Sec. 286 of the Maryland Code (1951) providing a credit against Maryland income tax for “income tax” upon “net income” due to another State? Sec. 286 of Art. 81 states, in part, as follows: “(Credit Against Tax Allowed Residents.) Whenever a resident individual of this State has become liable for income tax to another State upon such part of his net income for the taxable year as is properly subject to taxation in such State, the amount of income tax payable by him under this sub-title shall be reduced by the amount of the income tax so paid by him to such other State upon his producing to the Comptroller satisfactory evidence of the fact of such payment * * *.” The District of Columbia Unincorporated Business Franchise Tax was, in substance, enacted in its present form in 1947. It is included in the District of Columbia Code and reads, in part, as follows: ⁴ “Par. 47-1580. Purpose of article.

It is the purpose of this article to impose (1) an income tax upon the entire net income of every resident and every resident estate and trust, and (2) a franchise tax upon every corporation and unincorporated business for the privilege of carrying on or engaging in any trade or business within the District and of receiving such other income as is derived from sources within the District. * * *” “Par. 47-1574b. Imposition and rate of tax. For the privilege of carrying on or engaging in any trade or business within the District and of receiving income from